How to Survive a Recession
The real estate crash in 2008 hit people hard; homes were sold for significantly less than they were worth, allowing investors to buy up properties at really low prices. People have been talking about a new recession on the rise for the last few years, but with the coronavirus pandemic, we may actually be standing on the precipice of the much-dreaded recession.
If that is indeed the case and we are on the verge of a recession, you may want to look into investing in properties that are more likely to survive the recession. Keep in mind that nothing is completely recession-proof, these are just investments that seem to do better than others in a recession.
The Best Investment to Prepare for Recession
The best investing role to play in a recession is the cash investor. A lot of cash investors that are active now will either shy away from a sale when the recession hits, or they will be hit hard. This will lower the competition for you to invest in these properties, from both sellers and wholesalers who are sitting on properties they cannot sell easily. From there, you can begin preparing properties to flip or start renting out to eager tenants.
“The No. 1 regret people told me they had after the last recession was that they didn’t buy enough homes. It wasn’t that they wish they would’ve wholesaled more homes or sold more homes as an agent. The person actually buying homes is the one who thrives in the recession.”
To become a cash investor before the recession hits, consider selling some of your properties or assets so you will have more liquidity to work with. If you are a wholesaler, start raising capital so you can buy the lower-priced properties. For flippers, begin building your relationships with lenders now so there is trust in place before the recession.
Safer Property Types
Larger multi-family homes and multi-unit commercial buildings may do well because even if the buildings are not full, there is still some income being generated for you. Other investments that may do better are "properties in high-demand, low-supply locations, and houses that have been designed by experts, with great attention to detail."
Properties in a central location in urban areas tend to do better in recessions. If the property is walkable for some of the more important areas of town, it is more likely to succeed. Sometimes the health care and senior living sectors are more stable in a recession. If you can, invest in properties related to health care or senior living, you may have a more stable investment; with as important as health care has been in this pandemic, it may be a wise investment.
Properties Not to Invest in During a Recession
There are also some property types that get hit particularly hard during a recession. Vacation homes tend to have troubles in a recession. In the crash of 2008, the sales for vacation homes fell by over 30 percent and their prices decreased by about 23%; compared to the data from 2007. These can be a risky purchase for an investor bracing for a recession.
In the 2008 crash, duplexes and triplexes did poorly in a lot of locations, but not everywhere. If you plan to invest in a multi-family home of this size, make sure you look over the area's history during the last recession to give you an idea of what you might be working with if the crash happens.
Armour, Stephanie. ABC News, ABC News Network, 15 Apr. 2009, abcnews.go.com/Business/story?id=7341877&page=1&mod=article_inline.
Likos, Paulina. “How to Prep Your Portfolio in a Recession.” U.S. News & World Report, U.S. News & World Report, 1 Apr. 2020, money.usnews.com/investing/portfolio-management/articles/how-to-prep-your-portfolio-in-a-recession.
Pineda, Ryan. “Council Post: How To Prepare For The Recession As A Real Estate Investor.” Forbes, Forbes Magazine, 13 Sept. 2019, www.forbes.com/sites/forbesrealestatecouncil/2019/09/13/how-to-prepare-for-the-recession-as-a-real-estate-investor/#2bd8ee013c6b.
Schubach, Alanna. “Real Estate Investments Are Never 'Recession-Proof,' but Some Are Safer Than Others.” Mansion Global, Mansion Global, 25 Jan. 2019, www.mansionglobal.com/articles/real-estate-investments-are-never-recession-proof-but-some-are-safer-than-others-120107.