Every year, the number of Canadians who fear a recession grows. With those concerns comes an increased hesitancy to invest in real estate. However, what if we told you that real estate investing can actually be a reliable strategy to ride out a potential recession.
Currently, Canada is not in a recession, however economists do point towards an increased risk of recession in upcoming years. So, it is important to plan ahead. While it may not seem obvious – after all during a recession you can usually expect property values to fall – investing in real estate can help you continue to grow your wealth, even during a recession.
So, the question is, how is real estate so reliable?
Table of Contents - Real Estate Investing to Survive a Recession
Housing is Always in Demand
One of the primary appeals of real estate investing at any point is the fact that housing and residential real estate are always in demand. After all, people need somewhere to live.
Now, during a recession many people fear losing their own homes. However, in the event that people do urgently find themselves in need of new housing, you will find it easier to find tenants to occupy your properties. During a period of economic uncertainty such as a recession, there are plenty of people who may decide to hold off making large purchases, but they are unlikely to hold off keeping a roof over their heads.
As long as you keep your properties well maintained and your rent is set at a reasonable rate, it should not be difficult to locate people in need of housing.
Cash Flow Can Be Reliable
During previous recessions, other forms of investing such as stock trading and savings funds took major hits and cost Canadians hundreds of thousands of dollars' worth of their hard-earned investments. While these investments ground to a halt, real estate continued on.
One of the top advantages of real estate investing is the ability to see both short-term and long-term gain from the same purchase. In the short-term this means that while other sectors struggled, property owners continued to receive monthly rent payments from their tenants. This allowed them to generate a reliable cash flow to continue funding their own lives.
This is why it is always important to consider the potential cash flow of a property when you are looking to buy real estate. Good cash flowing properties not only have the ability to pay for themselves over time, but they can help protect you from financial uncertainties.
Residential Real Estate is Much More Stable
While real estate is generally a strong investment strategy all around, during a recession, investors can be reminded why residential real estate is sometimes more stable than its commercial counterparts.
During periods of financial hardship, many businesses can find it more difficult to make ends meet. This leads to situations such as temporary closure, downsizing or even the complete shutdown of previously successful businesses. This can be devasting to business owners and commercial investors who suddenly lose their tenants.
However, residential real estate usually sees a much smaller impact from these financial hardships because people typically prioritise paying for housing over luxury or entertainment. Of course, this does mean that commercial residences such as apartment buildings are usually safer.
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Opportunity to Expand Your Portfolio
Recessions can be a scary time for many people who find themselves focused on keeping up with their finances. However, for real estate investors there is an opportunity to get ahead.
Since housing prices often take a dive during a recession, real estate investors who have the funds available are capable of cashing in on this opportunity to expand their investment portfolios. They can do this by purchasing the newly discounted or foreclosed homes that are available and converting them into rental properties.
Real Estate Bounces Back
One of the greatest concerns that investors share regarding recessions is the risk of their property values plummeting. Due to this, some more concerned investors may rush to sell their investment properties early on in a recession to try to protect their finances. However, by doing so they could be making a mistake.
The housing market is often unpredictable and by selling too soon, many property owners miss out on potential profits they could have made if they continued holding on. This is because despite the drop in housing prices that may occur during a recession, the real estate market can bounce back very quickly.
For example, during the 2008-2009 recession, the housing market in the Greater Toronto Area experienced a shocking series of events.
When the recession hit in October 2008, the average cost to buy a home in the GTA (Greater Toronto Area) was down by 13 per cent when compared to the previous year. However, in November 2008, the average home price was roughly $368,582 – roughly 6.5 per cent lower than the average of $393,747 seen in 2007.
This indicated a clear attempt at recovery from the local housing market which continued on through 2009. In fact, by November 2009 the average cost to buy a home in the region was reported to be approximately $394,474 and continued to grow. This means it took roughly one year for the housing market in Toronto to recover from the recession.
Do Not Let Fear Hold You Back
If there is one thing you should take away from this, it is the fact that you should not let the fear of a recession keep you from investing. After all, you cannot guarantee that a recession will happen at all and by waiting you run the risk of missing out on key growth periods that could help you achieve the financial freedom you have always wanted.
Recession Proof Real Estate Investing | How to invest in a Recession
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