Investing in a Recession - 10 Important Tips
In Canada, the inflation rate is currently at the highest point it has been since 1983 at 7.7 per cent. This has sparked major concerns regarding an upcoming recession fueled by widespread unaffordability. This raises many key concerns amongst investors across a variety of markets, but for some real estate investors, this is a sign of opportunity.
Investing during a recession comes with an increased level of risk. After all, you can never be certain once prices have hit their lowest before the economy begins to recover. However, with a watchful eye and a solid strategy, this can be an excellent time for investors looking to enter the market or expand their current portfolios.
So, to help you make wise investments during a recession, here are ten real estate investing tips.
But first, before you start investing, take the time to sit down with a mortgage broker and ensure that your existing investments are protected. To get started, simply click the link below to book a free strategy call today.
Research the Market
In real estate, one of your first considerations should always be location. After all, each market experiences vastly different types of demand and come with their own unique circumstances. That means the investments you are going to make will vary greatly across markets.
Do yourself a favour and start by looking at how the market has behaved during previous recessions. For example, in Toronto, the 2008 recession hit hard. Despite this their real estate market had recovered within about one year. After that look at the sources of demand for real estate in the area. Is the demand due to a factor that would go primarily unaffected by the recession? Or will the recession kill the demand in that region and make properties no longer profitable for the time being?
Make a Recession Investment Strategy
Whenever you buy property, make sure you have a general plan about what you are looking for. Do not just buy real estate to say you bought it. Take the time to decide whether you would like to buy single-family rentals, retail space, duplexes, etc. This way your eyes are focused solely on opportunities that are suited to you and your goals.
Stay Prepared for Sudden Opportunities
During a recession, there are going to be sellers who want to move a property quickly. These are often homeowners or investors who can no longer afford to maintain ownership of a particular property and want to get it off their hands to minimize their losses. While not all of these properties are worth your time, some of them will hold the potential to yield strong cash flow and appreciation in the future.
Discover How To Buy Unlimited Rental Properties With This Step By Step Guide
Stay Wary of Bad Investments
While sudden investment opportunities may arise, it is important that you are careful when making an offer. During an economic downturn there are plenty of genuine opportunities to buy real estate, but there are also plenty of investors looking to shed properties that were not profitable to begin with. So, make sure to do your research to prevent yourself from taking on someone else’s losing investment property.
Keep an Eye Out for Motivated Sellers
Beyond properties that suddenly enter the market, you should also keep an eye peeled for motivated sellers. These are sellers who are going to want to get a property off their hands and may have been trying to for a while now.
You can often find motivated sellers by looking for properties that have been on the market for a long time or are empty at the time of showing. In both of these cases the property is often costing the seller money to hold, and they may offer you a good deal in order to get rid of them.
Do Not Get Caught Up in Bidding Wars
During a downturn, you almost never want to waste your time with a bidding war. Instead focus your time and energy on finding good deals at the best prices. After all, if the entire market is discounted, why would you allow yourself to pay more for a property. (Unless it is truly a worthwhile investment.)
Understand the Property
Much like any other real estate purchase, you should make sure you have a firm understanding of each property you buy and its needs. This way you know how much work needs to be done before the property is ready to use. As well, different properties are suitable for different uses, so by researching the specifics of a home and attending a viewing or an open house, you can be more prepare as a buyer.
Make Sure You Have a Plan for the Property
After you have done your research on a specific property, try to form a plan for what you want to do with it. Perhaps a home is currently a single-family unit but has enough space to be converted into a legal duplex? Or there is a property for sale in a high-traffic tourism industry that could be used as a short-term rental. Or maybe you are simply taking advantage of the recession to buy properties for discounted prices to flip them for more when the market recovers?
Know When to Walk Away
During a recession real estate supply will often be much higher than it would during more stable economic periods. So, do not be afraid to walk away if a property is not giving you what you want. There will usually be more than enough supply to find a property that better suits your needs as a buyer.
As well, despite the current condition of the market, you may come across sellers who do not realise their current position and refuse to budge on overpriced real estate. Do not waste your time trying to show them their position, just walk away and find something new.
Make Sure You Secure the Best Financing
During a recession, it can be more difficult to secure financing for your real estate investments. This means it is even more important to find a broker who works with a wide array of lenders so you can find the best available rate and financing for you.
Luckily for you, LendCity does exactly that. Our team of agents work hard to find the best mortgage products from the best lenders to suit you and your investments. So, if you are ready to begin investing or want to get started with a pre-approval give us a call at 519-960-0370 or visit us online at LendCity.ca Alternatively, you can click the link below to book a free strategy call today.