If you follow financial experts online (The word "expert" is very subjective.), you will find a lot of them talking about a recession in America just around the corner. We are certainly overdue, as we have not had a significant downturn since the 2008 financial crisis. There are a bunch of indicators pointing to that outcome.
Whether that is accurate or not, it is a good idea to prepare yourself just in case. When it comes to real estate investing, there's no such thing as being too prepared. In a turbulent economy, it's more important than ever to have a solid game plan in place.
The one thing that is great about being a professional real estate investor is no matter what happens to the market, people have to live somewhere, and properties always get bought and sold. People still get old, get sick, and still die. It sounds morbid, but aging people create houses for sale, and often those houses are perfect targets for investors. The only thing that changes is the price point. But there is always a way to buy low and sell high – no matter the price point or state of the economy, if you are a smart investor. Here are four tips to help you get through tough times.
#1 Before the recession, preserve Capital.
One reason rich people get richer during tough times is that they get more aggressive when everyone else is cutting back. In real estate, buying low and selling high is the way you make money. During a recession, usually, prices come down, and there is never a better time to swoop in and buy. Your competition which is panicking will often have properties available at a lower price so that they can dump them. But it takes money to be a buyer, so keep that in mind and put some away so you can act when you have the opportunity.
#2 Don't get saddled with a lot of fix-and-flip inventory.
Recessions usually mean prices go down also. The worst thing you can do is sit on a bunch of properties that you bought at a higher price and need to fix up, only to find out that when they are done, the price you thought you would get is a lot lower. In 2008, this single mistake wiped out a massive portion of investors.
#3: Don't panic!
Savvy real estate investors understand that economic downturns come and go. The worst thing you can do is to panic and slash marketing expenses, which will bring your lead pipeline to a standstill. The second worst thing is to panic-sell. When times get tough, marketing is even more important. If you feel the need to cut expenses, cut anything but marketing. If anything, increase your marketing. Since most of your competition will panic and do the wrong thing, this is a great time to find even more deals because your competition will be less. If you must sell your properties to raise cash, be smart about it. Or maybe consider renting them out instead of selling them.
#4: Don't use the recession as an excuse for failure.
It's easy to backslide into lazy habits during a recession when the market stagnates. This can result in missed opportunities and massive income losses. For example, some investors may choose to work less during a recession because they perceive the market as being "slow." They think they are wasting their time. But when other investors are sleeping, it's the best time for you to make your move. A better strategy is to refuse to let the recession defeat you and double down on your work ethic.
The Bottom Line
Whether the market is going up or down, real estate investors can thrive. But you can do especially well in a recession if you are smart. Preserve capital, don’t hold too many fix-and-flip properties, never reduce marketing spend and work harder than ever, and you will do well.