Have you read articles on the recession being overdue? If history really does have a way of repeating itself, then it is true… a recession in on the horizon. The economy has been set back every 10-11 years, and we are plowing in to year 12. Some say that since the economy didn’t really start to come back until 2012, then our recession will be in 2021/2022. I say, we should all just prepare ourselves for the worst, whether it comes or not. It’s exhausting trying to predict the future! Here are some tips for managing, or continuing to buy real estate as we more forward.
If you already own real estate, it’s a good time to check in on your portfolio to see how it would perform during a recession. If you are still looking to get in to buying, now is still a great time to invest and buy real estate– interest rates are low, don’t let a possible recession stop you. As long as you plan for the worse, you are all set. People are always going to need a place to live, and that’s where good planning is really important.
1- Buy real estate for the cash flow
A prominent problem that people get in to when they lose control of their real estate asset is not being able to afford the monthly mortgage. If you can’t pay your mortgage, you’re going to lose your asset. Therefore, it’s important to plan for a worst-case scenario. In a recession, could you afford to rent your asset for a couple hundred dollars less than what you are now? If you have to lower the rent to stay at market value, then so be it. As long as you plan for enough cash flow each month, that should be no problem. If you are not getting enough cash flow on your property in this positive market now, it may be time to reconsider your asset.
2- Know when to hold ’em
When you buy real estate for investment purposes, there are several different loan types that you can get from a bank. It is a good idea to secure long-term debt that you know will be set in place, even if there is a recession. If your balloon loan payment comes due during a recession, it can become an issue to put long-term debt coverage on your property, and if you can’t pay your loan each month, then you’re not sitting pretty. I usually go for a 25-30 year fixed mortgage, so I can get enough cash flow while having a secure long-term debt to the bank.
3- Have some cash reserves
In an event where you may need to put some money in to your asset, whether you need a new roof or you need a new water heater; it’s important to have some liquid cash available to you if you need it. Setting aside a fixed amount of your cash flow can help in times of need, or in the case of a recession. During times of recession, it becomes hard to liquidate any of your assets, so having that extra savings can save you if disaster strikes. You want to be able to take care of your real estate, even when times get hard.
What tips do you have for planning for a recession? Leave a comment below…
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