Recessions are temporary. But learning how to build a successful real estate investment portfolio under any circumstances will give you an edge in the market. Even if an industry takes a nosedive, those who know how to diversify and research the market will come out on top. Here are his seven ways to survive an economic downturn and unexpected housing impacts.
1. Diversification of property types
A survey of single-family real estate investors predicts 53% growth in 2024. Interest rates may be slightly higher, but there is more inventory and it may be easier to secure a rental property.
What does this mean for real estate investors? They can more easily diversify their properties by taking advantage of multi-tenant buildings, single-family homes, and commercial streets.
Storage units can also be a popular choice for those looking to expand their leasing options without having to worry about maintaining a living space. Storage facilities tend to be more recession resistant than other investment properties.
2. Build positive cash flow
It’s easy to become overleveraged, with more money going out than coming in, so it’s important to look for properties with high expectations.
High liquidity means that the owner can sell the property easily and quickly without incurring a loss. Regardless of the type of property, it’s best to look for favorable market conditions. For example, buyers should focus on homes in neighborhoods with known locations and schools. Smaller units may be attractive to first-time homebuyers.
Additionally, you should consider short-term cash opportunities, such as rentals with short lease terms. It’s like renting a hotel to a businessman, a traveling nurse, or a family transitioning to new construction.
3. Understand your financing options
Knowing the regulations surrounding different investment financing options can help investors ensure their purchase. In a recession, alternative financing strategies for securing construction investments can make or break your success.
Leveraging private funds, investors, and assets already in your portfolio are viable ways to move towards your goals.
4. Research stability
Before purchasing a property, buyers should research the stability of the area, including job growth, future prospects, property values ​​and tenant stability.
When purchasing an apartment complex, prospective home buyers should ask for records of how often renters come and go. Advertising, background checks, property preparation, and other costs can add up quickly, so investors need to look for properties that have staying power. Utilities, property taxes, and ongoing maintenance are other costs to keep in mind.
The current state of rental rates in a particular area determines whether the earning potential remains stable over time. Finally, people need to be aware of economic indicators when making time-saving decisions. If costs suddenly rise, investors may end up paying more for the property than the market will bear. As a rule of thumb, buyers should buy low and sell high.
Tenant credit analysis is critical to maintaining stable cash flow, especially during economically difficult times.
5. See local amenities
Technology and development news can impact an area. For example, the availability of high-speed cable Internet in a neighborhood may make it more desirable for young working families. Good internet service is an essential part of modern life.
Landlords need to stay on top of the latest news on everything from new factories to rising crime rates. While manufacturing clusters can attract new families to an area and drive up rents, factory closures can have the opposite effect.
The more an investor knows about a location, the more informed decisions they can make. Investors should be wary of over-leveraged investments in potentially problematic areas. Diversification involves a mix of property types and locations. Even if things go downhill, at least he has one investment.
6. Refinance to a lower interest rate
During a recession, the Federal Reserve may lower interest rates to encourage economic growth. Low interest rates give investors the opportunity to refinance their properties at higher interest rates. Lowering your monthly payments by even a few hundred dollars gives you the flexibility to acquire more assets or earn more from the assets you have.
Some banks charge hefty fees for refinancing, so ask how much closing costs and other fees will be. If it takes too long to recoup costs or the out-of-pocket costs are high, refinancing may not be worth it.
7. Invest without buying
Another option is to move some of your financial investments into a real estate investment trust (REIT). When you invest in REITs, your money is financially backed without the added stress of managing and maintaining your assets.
Interested parties can choose stocks the same way they would consider mutual funds. You need to pay attention to rates, duration, and movement over time. Are REITs consistently delivering decent returns over 5, 10, or more years? REITs provide specialized services in sectors such as commercial, residential, and medical. An investor should choose his REIT that is most likely to increase in value.
Those who include REITs in their stock portfolios can reap dividends from the successes of experienced real estate investment professionals with negligible risk.
Sometimes you win, sometimes you lose
When it comes to real estate investing, predicting the market is nearly impossible. Even people who have been in this industry for decades sometimes get it wrong. Instead, buyers should research, make informed decisions, diversify, and learn from their mistakes. When a recession comes, those who were prepared will come out of it with their money intact. Real estate is a long-term game, so buying real estate during a recession can help keep your portfolio flat.
