Recession, and Securing Investments

From inflation to market trends, a look into five ways in how to prepare and survive a recession as a real estate investor.
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The one constant investors can count on in any market is that conditions will change. That’s true even for the real estate market, which tends to be more stable than stocks. Despite multiple years of a seller’s market and a growing economy, the United States is now expected to enter into a recession.

What’s an investor to do? Short of consulting a crystal ball, investors can plan ahead by following trends, consulting real estate reports, and checking local listings for signs that the market might be cooling in your area.

With careful planning and adaptability, a savvy real estate investor can continue to build their wealth even during a downturn in the market. Here are five ways to prepare for — and survive — a recession as a real estate investor. 

Revamp Rental Properties

During a recession, particularly when the housing market takes a downturn, it’s important to think outside of the box when it comes to earning income from rental properties. Make your property stand out from others on the market to ensure your property keeps tenants instead of remaining empty.

You can make your property stand out by offering amenities that are appealing to renters, such as free parking and updated appliances. Do some research in your local market to find out what specific amenities will be most appealing. As you do, be sure to strike a healthy balance with your budget — you don’t want to overspend on your expenses in the pursuit of making your property appealing.

Building personal relationships with tenants can also go a long way toward building loyalty. Establish an open line of communication in which they know they can reach out to you and receive a quick response. You can also build trust by being open about changes in the lease and encouraging tenants to have input when forming the agreement. 

Invest in More Low-Risk Assets

When faced with a recession, investors can shift their focus to low-risk investment opportunities, such as Real Estate Investment Trusts (REITs). REITs are companies that own and manage multiple income-producing properties, such as shopping malls, industrial parks, and apartments.

Similar to the stock market, as an investor you can buy shares of these portfolios in exchange for proportional dividends paid out based on what all of the properties earn. REITs offer investors stability by having multiple assets, reducing the dependency on income earned from a single property. At the same time, they’re a passive investment, requiring little effort or input from investors.

Real estate offers various investment opportunities that go beyond rental properties and flipping homes. By diversifying your real estate holdings to reflect this variety, you can build a stronger portfolio that can withstand a recession.

Have More Liquid Funds Available

Going into a recession with more liquid funds available — that is money you have readily available — can be a benefit to real estate investors. A downturn in the real estate market presents a prime opportunity for investors to purchase new properties or buy into investment properties at a low price.

At the early signs of a change in the economy, it may be a good idea to divest some of your less-liquid streams of income, such as selling a rental property. Know the best websites available for buying and selling homes in advance so you’re ready to sell when the time comes. 

Diversify your Real Estate Portfolio

Real estate offers various investment opportunities that go beyond rental properties and flipping homes. By diversifying your real estate holdings to reflect this variety, you can build a stronger portfolio that can withstand a recession.

Rather than keep all of your investments in traditional real estate transactions, you can look for alternative options. This could include buying shares in commercial parks or a unit in a real estate cooperative, which can include parcels of land, single-family homes, or multi-family units. By partnering with other owners and investors, you can reduce the amount or risk you take on, which gives extra peace of mind in a cool market.

Focus on Long-Term Planning

Whether a market is in good or poor health, it’s important to remember that investing is a long game. While you should also incorporate short-term goals, make sure to keep your focus on long-term financial outcomes as well.

One way to strike a balance is to set multiple goals for differing lengths of time, such as monthly, quarterly, annually, and longer. Include plans and goals for both 10 and even 20 years into the future. Once you establish your list of goals, including how much you would like to have saved or invested by year, create a breakdown of projects and specific tasks that can be accomplished to help you achieve those goals.

While making these goals, consider possible hiccups that could get in the way, specifically related to a recession. For example, if you have a rental property, create projections of what would happen if your tenant was late in rent by 30 days, 60 days, or 90 days. Look at how that would impact your overall investment, and then identify ways to keep that from happening, such as creating a payment plan with your tenant to help you recover costs more quickly.

 

Screen Shot 2021 12 28 At 113128 AmLuke Babich is the Co-Founder of Clever Real Estate, a real estate education platform committed to helping home buyers, sellers, and investors make smarter financial decisions. Luke is a licensed real estate agent in the State of Missouri and his research and insights have been featured on BiggerPockets, Inman, the L.A. Times, and more.

Categories: Industry Trends, Real Estate