Recessions can bear many negative consequences for investors. Fortunately, the correct real estate investments can be a very resilient asset class in a recession. So, let’s figure out how to make money during a recession and bypass its ramifications.
What Is a Recession?
A recession is generally defined as a period of temporary economic decline. During such a period, industrial and trade activities go down and it all results in a noticeable fall in GDP, specifically 2 negative quarters of GDP growth. Recessions typically reflect poorly on most markets as they depress prices. Investment during a recession often stagnates. Home buying activity drops which can be detrimental to investors working on the buy and flip model. And as the demand plummets, home prices fall as well, resulting in a stagnated market.
Real Estate Investing in a Recession
Fortunately, there are many ways for investors to circumvent these negative effects. Real estate investing in a recession can be challenging, but not impossible. Even during the most trying of times, there are paths to success for investors. And if you’re wondering what to do during a recession or how to make money in real estate during a recession, you first need to understand your options. So, let’s find out which assets are optimal and what you should invest in during a recession.
What to Invest in During a Recession
To protect your investment during a recession and guarantee returns, you need to plan in advance and decide what types of assets are worth purchasing ahead of an economic downturn. Real estate investing in a recession can be challenging, but you can weather out the storm if you’re well prepared. Below, you will find a list of what to invest in during a recession to ensure results and not lose money.
1. Senior Housing
If you’re wondering how to invest in real estate during a recession in order to protect assets and secure profit, you may consider senior housing. Investment during a recession is hard, but this option is always relevant. Many people are unable to care for the elderly as well as they should be cared for due to many factors such as a lack of time or knowledge. So, senior housing will still be in demand even despite the economic decline. Real estate investing in a recession can be tricky, but this one is a safe bet.
2. Off-Campus Housing
Off-campus housing can be an uncommon but wise choice in times of depression. It’s the unexpected answer to the question of how you can make money in real estate during a recession as an investor. Downturn or not, many young people, especially in the US, will still opt to go to university. They will need a place to stay. And while universities do offer their own housing, it can be quite expensive. Additionally, university housing doesn’t always have enough capacity for all students, so many of them will decide on off-campus housing.
3. Multi-Family Residentials
Multi-families are another safe bet when it comes to how to make money in real estate during a recession. Investing in multi-families has many other benefits as well, such as the general advantage of renting multiple units to many tenants at all times. But it’s especially beneficial in times of economic downturns – home buying activity goes down but there is still a need for housing. So, the only remaining and financially feasible option for many people is rental housing. As an investor, multi-families are an optimal option because of the constant flow of income due to rent.
How to Invest in Real Estate During a Recession
What other measures can be taken to protect your investment during a recession? How to invest in real estate during a recession? These are very important questions to any investor. There are a few key rules that, if followed, will guarantee the resurgence of your investments and assets unscathed from the downturn.
1. Bank on Recession
Have you wondered how to make money in real estate during a recession? An uncommonly spread knowledge is that investors can, in fact, bank on a recession. Real estate investing in a recession has a secret to profit – buy a property and hold it. When prices drop, rush to buy and hold on to the asset. Renovation can certainly be organized in the meanwhile, but hold until the downturn passes and only then sell. That way, an investor ends up buying lower and selling higher. Recessions can essentially create bargains for us.
2. Maximize Your Cash Flow
Many investors ask themselves what to do during a recession. To rise up from a downturn without losses, it’s important for investors to maintain a steady flow of cash. A sure way to maintain the cash flow is by maximizing it in small ways. How? The easiest and simplest solution is to incrementally increase the rental fees on your rental properties. Another way you can make money in real estate during a recession is to allow certain liberties and freedoms at an extra fee. For example, you could allow pets in rental properties for an additional cost.
3. Reduce Your Debt
If you’ve ever wondered how to take advantage of a recession, think of reducing your debt. This is the key to investment during a recession. Debt reduction can seem incremental and tedious, but its effects are incredibly powerful. Seize the chance that lower interest rates present and pay off as many of your loans as possible. This will also aid in the improvement and maintenance of cash flow, tying into the previous point and providing investors with enough equity to endure the declining values.
4. Be Aware of Risk and Yield
Real estate investing in a recession can be deceptively alluring. A surging downturn in the economy can be seen before it ever lands on your shores. And many banks will attempt to gain an edge at investors’ expense by offering lower interest rates. Stay ahead of the storm by being cautious of such high-risk deals and avoid taking on risky debt ahead of a recession. Real estate investing in a recession can be a challenge, so investors must stay their hand when it comes to engaging in high-risk endeavors during such trying times.
5. Increase Asset Liquidity
When it comes to real estate investing in a recession, readily available capital can be of immense advantage. Investment during a recession can be beneficial, as we’ve talked about, so prepare some capital. Once prices drop and money lending gets stricter, it will play in the investor’s favor. And unlike some other types of assets, properties can be bought and sold rather quickly. So, a wise choice for an investor is to increase liquidity by getting rid of underperforming assets.
6. Diversify Your Assets
The simplest way to protect your assets is via diversification. Real estate investing in a recession is easy once you diversify your assets. It will give you an edge against the downturn and provide a safety net. Begin diversifying your assets with the most secure options. The most reliable and profitable option we advise is investing with an equity fund. If you would like to start the diversification of your assets by investing with an equity fund, contact us.