Helpful Ways to Prepare For a Recession
We all know that real estate has its cycles. With the Federal Reserve continually raising interest rates and inflation out of control, most analysts and economists are predicting a recession, but it is unclear when that will happen. No one has a crystal ball to predict the next recession, but given the current economic uncertainty, it’s a good idea for real estate investors to start planning ahead.
In this blog article, we’ll discuss why now is a great time for you to take stock of your real estate portfolio and explore the various ways you can protect your assets during a recession.
Shore Up Liquidity
One of the reasons that investors were hit particularly hard during the Great Recession of 2008 was the fact that access to capital started rapidly drying up. Even if people had credit cards and home equity lines of credit, the banks largely rescinded the lines and closed down access to credit.
In a bull market, there is available capital everywhere, but when the real estate market and stock market start to feel the effects of potential bad times ahead, the first thing lenders do is start to restrict access to credit. So, part of your financial plan should be to have emergency cash reserves put aside in the event of a worst-case scenario. Always have an emergency fund of at least 6 to 12 months of capital set aside to cover any and all of your monthly expenses so that you are protected for the near future.
Invest In Your Existing Properties
This is an excellent time to invest in your existing properties if they come available through vacancies. Fixing up your long-term rentals can almost assure higher rental rates, especially during times of high inflation like we’re having now. You want to make sure that these types of properties generate enough demand through good times and bad times. This is the perfect time to make your real estate investments shine so that you have less competition and strong tenant demand.
This strategy also helps you to keep your real estate values up to ensure more rental income in an economic downturn.
Continue Learning and Expanding Your Business and Networking Skills
This is the best time to keep learning and networking with other professionals like real estate agents and commercial real estate property owners and, of course, other savvy real estate investors. Networking can help you stay ahead of the curve and help you form new relationships, potential partnerships, and new opportunities for growth.
This is also a good time to keep learning as much as you can about real estate. T
There are many different ways to learn about real estate, but some of the best ways are:
- Attend workshops and seminars
- Sign up for interesting webinars
- Read as many books on real estate as you can
- Find a real estate or business mentor
- Attend conferences
- Attend local real estate meetups
- Take online courses
The bottom line is that networking and learning can help you to make good investments which will ultimately help you to strengthen and grow your real estate portfolio.
Review Your Investment Profit & Loss Statements
When it comes to your real estate investments in a market downturn, it’s important to pay close attention to your profit and loss statements. Analyzing each rental property for ways that you can increase revenue and reduce expenses is key during times like these.
For example, if you are utilizing a property manager, you might want to review how well they are managing your properties. Go over your expenses line by line. Are there any red flags? Can you find ways you can reduce your expenses? Collaborate with your property manager on ways you could reduce expenses and potentially raise revenues.
Next, you should stress test your portfolio. Review your portfolio and decide if there are any properties that you should sell – properties that are not performing as well as you had anticipated. That capital may be better served if it were invested in other investments such as passive investments like real estate syndications that can start earning you cash flow without you having to do any of the work.
By being proactive, and taking all of these precautions, you will likely be very happy you took the time to create a more inflation-proof investment – especially if a recession sets in.
Develop Short-term Goals With Long-term Success In Mind
Developing short-term goals around your rental properties will set you up for success in the long term. This is especially true for real estate investors in times of uncertainty. When the housing market or stock market is down, investors tend to panic and start making rash decisions. It can be hard to stay the course when day after day your investment is losing money. However, when you set short-term goals that can take you through the downturn and recovery phase, this will help you to achieve your long-term goals for success.
For example, look at each individual property and see how you can ensure that your best tenants stay with you. Maybe you could sweeten the pot a little and give them a longer lease structure for a bit less rent to help you ride out the economic downturn.
Or you could find a way to create a better resident experience for your good tenants so that they will want to stay renting from you for as long as possible. This creates more security for you and them during uncertain times.
The little things that you do today to generate short-term progress could set you up for long-term success.
Want to Learn More?
Here at PCRP Group, we are always looking to provide amazing passive investing opportunities in commercial properties such as large apartment communities. Most investors have an active and a passive investment strategy, so if you are wanting to learn more about investing passively in commercial real estate opportunities to expand your portfolio and take advantage of the cash flow, equity, appreciation, and tax benefits (without the hassles of being a landlord) then join the PCRP Passive Investor Club to learn more.