Real estate investing and recession in the same sentence leaves a bad taste in one’s mouth. A recession instigates a lot of fear from consumers and investors.
But if we step away from our fears for one moment, we realize there are ways for an investment property to endure a recession and opportunities to begin investing and create a recession-proof investment property.
Buying an Investment Property
The great thing about real estate is its eternal demand. What’s even better about buy-and-holds is a guaranteed monthly rent check. Therefore, while other investments during a recession might be more risky, a rental property still generates steady income.
During the recession, home ownership definitely decreases and the demand for rentals increases. Home prices also decrease during the recession, giving investors an incentive to buy an investment property.
When buying a home during the recession, there are important things to consider:
Why is the owner selling the property during the recession? Is the property in very poor condition? Is the owner in a rush to sell the property in order to move into a new home? Carefully examine the property and don’t hesitate to offer lower than the asking price.
The number of days the property has spent on the market will indicate if you should offer below the asking price or not. If the property has recently been listed, it’s not wise to give a low offer. If the property has been on the market for over a month, then go with lower offers. Don’t be surprised if owners whose properties who have been on the market for a year or more don’t accept your offer; they’re probably willing to continue waiting until after the recession in hopes of getting a better offer.
Foreclosure properties also tend to be sold below the asking price. During a recession, these prices might drop even more.
Interest rates tend to be lower during a recession, however, investors should remain cautious. For example, taking out an adjustable rate mortgage, which is lowering the monthly payment, may not be the best decision. If the investor’s job or source of income diminishes during the recession, it will be very difficult for them or their tenants to come up with higher monthly payments as rates go back up.
So before taking out a loan, make sure the math checks out. Depending on your investment strategy, use an investment property or Airbnb calculator to see if you can afford making those monthly payments. If not, come up with a more viable and sustainable plan.
Related: Top 5 Major Cities for Buy-and-Hold Investment Properties
The Right Tenants and Right Strategy
It’s important to target the right tenants during a recession. Students looking for off-campus housing will need a place to live despite the market conditions. Buying a single-family home and renting out individual rooms is a common strategy for student housing. In some areas, the rent for one bedroom can be as much as $1,000, allowing investors to make more revenue than by renting out the entire property to a single renter or family.
If an investor can offer a longer lease and possibly lower rental rates, they can secure income and ride-out the recession. The recession can sometimes impair student funding and loans, so students will look for ways to reduce the amount of loans they take. Investors should test different pricing strategies, as long as positive cash-flow is sustainable.
Related: 5 Ways to Create A Positive Cash Flow Income Property
Having an Airbnb Investment Property
Although people do not spend or consume as much during recessions, vacationing does not totally come to a halt. Tourism remains to be one of the biggest industries despite financial crises. Analysis reports have shown there’s not a drastic decrease in the demand for hotels during a recession.
This means an Airbnb investment property with an optimal location could maintain its Airbnb occupancy rate throughout the recession. With long-term, traditional rentals, it’s possible people will downsize, look for cheaper rent, or look for roommates to split the costs, in which investors would have to alter their pricing. However, tourists are likely to spend the same on accommodations and might consider using Airbnb even more during a recession. Short-term or vacation rentals should definitely be considered during a recession.
Using Predictive Analytics to Find a Recession-Proof Investment Property
Predictive analytics is analyzing past events to predict future outcomes and trends. Investors should always use this tool but especially when the market is down.
Using Mashvisor’s analytics allows an investor to get projection of rental income, cash on cash return, occupancy rates, expenses, etc. This is an intelligent way to secure investments and understand outcomes during a recession.
Related: How To Find An Investment Property Using Analytics
Investing during a recession is not ludicrous but investors should minimize risk as much as they can. Frugal spending and avoiding debt are important. Investing always requires thorough research but even more so during a recession. It’s important to look at market trends during specific periods and in specific locations. The data on Mashvisor consolidates these different factors into easy-to-read visualizations to make understanding investment opportunities a lot easier.