6 Ways to Prepare for the Recession as a Real Estate Investor

by Jacob Blackett

Many experts and investors predict an economic downturn soon. The real estate market trends are looking unsustainable to some experts. While property prices continue to increase, some believe it’s a bubble that’s about to burst. The coronavirus pandemic is not making things any better as the economy takes a major hit.

This could be the most confusing period for any real estate investor. It’s uncertain whether their investments could continue generating revenue or will eventually go down the drain. Whether it happens within a month or a decade, it ought not to find you unprepared.

Which is the best way to prepare for an economic downturn? Below are our top six ways to remain afloat during a recession;

Unload Risky Assets

In a looming recession, a prudent real estate investor should aim at dumping risky properties. Risky properties include those that aren’t performing as well as expected or those that have hit peak appreciation.

One way to determine which of your properties is risky is by evaluating if they can take a 15-20% hit in rental income. If they can’t, now is the best time to offload them.

The main disadvantage of this is that it might be difficult to find good deals to replace your property. On the other hand, it could be the best time to get the highest possible profit and pool the resources into a more profitable venture.

Have a Cash Reserve

Liquidity is one significant way of preparing for a recession. A recession is a hard-economic time where people lose their jobs, businesses close, and properties are repossessed. This is why many people are advised to focus on saving rather than spending in preparation for an economic downturn.

As a real estate investor, you should know that some remarkable opportunities may arise during such times. Many property owners are usually desperate for cash and sell their houses at considerable discounts. They also usually want to sell fast. You can get an astounding bargain during a recession.

This is why you need to have a stash of cash somewhere or other sources of liquid funds. Also, make sure you can access them as fast as possible. This will enable you to buy property during a downturn and wait for it to appreciate. If you can hold off any major purchases, such as a new car or vacation home, the more purchasing power you’ll have.

Invest in Your Property

As a real estate investor, you should target to make your rental property the best on the block. Make sure you run any preventive maintenance and major repairs on your property. You can also carry out additions on your property. For example, you can add an extra bedroom to enhance the quality and value of your property.

Since you’re preparing for a recession, you should make sure the money you invest in your property gives a return. You should either be able to experience higher rental income or lower costs. For example, your extra bedroom should earn you the same or even more than your investment.

Preventive maintenance and repairs are important because you must retain your tenants during the recession. Even if escaping maintenance would be a measure towards keeping the budget down, you’d rather do them now when capital is still available.

Build Banking Relationships

The recession is an essential period to develop banking relationships. After all, you never know when you might need to borrow money for future real estate investments. One key tip is to choose one or two local community banks that have a history of working with real estate investors.

Remember, it’s easier to access a bank’s funding when you have carried out a few transactions before. To start, you might need to open an account and deposit money. Also, do a few deals with the bank to forge a relationship. If your credit score is not that good, work on improving it.

Purchase Cash Flow Assets

Owning negative cash flow properties during a recession can cause financial strain. It would be best if you had positive cash flow properties during an economic downturn. Positive cash flow means still having profits even after paying all costs associated with the property.

While the property’s value may be affected by the downturn, they still generate revenue. Make sure you use the right tools to search for properties that will generate positive cash flow.

Go Slow on Flipping

The time before an economic recession is inappropriate for house fixing and flipping. Imagine buying a house that needs fixing, spending your resources on it only to realize it’s now worth less than when you bought it.

If you want to benefit from flipping houses, the best time would be when the market bottoms. During that period, you can buy houses for less than their value, fix them, and sell them for profit once the economy recovers. You can also consider buying and holding the house until it’s market value recovers. In the meantime, you can continue enjoying the rent.

Jacob Blackett – Originally from Reno, Nevada, Jacob began his real estate career in 2010 as a sophomore at the University of Nevada, Reno, when he bought and sold his first two residential “fix and flip” properties in Southern California. Since he made the move to the Midwest in 2012, Jacob has placed over $40 million into income-producing real estate and In June of 2018, he founded SyndicationPro with Ameet Mehta on the basis of providing better technology solutions for fellow syndicators. Outside of business, Jacob enjoys staying active, volunteering as a Big Brother, and education as a hobby.