Build a Recession Proof Real Estate Portfolio
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Although we have previously emphasised the advantages of investing in commercial real estate, is this really a good moment to do so? A recession may be coming, according to industry experts and a number of investors. However, despite repeated warnings, there hasn’t been a meaningful course adjustment in years.
What does that mean for you as a potential investor in commercial real estate? It’s critical to keep in mind that the real estate market cycles. Over time, there will be ebbs and flows. This is not to say that you shouldn’t buy real estate when the market is booming. It simply signifies that you ought to proceed with extra caution.
No matter what stage of the market cycle we are in, at Curoso Consulting, we think that investing in real estate for rental income can be a smart move. Smart real estate investors will create a plan that will keep them afloat in even the toughest market conditions. In this article, we examine the best ways to create a real estate portfolio that can withstand any economic downturn.
What is Recession
A recession is defined technically as any period during which the national GDP growth rate is negative for at least two consecutive quarters. In plain English, a recession occurs when there is a decline in company activity, sales, and revenue. Businesses stop growing, and a lot of businesses stop hiring or even start laying off employees.
A few things happen in the real estate market when a recession hits, or even when there is talk of one coming. As prices start to drop, most regions transition from a seller’s market to a buyer’s market. People find it more challenging to purchase homes when lending requirements tighten (and therefore, to sell homes).
Because fewer individuals are moving for new employment when the economy deteriorates, homeowners tend to remain in their current homes for a longer period of time. In the worst scenarios, as we witnessed during the recession of 2008–2009, home values plummet to the point that homeowners are in default on their mortgages. Some homeowners are compelled into foreclosure and the banks take title to the property because they are unable to make their mortgage payments (typically as a result of job loss).
It is quite challenging to anticipate when a recession would occur. There are certain signs of an impending recession, such as an inverted yield curve, but it is impossible to forecast with absolute accuracy when one will occur, how severe it will be, or how long it will last.
Recession Proof real Estate Strategy??
Economic downturns are unavoidable. A recession will happen eventually; the question is not if but when. If they believe a recession is imminent, some investors may get paralysed with fear and refrain from making real estate investments as a result. Smart investors, on the other hand, will keep making investments while also taking a number of measures to recession-proof their real estate portfolio.
Safeguard Your Portfolio
A real estate investor can safeguard their assets in a variety of ways. The first action to do is to increase cash flow. Investors will be better able to weather any economic slump if they have solid cash flow, even if property values decrease temporarily.
Reducing your debt is a second tactic. If possible, this is an excellent time to refinance at a reduced interest rate and to pay down any excessive loan balances. This will ensure that you have enough equity to withstand a drop in value in the event of a recession. Your cash flow will also be improved by having less debt.
Prakash Pandey
Real Estate Expert
Co-founder and director Prakash Pandey is in charge of all acquisition, disposition, and property analysis activities at Curoso Consulting. Prakash has been in charge of buying, renovating, and selling unmanaged, distressed, or undervalued assets since the company was founded in 2012.
Real estate doesn’t kill people; debt does. Delivering outsized returns without taking outsized risks is one of Prakash’s primary investing objectives.
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+91 7011551144
Increase Liquidity
Reducing your debt is a fantastic approach to protect your wealth, as we indicated above. To boost your overall liquidity is a related tactic. Real estate is a kind of assets that is fundamentally illiquid. Real estate transactions are more difficult than, instance, trading in stocks, which can be done with the touch of a button. Sell underperforming assets to increase cash and recession-proof your portfolio. It will be simpler for you to invest during a recession when real estate prices decline and lending becomes more restrictive if you have more cash on hand.
Where to Invest before Recession?
Economic downturns are unavoidable. A recession will happen eventually; the question is not if but when. If they believe a recession is imminent, some investors may get paralysed with fear and refrain from making real estate investments as a result. Smart investors, on the other hand, will keep making investments while also taking a number of measures to recession-proof their real estate portfolio.
Diversify Your Portfolio
Diversifying your holdings is one approach to protect your real estate investment portfolio. Diversification can take many different forms, such as investing across several asset classes and geographical areas.
Ideal Time to Invest
The famous remark “the ideal time to buy is when there’s blood in the streets” is attributed to Baron Rothschild, a British nobleman from the 18th century and a member of the Rothschild banking dynasty. Warren Buffett frequently uses this quote and has traditionally used this tactic. Essentially, Rothschild (as well as Buffett) are arguing that a recession is an excellent opportunity to make investments. Be prepared and willing to profit on people’s reluctance to invest in real estate during a recession. This is when some of the best deals can be made.
Particularly, a downturn might be a fantastic opportunity to buy up properties in core markets. In advance of a recession, many investors will get into trouble (usually by being overly leveraged). During a recession, many people will be compelled to sell their desirable homes at a loss, which allows an investor who otherwise couldn’t afford them to purchase them. Any recession should be used as a chance to invest in premium markets while you can.
