When a recession hits, you want to rest assured knowing you understand the best course of action. Remember, the housing market presents a great opportunity due to the cyclical nature of economic recessions and inflations. A recession can be beneficial to the housing market by counteracting inflated markets and bringing home values down.
To get the most out of the opportunity, it’s essential for real estate investors to not only understand what to expect, but also to take specific actions as a recession hits. Here’s an in-depth guide for real estate investors to navigate through recessions—what you should do before, during, and after.
Before the Recession
Plan wisely. Recession forces investors to take a deeper dive into current investments and re-evaluate their property portfolios, which is a perfect time to cash-out and shift to a business model consisting of fast flips and wholesaling.
And If you have hard to sell properties, Hubzu’s Signature Seller Auctions could be an option if you’re looking to offload these properties at auction.
Lastly, arguably the most important tip for any investor before a recession is to free up capital and to ensure you have direct access to capital. This enables you to act quickly when you see a property going for an unbeatable price.
During the Recession
A recession usually brings an influx of distressed properties, which are properties under foreclosure or being sold by the lender. That said, the term also identifies properties that are fixer-uppers. And for an overview of the main types of distressed properties you can expect to come across on your real estate journey, take a look at the information here.
Many homeowners may make the decision to sell fast, and at a discount due to the predicament. For investors, this provides plenty of short sale opportunities.
We acknowledge that seeing declining prices can be alarming, even for investors. But, try not to make any rash decisions. Hold off on selling any of your properties if you can and take comfort in knowing that the market will rise again, repeating its cyclical pattern. This rough patch too will pass, and the market will become profitable again.
Aside from holding off on selling, this is the time to invest if you have the capital on hand. With low property prices and low interest rates, this is the optimal time to build out your portfolio. If you take advantage of the downturn you might have a chance to make a profit in the future.
And at this time, you may be able to find the deepest discounts as inventory will be low, and sellers will be drastically more motivated. Flip and wholesale opportunities are also still available in an economic decline, as properties that traded on the distressed market at 80% of value may now sell at 50% of the new, lower value due to the decreased competition for these assets.
Even with rock-bottom prices, you still want to use your best judgment and conduct the necessary property analysis to ensure the property you’re purchasing is profitable. That said, opportunities are still available for those able to hold out for the steepest discounts.
Instead, look into acquiring rental properties or buy-and-holds to re-sell once the market is stronger and more favorable. Rental properties are a great option, as you can collect rent checks until the economy recovers, and property value increases. Purchasing larger swathes of land or multiple assets in one area is also a sound investment, just be sure to conduct a thorough analysis of the area you’re interested in.
After the Recession
Post-recession is the time to profit off any properties you acquired during the recession or already had in your portfolio prior to the recession. This is the time to capitalize on your investments because once prices recover and values begin to increase, it’s time to sell and reap the profits.
Think of a recession as a temporary disruption to the housing market. While it can bring fear and uncertainty, it could also provide unparalleled price discounts and the most advantageous economic conditions for investors. Savvy investors should stick to the fundamentals and be open to possible changes in their strategy. No matter how shaky things get, focus on how your strategy now will affect your investments, portfolio, and business once the economy gets back to normal.
Discover the current state of the housing market by browsing auction properties on Hubzu.
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