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With talk of an upcoming recession becoming more frequent with each passing day, Canadian real estate investors are looking for a method to protect their portfolios from the potential economic fallout by building strong recession investments.
However, the first thing you need to know is that nothing is guaranteed – so it is important that you do not panic and instead keep a level head and pay close attention to what the market is doing. A sudden minor dip in housing prices could be an indicator of an upcoming recession, but it also could just be a slow period for the market without any other long-term consequences.
Regardless, you should always be aware of the risks a recession may impose on you and your portfolio and plan accordingly so that you are building recession investments that will stand the test of time.
So, if you would like to learn how to build recession investments that can outlast the potential financial troubles ahead, we want to help you. All you need to do is click the link below to book a free strategy call where we can discuss recession investments and financing that will likely continue to work for you no matter the market conditions.
Recession Investments – Understand the Risks
A recession has the ability to cause a variety of economic hardships as Canadian residents begin to experience the direct effects of a tightening economy. However, for real estate investors, there are three key risks you need to be aware of when considering recession investments.
Tenant Layoffs and Unemployment
If you are investing in rental properties, one of the biggest risks you will need to worry about during a recession is potential layoffs and unemployment causing your tenants to lose their income. While you can try to protect yourself from this by getting loss of income insurance for your properties, making those claims will take time and your cash flow can take a serious hit in the meantime.
This also can create a difficult ethical dilemma where you will need to decide whether you are going to evict your tenants for not being able to pay their rent after they have already lost their jobs.
Reduced Property Values
During a recession, property values have a strong tendency to take a steep dive. While this may be great when you are trying to buy new properties, it also means your existing investments lose their value and investment tools such as a HELOC (Home Equity Line of Credit) or a cash-out refinance become less powerful – or unavailable in some cases.
Properties Become Harder to Sell Fairly
If you are forced to sell a property during a recession, you may be surprised to find that it is going to be much harder to make the sale at a fair price. Properties that hit the market during a recession are typically highly discounted and buyers will be consistently trying to secure a deal for less than the initial asking price.
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Is Canada Entering a Recession?
Canadian economists have been signaling that the risk of a recession in 2023 is high. However, the truth is that the economy is not always predictable so conditions can always change for the better. There is also no guarantee on how severe a possible recession would be if one were to occur, so instead of planning for a ‘worst case scenario,’ it is more important that you learn how to adapt and respond to market changes so that you can hold on to your recession investments and continue to thrive and grow.
Why Luxury Rentals May Not Be as Profitable During a Recession
Since alongside a recession people frequently find themselves facing reduced hours at work or even potential job loss, expensive, luxury rentals may become less profitable during this time. After all, luxury is not the first thing on people’s mind while making recession investments.
While you may be fortunate enough to find that none of your tenants lose their jobs or lose part of their income and are capable of continuing to afford their rent, the risk of rent affordability declining is something that you need to be aware of.
The Advantages of Affordable Rentals as Recession Investments
During a recession, the demand for affordable rental housing is likely to see a massive spike as people find they can no longer afford to stay in more expensive rentals and homes. As well, some people may try to take precautions to maintain their finances proactively and downsize their rent into something more affordable so that they do not have to face a potential eviction.
So, by owning and operating affordable rental properties you can increase your odds of experiencing a continued demand for your property and avoiding vacancies.
Offering Rent Discounts During a Recession to Preserve Cash Flow
It is always better to profit less than it is to lose money outright. So, one option you may want to consider during a recession is lowering your rents to hold onto tenants instead of losing them and running the risk of not finding new renters.
However, instead of directly lowering your rents during a recession and finding yourself limited by rent control laws once the market recovers, one strategy you can use to keep tenants in your properties is to offer them a temporary rent discount while the market is slow for a limited period.
If you do this, make sure that you get the full agreement in writing and signed by both you and your tenants so that you cannot be forced to honour the lower price after the discount period is over.
Secure the Best Available Rates Today
If a recession hits, you do not want to waste a dollar on unnecessary interest payments or higher-than-necessary mortgage payments. So, you need to make sure that you are locking down the best available mortgage rates today.
Fortunately for you, at LendCity, helping people like you get the best rates on the market is what we do. So, if you are ready to start making recession investments that can stand the test of time, give us a call and our agents will get you started.