Residential Real Estate and Recession Resistance

Wally Smith:

…we’re certainly watching the stock market have a tremendous overreaction.

And I call it an overreaction because if you think about it this way, think about a gasoline tank. A big storage tank that has thousands and thousands of gallons in it and people are driving past it and they’re on their summer breaks and whatever. The value of that gasoline is there. Now, if the demand stops and now nobody’s buying it, then the price is going to drop but the value is still there. So, unless something happens and that gasoline gets burnt up, knowing that the demand will come back at some point the value is still there. And so, there are people living in multifamily apartment buildings all around the country or single family homes. They need a place to live and that place provides value. So, how do you address that as far as whether you feel this is being an overreaction as far as the values actually dropping or it being a knee jerk?

Rich Arnitz:
I view it as a knee jerk reaction. I always look at real estate, it’s not recession proof, there’s really nothing out there that recession proof. But multifamily provides that value, people need a place to live. So, it’s recession resistant because if it’s important to note that when you drive by, we talked a little bit about shopping centers and you’re driving by shopping centers and the parking lot’s empty. You could drive by every single multifamily apartment complex, take a look at the apartment complex and the parking and the parking lot’s full, right? So, those spaces are full.

Wally Smith:
By order of the state, yeah.

Rich Arnitz:
That’s exactly it and so, what you’re finding right now is the average occupancy for multifamily across different sectors across the United States is in the high 90s. And so, that is an entry level for a lot of people that can’t afford to get into housing and that demand will always be there, and so that is a good asset to own it. It has a tendency to being recession resistant, meaning that you’re going to be paying your rent so that you have a place to sleep before you go out on and you may have to give up the vacation. You might have to give up your second car, you may not be able to get those new pair of blue jeans, but you’re going to be paying your rent so you have a roof over your head.