Recession and Real Estate

Image of Mark TwainAuthor Mark Twain once said, “Buy land. They’re not making it anymore.” There is a lot of wisdom and truth in that humorous statement by the renowned American writer. The middle of a recession is one of the best times to invest in real estate. Why is that?

Financial advisors tell us that real estate has many advantages over other kinds of investments. It is less volatile than stocks. It offers a better return than bonds and, as a result, provides a more stable income. The worst-case scenario? You have a place to live. Of course, that is not true of every property in every location but, if you study the market and make a sound investment, parts of the real estate sector can offer insulation against economic downturns like a recession.

Aerial view of a Costa Rica luxury home

When you study a real estate market that interests you, you may find prices have gone down because some property owners were unprepared for the recession and need to liquidate some assets. It is also possible that prices are steady but sellers are more willing to negotiate. Deep discounts and “fire sales” may give you an opportunity to pick up a property at a rock-bottom price. When there is a true fire sale, that’s the time to invest. If you start over thinking it, someone else will get in before you. Don’t think of it as taking advantage of another’s misfortune. Think of it as an opportunity to help someone get out from under a financial burden and put cash in their pocket!

Recessions cause Fire Sales in Costa Rica

Interest rates in the United States are at historic lows and expected to remain low for some time. So, credit that was not previously available may now be offered through your lending institution. Here in Costa Rica most, if not all, banks do not offer financing to foreigners. Your best option is to bring the financing with you.

Trend line going down, indicating recession

If you invest in real estate during a recession, as the economy rebounds your property will increase in value as buyers feel more confident to spend money. How long will the current recession last? The fact this economic downturn results from the COVID-19 pandemic rather than a financial crisis of another sort makes it unique and difficult to predict. This is uncharted territory for the financial industry. Most business leaders and financial experts believe it will take many months—or even years—for the economy to recover, and there may be an extended period of virtually no growth before it rises again. Unfortunately, only hindsight is 20/20, but what we know is that real estate prices are lower at the bottom of a recession. As mentioned, it is important not to assume any property purchase is a slam-dunk “nothing-but-net”. You should consult local real estate experts and study the market thoroughly. As in most places, real estate value is based on three things: location, location, location. This is especially true in Costa Rica. So, it is important to consult local realtors about which areas are likely to appreciate in value.

Link to properties in Costa RicaPrices for real estate in Costa Rica tanked in 2009-10 following the crisis in the United States. But prices are steadily rising again and have a long record of growth. You may come across an opportunity to “flip” a property, or you could hang onto it to realize its long-term potential. Investing in a rental property during a recession could give you a vacation home that pays for itself when you are not there. Win, win! The Playas del Coco and Playa Hermosa communities are home to several property management companies that can ease your worries about renting and caring for your property while you are away. When you reach retirement age, you can live in a home that has paid for itself by the time you retire, and give you a place in paradise to enjoy your “golden years.”

Recession and real estate may seem like strange bedfellows, but they can be “a match made in heaven” in Costa Rica!

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