Protect Your Investments from a Recession With These 3 Great Tricks
Canadian economists have been reporting warning signs for a recession for some time now, and with the cost of living and rate of inflation higher than average, many investors are starting to get nervous. However, instead of going into a frenzy, it is important that you take this time to prepare to protect your investments.
After all, a recession is not the impending doom that some people would make you believe that it is. While it is true that during a recession it may become difficult to maintain parts of your portfolio and protect your investments, things are not hopeless.
In fact, if you want to start taking steps to protect your investments today, click the link below to book a free strategy call with our team at LendCity.
If Canada Goes Into a Recession, Do Not Panic
The first thing that you need to know is that if the country does go into a recession, you should not panic. Panic selling is easily one of the easiest mistakes that an investor could make, and it can quickly made a bad situation notably worse.
This is because panic selling is a double-edged sword. First, by selling your property during a recession, you are more likely to fetch a lower price on your sale. This means that you are surrendering your hard-earned equity to poor market conditions. As well, once people begin panic selling their property, it signals to other investors and homeowners that their properties are not manageable, and it can result in countless others rushing to sell their properties as well.
These factors combined serve only to further weaken the market and increase the number of people impacted by these events. Instead, you should look at methods to protect your investments.
How to Protect Your Investments
So, instead of panicking and selling off assets once a recession hits, what are you supposed to do? How are you meant to protect your investments from declining market conditions in order to watch them bounce back in the future? Well, there are three things you should do to maximize your chances of going through the recession unscathed. These methods are:
Avoid Overly Risky Investment Opportunities
During a recession, the market is understandably in a more volatile position. Therefore, risky investments become increasingly dangerous to pursue as people all migrate to safer parts of the market.
For example, while you may currently have a successful short-term rental business going, tourism is often one of the first industries to feel the effects of a recession as people begin to spend their hard-earned money on essentials instead of travel and entertainment. As a result, these investments which already live and die off of the demand for temporary accommodations become much riskier to operate. Fortunately, most short-term rental properties can be converted into long-term rental properties in a snap simply by marketing them differently. This allows you to moderate your risk level and maintain a steadier position for your portfolio in the market by preventing a potential loss in cash flow that could protect your investments.
Control Your Debts
Some investors who are looking to grow their portfolios quite rapidly manage to do so by temporarily over-leveraging themselves and taking on large amounts of debt under the expectation that they will be able to make the money back in the long run. While this may be manageable for some investors who do this carefully during prime market conditions, it becomes significantly more dangerous during a recession.
Beyond those extreme cases, it can still be incredibly advantageous to try to maintain low to moderate debt levels during a recession and beyond. After all, the less debt you have to manage, the easier it will be to stay on top of your monthly payments for your investments regardless on whether your finances begin to tighten.
As well, you should try to consolidate your high interest debts whenever possible. This can be done in a few different ways such as refinancing a property or taking our a HELOC (Home Equity Line of Credit) to pay off debts and convert them into a single debt. This often can result in you paying less in interest long-term while also reducing your total monthly payments across various sources of debt.
Maintain Diverse Investments
Not all areas of the market are impacted the same way during a recession. For example, tourism-centric investments may take a dive while residential investments may hold steady. However, you can never be certain which area of the market will take the greatest hits at a given time, so the solution is not to simply ‘play it safe’ and bet all of your money on one market that feels steady, because if it does wind up taking a hit, you can blow a large portion of your portfolio all at once.
Instead, you should have an array of diverse, versatile investments so that if one particular part of your portfolio begins to take a hit, your other investments can cover your losses while you wait things out or find a new solution to restabilize your property’s income.
Discover How To Buy Unlimited Rental Properties With This Step By Step Guide
Remember: Playing It Safe is Reliable – But Risks Can Still Pay Off
While playing it safe is definitely a wise choice when you are investing to survive a recession, that does not mean that you need to avoid riskier investments outright.
For example, in cities like Toronto, it is not uncommon to find investors who will buy key properties that produce negative cash flow specifically because they are likely to experience high levels of appreciation. This means that the amount of equity in that property can be large enough to refinance out and protect your investments in other properties as long as you can afford to continue paying for the property.
Protect Your Investments With A Reliable Mortgage
If you are looking to protect your investment from the risk of a recession in order to minimize your potential losses, you should always start by getting the best available mortgage for all of your investments. That is why at LendCity we work with a wide network of lenders so that you can always rest assured knowing that you got the best deal for each of your properties.
To learn more or apply online today, visit us at LendCity.ca or give us a call at 519-960-0370. Alternatively, you can click the link below to book a free strategy call at the link below.