Some believe there will be a rescission in 2020; all know there will be a recession eventually. When that recession hits, you’re going to want to know what to do! Luckily, recessions have occurred often enough that people are able to identify markers that indicate whether a downturn is afoot or not. Recessions have also occurred often enough that there are strategies to not only weather them but to profit from them as well. Either way, knowledge is key to unlocking the door to prosperity!
Will there be a recession in 2020?
Since 1950, each of the nine major US recessions occurred within 34 months of the yield curve inverting. An inverted yield curve is what happens when near-term Treasury bonds have a better return on investment than long-term Treasury bonds. It’s important to note, however, that the yield curve inverting doesn’t necessitate a recession. The yield curve inverted in 1966 and 1998. Neither time was followed by a recession.
According to Zillow, experts predict next recession will begin in 2020. This is from a study where the popular online real estate company surveyed 100 real estate experts and economists. Other experts point to strong economic growth, spending, and development as reasons why a recession is not on the horizon. The shaky foundation provided by the Trump Administration, however, has fueled fears that monetary policy, trade wars, and a geopolitical crisis will set the stage for economic troubles.
Will the housing market crash in 2020?
The experts at Zillow, however, believe that a housing market crisis is unlikely to be the main culprit behind the next economic crisis. In fact, Zillow’s survey participants expect home values to grow by 5.5% in 2019. There’s some concern that it’ll be harder to take out a mortgage due to high-interest rates, but limited home availability, an abundance of demand, low unemployment, and consistent economic growth has actually improved the outlook of near-term home prices.
Is real estate a good investment during a recession?
During a recession, housing prices may fall. The question to ask if this happens isn’t, “How low can will they go?” but, “How much can I get?”. During a recession, being able to ride out the downtime is as important as getting the right price. And there are several types of investments that are well suited for recessions.
What happens to rent in a recession?
There is no one thing that happens to rent during a recession. When homes become unaffordable, many tenants turn to rent. The job market also plays a significant role in the rise and fall of rent. If the jobs go then vacancies are likely to follow; if jobs remain or grow, then the price of the rent may go up.
Additionally, recessions are often accompanied by an increase in cohabitation. Kids move back home, people seek out roommates, etc.. If you plan to invest in rental properties, it’s wise to look at areas that are recession-proof due to the industries you’ll find there. This may include colleges, government, medicine, etc.
What are good real estate investments in a recession?
Real estate investments that do well during recessions do well outside of recessions too.
These investments can weather economic downtimes, and are particularly appealing to those seeking more affordable options. And when funds are tight, people want more affordable options!
Multifamily Real Estate
When the economy is bad people spend less. Retail sales go down, and business go under, which leads to less demand for office space and an increase in hotel vacancies (business people travel a lot!). Constructions slows as well. Layoffs, foreclosures, and tightened belts; when the going gets tough, the tough get going… to affordable housing options! What does this mean for investors? It means investing in commercial multifamily real estate! People will always need housing, and if you’re in control of affordable options then you’re in luck. The same goes for owners of storage units. Because when people downsize many of them need a place to keep all their stuff.
It’s a recession, which means that by definition luxuries are going to take a hit. But people still need stuff! It’s just gotta be stuff that’s affordable. During down times, discount retail is known to experience slight upticks or smaller dips relative to the market at large because demand for discount retail goes up.
If you have the time, an AirBnB could be a reliable source of income. You rent rooms short term, either for a night or a week (although longer stays aren’t unheard of). If your property is in a solid location, has good amenities, and is a nice place in general then you could have a real cash cow on your hands!
You’ll have to put in the effort of keeping listings and calendars up to date, interfacing with renters, and making sure that people are in and out on time, but otherwise an AirBnB is a passive source of income. You’ll have to check local laws to make sure short-term rentals are allowed, of course, and maintain the quality of your property, but otherwise an AirBnB doesn’t require that much upkeep.
Diversify into REITs
Real estate investment trusts (REIT) are a great way to diversify your investments while having access to greater liquidity. That’s because these portfolios of various real estate investments are traded on public exchanges just like stocks, so you can sell them more easily if need be. REITs that find their assets in stable sectors like healthcare, self storage, and office space are a great way to ride out the economic low tide.
Invest in Student Housing
No matter how bad the economy is students are going to be going to school. That means there’s always a demand for off-campus housing. You’ll have to find a hospitable market and athletic conference, but that’s the research you have to do to up your luck.
Pros to Buying Investment Properties in a Recession
Before making any investments you need to think about your own life circumstances. Will your job be affected? Do you have enough in savings in case of emergency? Is your health at risk? If it looks like you’ll be fine then the best reason to buy during a recession is that you can find eager sellers.
Sure, some sellers may be in a state of denial and, as a result, price their homes for more than they can get. So, look around for a property you like that’s been on the market for a while and make an offer you’re more comfortable with. Who knows, they may even be willing to throw in some bonuses because they need the sale so bad. If you’ve ever wanted a Roomba and they’ve got one, feel free to ask!
Buying in a Down Market
If prices are dropping it makes sense to want to buy a home if you already have the money and desire to do so. But you also don’t want to buy a home and then have its value decrease further after you’ve bought it. If you’re looking to unload a property it may make sense to sell and then wait a few months first. If you make your sale and purchase simultaneously you’ll likely still win out so long as the price reduction is significant enough, but patience is a virtue for a reason! Wait on your sale a little bit and you may be greatly rewarded.
Buying Distressed Sales
A distressed sale is an all-cash sale. These properties tend to be cheaper because homeowners on the verge of foreclosure or banks and lenders who own foreclosed homes are eager to make a sale. That translates into good deals. If you buy a distressed home cheap you can potentially also sell high, which is always a plus!
The downside is that buying a distressed home may require a lot of paperwork, which stretches out the process. Sellers may also be playing the waiting game before they get a better deal. Additionally, the locations may not be ideal and a distressed home may require significant renovation, so make sure to do the proper research before buying your home.
Buying Short Sales
A short sale refers to that window of opportunity that exists between a home being in foreclosure and home going up for public auction. The lender must accept less than what’s owed on the property. The reason the lender agrees to the sale is that they’re avoiding a foreclosure altogether. This option is also great because the buyer isn’t paying off an existing loan or taking care of back payments. They’re just getting a property for less!
Buying Post Foreclosures: REOS
When a bank comes to own a property due to foreclosure, these properties come to be known as “REOs” (real estate owned). There are two appealing things about REOs. One, if the property has two mortgages and the second lender isn’t able to make up the payments owed to the first lender than the second lender ends up removed from the foreclosure! That’s a big deal because a second mortgage’s percentage of the property’s original market value may be 20% or more! You may also end up getting the property for a significantly reduced price simply because the bank wants it sold sooner rather than later.
Cons to Buying Investment Properties in a Recession
Not all homes that are priced to move will be worth pouncing on. These homes may require extensive renovation, or just be in an area that’s just not hot. When times are tough, sellers may also be desperate enough to gut the copper pipes from their homes, so be on the lookout! Given all this, hiring a good appraiser may be the way to go to avoid buying a home that’s more trouble than it’s worth.
Impact of Defaults on Market Value
The effect of a neighboring foreclosed homes on the market value of your property depends on how quickly and discreetly the foreclosed home is sold. If the property moves fast and appears just like a normal sale, your home will remain unscathed. But if there are signs everywhere advertising that the home is foreclosed, or the home falls into disrepair and remains on the market for years, then it’s possible you’ll be adversely affected. If potential buyers see a house that’s been abandoned for years they’re likely to wonder what’s wrong with the area that’s causing this home to not be sold.
If you go to an auction to buy a foreclosed home and end up beating the pros who often show up to such bids, then there are a few drawbacks to consider. Chief among them is that you likely won’t be able to inspect the home before purchasing it and you’ll have to make your purchase with cash only. It may still work out to buy a home you don’t get to inspect because the lower price may cancel out the cost of repairs. If there are significant repairs that need to be made, though, the bank is unlikely to renegotiate the price.
Another potential drawback of buying a foreclosed home is that it’ll be on you to evict the occupants. That’s something you’ll likely want a lawyer to handle, especially considering that sometimes tenants sue in retaliation! To avoid such a mess, you may need to pay or even brive the occupants to move out.
Ways to Lose Your Home
There’s more than one way to lose a home! You could fail to pay your taxes; you could fail to pay the dues for the homeowner’s association you belong to; you may lose your home if you file for bankruptcy; participating in criminal activity may cost you your home; and you may have cosigned a loan with someone who themselves has stopped making payments. The less risk you expose yourself to the more likely you are to hold onto your property. You don’t want to be on the losing end of a recession!
The best-case scenario for buying a fixer-upper is that you get a home no one wants now but everyone will want later. You should have the home inspected by specialists. Many of the changes that a home may require may be superficial and easy to provide.
Keep in mind that the same conditions that may doom a regular home would also doom a fixer-upper. So, make sure the home is in a good location as opposed to on a busy intersection or on the same block as a sewage processing plant. Also, remember that the same qualities that make a regular home appealing make a fixer-upper appealing as well. A three-bedroom, two or more bathroom fixer-up will attract many buyers once it’s been fixed up!
Using Predictive Analytics to Find a Recession-Proof Investment Property
Using predictive analytics is just fancy talk for saying that you should study the past to try to make predictions about the future. Yes, past events don’t guarantee future outcomes, but that doesn’t mean you shouldn’t be well informed!
A recession is an excellent opportunity to make extra profit because homes are often priced to move. A profit is not guaranteed however! As with any real estate investment, proper research and consulting with experts will increase the likelihood of your success.
And you want to be successful! Not just because success is inherently desirable, but because there’s nothing worse than having the money to weather a recession but losing it because you weren’t properly prepared to spend it. Luckily, its easier to save or increase your money if its in good hands. And with the right knowhow, those hands can be yours!