How to Invest in a Recession
When times get tough the tough get going. Even if the broader economy has stagnated, there are always opportunities to make money in real estate if you have the right mindset and approach. Here are some quick tips to tailor your investment strategy if you want to take advantage of the low-interest rates and other economic factors that result from a recession.
Wait for the Right Moment
The key to investing in a time of economic uncertainty is patience. It's important to wait for the right moment to invest because there is no guarantee that the market will turn around immediately. The best time to buy is when the local economy is beginning to turn around, but property values still haven’t caught up. If you invest too early and the market crashes even further, you may have to wait a long time to turn a profit. But, if you wait too long and the economy rebounds more quickly than expected, you may miss out on an incredible deal. The key is to pay attention to the market you’re in and wait for key factors like the unemployment rate and population growth in the area to begin to increase steadily. If these variables are increasing consistently and property values are still low, it’s time to buy.
Practical Over Flashy
In times of hardship, everyone has to tighten their belts. Even those who are in a stable financial position are likely to be cautious about extravagant purchases during periods of uncertainty. Therefore, practical investments are crucial in a recession. A luxury condo development may be very lucrative in times of prosperity. But in economic downturns, these units will be tougher to move. A single-family home in a safe area with a low cost of living is a smart investment in a recession. It will be much easier to find a buyer or tenant right away and it may appreciate in value quickly over the next few years if you choose wisely.
Play the Long Game
Investing always requires a certain degree of risk, and that risk is only magnified by a recession. You’re swimming in uncharted waters – which means there is great profit potential, but also great potential for loss. The key is to look for the long-term potential of a property and not focus on the immediate future. It will be hard to turn a profit immediately if the public is strapped for cash, no matter how much research you do. Of course, it all depends on the local demand - but if you invest in a property that has good bones and it’s in an area with a lot of growth potential, you’re bound to make money eventually. If you’re getting the property at a discount, there’s a reason for that discount. You may have to leave the property vacant or rent it at a reduced rate until the local market rebounds. But if you invest wisely and prepare for short term losses, you could easily make all your money back in the long term when the economy recovers.
Save for a Rainy Day
Although it’s always smart to have a rainy-day fund, it’s especially vital during a recession – especially during a period as chaotic as 2020. There is always a risk that the recovery will take longer than expected or there will be another sudden crash. If you put all your chips on the table, there’ a very good chance you may lose them all. But if you store some cash or have liquid assets like stocks or gold available to neutralize any short-term losses, you’ll be in a much better position to survive any sudden downturns and eventually turn a profit on your new real estate investment.
How you tailor your specific strategy depends entirely on you and the market you’re targeting. However, these are a few useful tips to help you navigate the choppy waters or an economic downturn.