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Succeeding as a real estate investor means that you need to prepared for the bad times so that you can properly enjoy the good times. That means understanding what you should and should not do in the event of a recession so that you can continue to grow and thrive despite improper market conditions.
Recessions can easily cause serious harm to your investment portfolio if you are not prepared for them or if you allow yourself to make unnecessary mistakes while trying to ride through the storm. However, that is not a reason for you to become scared. In fact, it should fill you with a resolve to learn and grow so that if a recession does hit, you are well prepared to weather the market and come out on the other side even stronger than before.
So, in order to help you build a recession-proof investment strategy let’s take a look at four mistakes that investors can make during a recession, how they can harm your portfolio in the long run, and how you can avoid them.
Of course, before we dive in, if you want to take immediate actions to protect your investments, click the link below to book a free strategy call with a member of our team here at LendCity.
Is There A Recession Looming in Canada?
First, before we get into the mistakes that investors make during a recession, we need to take a look at the risk of a recession in Canada and how realistic it is to expect on in the near or distant future.
At the time of writing this, following the current economic downturn, economists in Canada are currently signalling that a recession is likely to occur during the first two quarters of 2023.
However, it is important to remember that while the economy occasionally does follow some key patterns, a variety of factors could suddenly cause the economy to turn around. If the market does make a recovery, it is possible for us to see the recession be avoided or the impacts of it could be greatly reduced.
So, the key takeaway from this is at the market can change at any time so you should never take warnings of things that may come as a sign of impending doom for your investments, instead you should take it as a sign of caution so that you can remain careful with your investments without panicking and opening yourself up to mistakes.
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4 Critical Mistakes That Can Hurt Your Investments
There are four critical mistakes that you should be aware of so that you can avoid them while investing during a recession.
Panic Selling and Selling Early
One of the biggest mistakes that people will make leading up to and during a recession is panicking. By allowing yourself to get scared and become overwhelmed it is very easy to let the flight response win and try to cash out on your properties to avoid taking a massive loss.
This is a horrible mistake that can cost you thousands of dollars while also making the overall situation worse for the market as a whole. Typically, by the time economists start signalling that a recession is approaching the market has already been on the decline, so selling to try to avoid taking a loss is counter productive. Instead, you should be focused on securing your investments to ride out the recession. Then, once things are over you can debate selling properties you no longer wish to hold.
Cutting Corners to Perform a Quick Flip
Discounted properties are commonplace early on in the recession as property values are on the decline. So, it is not surprising to see that some investors try to use this period in order to perform fast flips by cutting corners to save on costs and then selling once the market bounces back.
Unfortunately for them, but fortunately for the buyers on the market, home inspectors and appraisers know how to spot a cheap renovation and poor-quality materials. So, this means that by cutting corners on a flip, the flipper only really winds up cheating themselves out of what could have been a successful investment.
Ignoring Business Trends
One of the best ways to supplement and diversify your investment portfolio is to buy stake in business real estate and commercial properties. However, during a recession many businesses begin to slow down, and even strong, reliable companies can potentially go under or be forced to downsize.
So, when you are preparing for a recession you need to keep an eye on business trends and invest only once you know something is going to stand the test of time instead of blindly spending money.
Trying to ‘Time the Dip’
During a recession, some people like to take a gambling approach to buying properties and wait for the market to dip further so that they can snag the best deal possible. However, as previously discussed, the market can bounce back very quickly and with very little notice so by trying to time the next dip in the market all you are doing is wasting time while risking prices coming back up.
As well, while waiting for prices to dip again you can miss out on any profits or investment opportunities that may slip away during the waiting period.
Remember: Plan for the Best and Prepare for the Worst
It is important to remember that when you are planning your investments you should never plan under the expectation that everything will go wrong. Instead, you want to build investments that appeal during the best of times. However, that does not mean you should not prepare and arrange your investments so that they can survive the lows of the market.
So, if you want to find a mortgage that is designed to help you experience the best available financing regardless of the condition of the market, give us a call at LendCity. You can reach our office at 519-960-0370 or you can visit us online at LendCity.ca to fill out our easy online application. Alternatively, click the link below for a free strategy call today.