Owning a rental property during a recession can be tough. When thinking of recession proof businesses, real estate rarely comes to mind. The outcomes of the 2008 housing market crash have made people wary of the risks associated with investing in residential real estate, and the term “recession” can easily conjure up fear. With another recession forecast for 2020, investors should start developing their action plans.
When Is the Next Recession?
Everyone is wondering whether there will be a recession in 2020. As of right now, it’s actually quite tough to know for sure. A number of economic experts have made predictions that the economy may fall into a recession commencing in 2020, primarily due to unsustainable monetary policy. The real estate market has been expanding for a long time (much longer than usual, in fact), and this usually indicates that an economic downturn is on the horizon. Fear not, however, since recession proof real estate investing options abound. It just takes a bit of planning and strategy, two things that savvy investors excel at.
What Not to Do During a Recession
A recession is generally a bad time to sell a rental property. If you are considering selling your property, it may be wise to hold off until you’re at a better point in the real estate cycle. One thing investors need to constantly keep in mind is that the housing market undergoes cyclical trends, and recessions end sooner or later.
This can actually be a fantastic time to buy and hold property, for a substantial return on investment a few years down the line. If you have the liquidity to manage a long-term buy and hold strategy, you stand to add some great income properties to your portfolio.
But that being said, a recession is certainly not the time to sell. Instead, you can recession proof your investment property to secure a steady rental income through to the end of the downturn. Focus on income properties as a means of recession proof investing.
How to Prepare for a Recession
There are a lot of ways in which real estate investors can prepare for a recession. Here’s how to recession proof an investment property, to keep things running smoothly.
List on Airbnb
Economic activity during a recession slows down quite a bit. People tend to spend less and cut out many unnecessary purchases from their daily lives. Tourism, however, does not get impacted very significantly. To the surprise of many, the 2008 crash did not have a major impact on demand for hotels. Therefore, Airbnb may very well be a recession proof investment strategy in 2020. There will still be substantial numbers of business travelers, foreign tourists, and local tourists to support a thriving industry.
If your rental property currently operates as a traditional rental, it may be worthwhile to look into its potential as an Airbnb. Using an advanced tool, such as Mashvisor’s rental property calculator, will give you in-depth figures about how well your property could perform as an Airbnb. If your figures look good, consider making the switch to recession proof your real estate investment by making it a short-term rental property.
Work on Resident Retention
With the economy in a downturn, many landlords may begin lowering their rent. This means you’ll have a lot of competition to contend with, as tenants may be on the lookout for a better deal. In order to maintain high occupancy rates in your rental property, look into ways that you can boost the satisfaction of your tenants, and therefore guarantee they’ll be around for a long time to come.
Competition is the name of the game, and a good strategy can keep you ahead. Ensuring that public spaces in your investment property are well-maintained and potentially adding a few facilities, can go a long way to keeping the favor of tenants. A recession proof property is one that people won’t want to leave behind.
Look at Various Income Opportunities
During a recession, you’ll want to take extra precautions to maintain the profitability of your rental property. Many landlords automatically think of a rent increase when considering ways to increase profit. While this may be a good strategy at other times, a rent increase during a recession may have a negative impact on your retention.
Instead, look into new streams of income by offering high-demand services or facilities. Many landlords, for example, have started offering a number of property-related services which increase overall income, but also provide value to tenants. These can include coordinating housekeeping services, dog-walking services, or others. Maximizing income from cash flow properties is crucial during a downturn.
Reduce Costs for Tenants
Cutting costs for tenants is one of the best things you can do to recession proof your rental property. Aside from monthly rent payments, tenants also have to contend with electricity, water and heating bills, all of which chip away at their paycheque. There are a number of things you can do as a landlord to cut these costs and therefore increase tenant satisfaction. Reduced costs will certainly be appreciated during a recession.
Installing higher grade windows, for example, can have a massive impact on your tenants’ heating bills. Many property owners are even making the switch to solar panels in order to save on utility costs. Survey your rental property to see where cost-saving improvements can be made, and recession proof your property for years to come.
Get Long-Term Lease Agreements in Place
The best way to recession proof your rental property is to make sure it will provide a steady and consistent stream of income. In the lead-up to a recession, it may be wise to negotiate long-term lease agreements with tenants. In exchange for commitment and consistency, consider offering slightly lower rental rates. This may lead to slightly lower income overall, but it can mean that you sail through the recession without a second thought, as your income is secured with a long-term lease. A good lease agreement can mitigate many of the risks in real estate investing and make your rental property truly recession proof.
Learning how to recession proof your real estate business is crucial in the run-up to a potential downturn. The US housing market 2020 may very well encounter a slowdown. But thankfully, savvy real estate investors will know exactly how to get through it.