Investing during a recession can be a challenging undertaking both for new and experienced investors. However, a recession can also provide new opportunities to purchase assets at a good price and build a varied asset portfolio. Those looking to purchase assets that are more stable and less subject to market volatility should consider the rental property market. 

What opportunities do recessions present for prepared investors?

Even in today’s challenging and uncertain economic conditions, real estate developers are consistently presenting buyers with new and exciting investment opportunities, particularly in hot rental markets like New York City. Here are some investing opportunities to take advantage of during a recession:

• Unprepared real estate owners liquidating their assets 

While a recession can provide highly profitable investment opportunities, an investor’s ability to make the most of these opportunities depends on their level of preparedness to act. Investors who fail to consider cash flow and build a self-sustaining asset are often forced to liquidate when economic conditions become challenging. 

The urgency with which these real estate owners have to sell can give prepared investors a chance to purchase these properties at a discounted price. This means that any purchases made during this period provide an immediate return for buyers once they acquire the asset. 

• Rental properties continue to appreciate in value during and after a recession

A recession typically causes overpriced assets to lose value — and investors who choose the wrong time to buy can end up losing a significant sum. However, real estate is less volatile than many other investment opportunities. 

Real estate prices have experienced dips during periods of economic uncertainty but have always recovered to continue their seemingly never-ending ascent. Property values have consistently risen since 1975 and present investors with a relatively safe asset to allocate their wealth. 

• Increased demand for rental properties can give landlords a quick return on their investment

Owning a home is a dream for many Americans, but purchasing one can be a challenge during a recession. Periods of economic uncertainty allow property owners to tap into increased demand for rental properties. Research from PwC shows that among survey respondents who believed that home ownership was important, 68% continued to rent while they gathered the funds needed for the purchase. Rent typically stays stable or rises when demand increases, even in the middle of a recession. This can give investors an opportunity to get a quick return on their investment. 

4 tips for real estate investors navigating a recession

Preparation is key when investing in a recession. Investors should keep these tips in mind before deciding to purchase rental properties during periods of economic uncertainty:

1. Prioritize cash flow when choosing rental properties

Rental property owners must treat their assets as parts of a business. Each rental property should be able to generate enough cash to pay for the asset’s acquisition and maintenance while providing the investor with profit. Many real estate owners liquidate their assets during a recession and investors that want to capitalize on these assets should choose their purchases carefully. 

Buyers need to consider how much renovation is needed on a property, prevailing rent for similar properties in the area, and the marketing costs associated with placing that property for rent. Positive cash flow allows investors to build a profitable property portfolio while minimizing debt and losses. Buyers may also consider looking into technology solutions like these real estate investor tools that can help them streamline their processes and save them both time and money.

2. Have a long-term plan that transcends short-term economic challenges

Recessions present massive opportunities for investors to acquire properties and put them up for rent immediately. But, rental property owners who already own multiple properties and have no desire to expand their portfolio also need to have a plan to thrive in this market. Investors must analyze their rental property balance sheet in order to have clearly defined goals and objectives for their rental properties. have clearly defined goals and objectives for their rental properties. A recession can be difficult for investors to navigate if these goals change from month to month. 

Rental property owners must decide if and when they want to liquidate their assets or how they wish to use their assets during challenging economic times. A long-term plan can help carry property owners through recessions by keeping their eyes on the end goal instead of on temporary challenges. 

3. Keep rental turnover as low as possible

High rental turnover that causes vacancies is costly for real estate investors. The need to renovate properties, market them, and use more resources to keep new tenants informed can cause significant stress for rental property owners. It is in the best interest of investors to keep their tenants as happy as possible. This also allows investors to hold onto tenants that are respectful of the property and pay rent on time. Even when turnover is inevitable, satisfied tenants can provide investors with positive reviews that makes finding new responsible tenants easier. 

4. Minimize debt 

New investors can find numerous sources of funding to purchase their first rental property. However, the financial obligations that investors have to meet can cause significant stress during a recession when expenses increase and income becomes less reliable. Refinancing properties and minimizing debt by using other assets to offset losses from low-performing assets can help investors hold onto their most valuable properties. 

Rental property owners can also make use of reduced interest rates during recessions to pay off as much debt as they can. This allows property owners to increase their yield from their assets and improve profitability down the line. 

Preparing for action during a recession

Real estate investing is a popular way for Americans to build wealth and generate income — even during periods of economic uncertainty. Its ability to hold its value while still generating income makes owning rental properties an extremely attractive investment opportunity. However, it is important for investors to be well informed and prepared to fully understand the opportunities available to them during recessions. For investors who can carefully manage their expenses and keep a close eye on their finances, rental properties offer a relatively profitable and stable investment. 

Author Bio:

Mike Bang is Head of Growth at Azibo, the one-stop-shop financial services platform for rental properties, providing a world-class platform for rent collection, banking, lending, insurance and more.