How do professional investors brace for recessions?

General Real Estate Investing
1

Obviously, they happen…

And even those with economics degrees can’t always predict them…

Is there a way to lower the impact of recessions on your portfolio so that you don’t go bankrupt (or at least lose a lot of money)?

2

Hi,

I make this real simple, I have a sixth sense in regards to our economy and the expansion and contraction of the market.

With that said the debt as loan to value ratio is key to reduce the impact of a recession or depression. Typically in a good market as we know owning real estate at 70 or 80% of value is just fine, but in a recession reducing debt and increasing equity is the safest way to protect real estate.

         GR
3

What happens to rental rates in a recession?

I was once told that they can actually go up because more people are losing their homes and need to rent. Is there any truth to that?

4

The best and most logical way to save money for a recession is to just always save your money for a rainy day.

5

I would make sure that your properties cashflow even with a decent percentage drop in rents. Don’t buy deals with slim margins and possibly refinance loans while the rates are low so that cashflow is maximized for when rents go down.

6

Having less leverage will help you during a recession. Also having cashflowing assets like rentals. You don’t want to be caught working on to many flips when a market turns as you will be exposed if the values go down. If you do have cashflow and/or cash during a recession then it the best time to take advantage of opportunities. Its like being in a department store on Black Friday, you want to buy as much as you can of undervalued assets.

7

I am most concerned with people losing jobs due to COVID-19, vacancies will rise and that will put downward pressure on rental rates in my market. Hopefully that is not the case but I think it’s just too early to tell at this point.

8

They prepare by buying at discounted rates and staying disciplined. Check what’s currently going on with Grant Cardone who buys at market value.

Humberto Marquez
Good Neighbor Home Buyers

9
  1. Track your spending
  2. Spend less than you earn
  3. Build one year of financial runway
  4. Invest for the long-term from a position of financial strength
10

Cash reserves or access to credit is huge. This is important for the security of your own portfolio, and also for buying opportunities that may come up during a recession.

Other than that, active management of your portfolio is very important during these times.