The U.S. economy and U.S. housing market are heading into yet another banner year for 2020 with low unemployment, low-interest rates, and an all-time high stock market.
And yet, there is a lot of talk about an upcoming recession. When is the next recession coming exactly? Bloomberg predicts that there is a one in three chance it is in 2020.
Related: Is a US Housing Bubble Coming in 2020?
As it turns out, multi-family investing is a form of recession proof real estate investing. Rental income from a multi-family real estate investment is one of the cornerstones of recession-proof businesses.
Here is Mashvisor‘s guide to:
- Why multi-family homes the best recession proof investments
- How to find multi-family homes now
- How to recession proof your multi-family home and investment business
The Advantages of Owning a Multi-Family Home in a Recession
Why are multi-family homes some of the best recession-resistant investments? There are three main reasons. First, multi-family homes are already cost-efficient. You have two, three, four, or more properties with one landscaper, one maintenance list, and one roof and exterior to maintain. This gives you an advantage over many single apartments, single-family homes, or condos.
Next, multi-family homes have multiple income streams in one location. If you use a realtor or property manager to help you manage your multi-family home, this affords you many advantages. You should be seeing a cost-side advantage.
Last, multi-family homes act like stand-alone small businesses. Since there are multiple income streams, if one tenant is not paying or if one unit is temporarily empty, the overall units may still be profitable. As recessions deepen, many homeowners move out of single-family units and into multi-families. Others who may be moving out of a parents’ home also forestall their first single-family home purchase and may be looking for an apartment. Again, your tenant pool widens. So, in a recession, you may actually have more overall applicants for empty units. Screen tenants carefully. Verify employment.
How to Find Multi-Family Homes for Investment in 2020
But is this the best time to look for multi-family homes for sale? Not likely. Although investing in multi-family homes is known to be a recession proof investment strategy, real estate investors often hold them during recessions for just this reason. But it is also not the worst of times. Multi-family real estate investing never takes a break, even in a recession.
However, you may not find many bargains on multi-family homes for sale to add to your real estate portfolio in today’s strong economy. And buying multi-family homes as recession proof investments during a recession in 2020 will be tricky.
That certainly does not mean you shouldn’t look. In fact, the truth is you should never stop looking for multi-family homes in which to invest.
Many of the usual property finding methods apply. However, investors may find that Mashvisor’s property finder will be particularly useful. It allows those looking for multi-family investments to find ones with the highest cap rate in the best areas. More importantly, you can filter the search and look only for multi-family properties. Jump to Mashvisor’s property finder here.
Related: 8 Ways to Find Profitable But Cheap Multi-Family Homes for Sale
How to Recession Proof Your Multi-Family Investment Property
Those of us who earn a living from the rent on multi-family home income properties know that 2020 is the ideal time to recession proof investments. If you own a multi-family home, begin now to learn how to recession proof an investment property. Mashvisor has the tools and data you need and can show you how to recession proof your real estate business.
Cost Control & Rent Roll
How does one prepare in a great economy for a future recession? There are many ways. In a strong economy, like we have entering 2020, those with multi-family homes should work toward cost control. Doing this before a recession hits is a wise strategy. The goal is to maximize the return on your cash flow properties. The economy is just as good now for your tenants. This means you should plan the largest rent increases practical when leases renew. It is much harder to maintain the rent at market levels when tenants are struggling in a recession. The time to recession proof investments and add to your income is when the residential real estate market is strong, not weak.
Capital Reserve
Recessions can make a multi-family home business unpredictable in some ways. There are always risks in real estate investing. That said, when a recession is resulting in job losses, the odds are higher that you will have tenants without the ability to pay rent. During a strong economy, build up a capital reserve.
A capital reserve helps you to have recession proof investments in two main ways. First, it affords you the possibility of finding another multi-family home in the event one is for sale during the recession at an affordable price. Second, it will help you cover your costs and maintain your personal income flow if your rent roll is reduced.
Tenant Retention
One key strategy for a multi-family business plan is to retain your tenants. Turnover is costly. Although you need rental income from your multi-family to earn a profit, an empty unit during a recession causes you problems. The pool of employed and qualified tenants looking for multi-family homes for rent may be reduced.
Therefore, leading into a recession, consider turning over any unqualified tenants that have leases up for renewal. Comply with all fair housing laws, but if you have been planning any improvements anyway, not renewing a lease on a questionable tenant in a strong economy is a strategic move. Renovate while the unit is empty and look for a new tenant while the economy is strong. You may not have the luxury of doing this in an economy struggling with a recession.
All economies and real estate markets are cyclical. There are good times and bad. Up times and down. A multi-family home is a great recession proof investment to help hedge against a recession in 2020 or in any year ahead. Be sure to plan ahead to recession proof investments now while the economy is hot. Mashvisor can help you with tools like cash flow calculators and in your search for multi-family investment properties. Start here to learn how Mashvisor can help with your recession preparedness.
Related: US Housing Market Predictions: What’s to Come in 2020