During tough economic times, it may seem counterintuitive to expand your investment portfolio and dive into real estate. However, economic downturns can create advantageous moments for buyers, making residential real estate investments a safe haven for steady income.
Unlike stock market volatility—that can fluctuate drastically at any given moment—real estate’s relatively low correlation to stock market movements can make it a safer investment choice during recessions.And because each city has its own dynamics between supply and demand, a recession can impact parts of the country differently, leaving room for opportunity. So, how can investors dip into the real estate industry when the economy is in a slump?
Think and execute strategically
The old adage of location, location, location is justas true whether we are in a recession or under normal circumstances. When scouting potential properties to buy, consider factors like the area’s job availability and stable employment numbers. If a rental property’s tenants are out of work and unable to pay rent, that leaves you in the lurch with little money coming in from said property.
Consider, too, teaming up with local realtors or real estate agents to inquire about listings, price ranges, and communities at large. This will help inform how you approach a seller and what bargaining room exists for properties.
Find the motivated sellers
Finding a motivated seller could result in a negotiable sale price, and there are a few ways to spot out those potential sellers. A property that has been on the market for several months—and has undergone several price reductions—is more than likely going to sell quickly if approached by the right seller. The same goes for a home that is sitting empty, suggesting that the seller has moved out and is possibly paying two mortgages.
This is where real estate agents can come in handy, as they have access to the Multiple Listing Service (MLS) and can compare the original list price with the selling price for similar homes in the area. They’ll also have knowledge about how long a property has been on the market. The more information you have readily available, the more leverage you have going in as a buyer.
Make sure the title is clear
A recession means many people are likely facing financial challenges, and as a result, could be burdened with a lien on the property or facing foreclosure. Investing in a lawyer or title insurance company to do a search on the property can be the difference maker between buying a property that’s in good standing with a bank or lending institution and absorbing its liabilities.
How has COVID-19 changed the real estate investment landscape?
According to the National Association of Realtors, the sales of existing homes have surged, rising 10.5% on an annual basis since August. As social distancing protocols went into effect and remote work increased significantly, wish lists of what homes should be able to accommodate have shifted. Space for offices, children’s learning, and the desire for yards has led to an increase in single-family homes.
As a result, between March and mid-September, roughly390,000 fewer homes have been put on the market when compared to this time last year. A shortage of inventory and low mortgage rates are driving hungry buyers, creating a seller’s market. But that also means there’s a higher propensity forbidding wars and higher sale prices—the opposite of what recession home-buying typically looks like.
Ultimately, doing your due diligence should never be sacrificed, no matter the circumstances surrounding a potential buy. At a time when a pandemic has wreaked havoc on many industries and sectors, it is more important than ever to consider tech-heavy locations with younger demographics where people are likely to work remotely and salaries are more likely to remain steady. Whether buying a multi-unit property or a single-family home, the likelihood of it being a more successful—and faster—buying and closing process is dependent on the demographics and location.
Looking for financing for your next project? As a leading nationwide private lender, you can trust Temple View to provide a solution you can count on no matter what the economy is doing. Contact us to learn more.