Unfortunately, no one knows when the next recession is coming. This can be daunting for real estate investors and the well being of their career. Smart real investors prepare to take advantage of the discounted real estate deals that become available during an economic downturn.
Purchase Well Now
Buying the right properties today will put real estate investors in a good position during a recession. Not overpaying for properties is important. An appropriate purchase price keeps more funds available for the future. Also, properties must provide a positive cash flow.While the location of properties is always an important factor in real estate, owning properties in the wrong location could mean financial disaster in an economic downturn. Investors should select properties in communities that aren’t dependent on one industry or employer. A recession increases the probability of a single industry or employer to fail, and as residents leave the community in search of economic opportunity, investors’ rental units become vacant and unprofitable.
The other location consideration is the neighborhood. Like school teachers, real estate investors classify neighborhoods with the letters A, B, C, or D. For many investors, properties in A-class neighborhoods are too expensive for positive cash flow. During a recession, properties in B-class and C-class neighborhoods should continue to provide positive cash flow because these communities tend to attract employed, long-term renters. Landlords who want to get ready for a recession should avoid D-class neighborhoods, which will likely see an increase in evictions during an economic downturn.
Get Access to Funds
Purchase prices usually drop during a recession. Investors need to be ready with access to funds
. Some investors may be able to save up cash. Other investors should start networking now and build relationships with lenders. That way when the recession comes the lenders will already be familiar with the investor and his or her work. However, investors need to be careful that they don’t borrow so much now that they’re overleveraged when the recession hits.
Become a Real Estate Investor Before the Recession
A recession isn’t the time to start a real estate investment business
. It takes time to establish a network, generate leads, learn how to buy the right properties, and find financing. When economic conditions lower prices in the real estate market, newcomers may find that experienced investors were ready and have taken the best deals. The most essential preparation for a recession is having expertise as a real estate investor before the downturn begins.