Recessions are a normal part of the economy and life – we should learn more about them and how to handle them. A recession affects all aspects of our life and economy, including the real estate market. It is a market that sees an apparent shift. However, Going through a recession doesn’t mean you should stop investing and living your life. No. It just means that you should be careful and more thoughtful before making any real estate-related decisions. Keep reading to learn more about real estate investing during a recession with our five tips for recession-proof investing.
To ensure recession-proof investing, you should work on maximising cash flow and reducing debt. When it comes to risks, you should carefully consider them before making a decision. Another thing you can do is increase your liquidity – we will give you tips on how to do that in the following paragraphs. Moreover, diversifying your assets and, thus, the portfolio is also a proven investing strategy. And finally, our last piece of advice concerns buying and holding real estate.
- Maximise cash flow and reduce debt
An economic downturn follows every recession – to endure it the best way possible, you should ensure a steady cash flow. One of the easiest ways to do that is to increase rent on your properties. Moreover, you can figure out some inexpensive ways to enhance your revenue. For example, you can install coin-operated laundry machines or make your rental properties pet-friendly for an extra cost.
When reducing existing debt, you should use the chance of lower interest rates and pay off your debt as much as possible. This strategy will increase your cash flow to have sufficient equity to withstand a value decline.
- Carefully consider your risks
Before an economic recession, banks often lower their interest rates and ease their lending requirements. This is tempting for investors, especially inexperienced ones, who can be prompted to invest in high-risk deals. Higher, short-term yields drive them. However, this is not advisable, as investors usually lose most of their investment with the recession in progress. The best strategy to employ before a recession is ensuring low debt and avoiding investing in high-risk deals. You should consider secure DHA real estate investments (these are for Australia), which guarantee income, include maintenance and offer expert property management.
- Increase your liquidity
Increasing your liquidity involves selling properties that are not performing well in exchange for buying a better-performing one. Buying and selling a property (with adequate price appraisal) can be done quickly compared to other real estate assets such as stocks. You don’t necessarily need to buy anything after selling an underperforming property. The cash you have readily available will mean a lot during a recession when prices lower, and lending becomes stricter. You should assess your liquidity from time to. The goal is to keep it as liquid as possible at all times.
- Diversify your portfolio
One of the best ways to protect your real estate portfolio is to diversify your assets, which will diversify your portfolio. For instance, you can invest in rental properties; that is never a mistake. It is a highly lucrative investment. Moreover, you can also invest in properties you can flip. That involves buying a property in a condition that needs to be improved, upgrading it and selling it for a higher price than bought. So, you should earn a profit between buying a house, upgrading it and selling for more money. Other potential real estate investments that don’t involve buying an actual property include investing in investment trusts or funds.
- Buy and hold real estate
Investors are tempted to sell their real estate during hard times. However, holding real estate as long as possible during a recession is essential. It will keep your business lucrative and stable. And the recession won’t last forever. Try to hold onto your investment, and consider renting it out. This income can cover the expenses and mortgage-related to it. You should consider long-term leases with your tenants if you own commercial real estate properties. In enduring hard times, the key is to do thorough research, be patient, and make informed decisions.
So, you can and should consider your current and future real estate investments, even during a recession, just in a different way – with more research and thought about it.
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