The real estate market goes through a cycle throughout the years with upswings and downturns. When the economy is booming, the real estate market will be in an upswing. The real estate market willfollow the economy as it starts to make a downturn as well. During a downturn, it is only natural for any real estate investor to worry about the business.
Whether you are a residential or commercial real estate investor, any upcoming recession can feel daunting and problematic. Commercial real estate investment in Dallas has the potential to go into a downward spiral much as the economy would across the country, however, a downturn is a time to take action to mitigate any potential losses.
Here are some of the best tips to help a real estate investor survive the downturn in an economy.
Do Not Sell
A downturn is not the time to make any real estate investment decisions. When the economy begins to go into a downward spiral, property values will plunge. Even if you were beginning to think about starting to sell your property, as the economy goes down, it is best to wait it out. Since the housing market is always fluctuating, there is no reason to panic sell immediately.
Selling ahead of time in the hopes of mitigating any potential losses could only mean that you lose money in the long run. Some investors find themselves jumping ship before they give the economy a chance to improve as it always will. The improvement in the economy will eventually bring the value of the property up so that you do not lose any money.
Run it Like a Business
What makes a business stand out and thrive during a downturn is the availability of financial resources. The better equipped a business is to handle the downward spiral of the economy and the housing market, the higher the chance of its survival. There are a few tips that even a real estate investor needs to keep in mind during those hard times:
- Keep an emergency fund – plan ahead and save enough money to cover the cost of any potential losses.
- One year emergency fund – apart from the emergency funds that may cover losses, save enough money to keep yourself afloat for an entire year as you wait out the recession.
- Cost-benefit analysis to help keep your expenses in order
As you start the process of filing your taxes at the beginning of the year, work toward maximizing any tax benefits available to you as a real estate investor. These benefits could help you in writing off business-type expenses during the downturn of the economy. The idea is that if you are making money in the long-run, you should have no problem surviving the small blip that a downward spiral would be. If you find yourself unsure which tax benefits pertain to you, do not hesitate to reach out to an accountant.
Part of commercial real estate as an investor is the risk for vacant spots. Any recession will have people and businesses scrambling for money to keep themselves afloat. Tenants that reside in any of your commercial buildings, and sometimes even residential ones, may start looking around for places with cheaper rent.
If you were planning on going into residential or commercial real estate, it is best to wait around for the economy to start spiraling upward again, taking the housing market with it. There is a greater potential for a return on your investment. Were you to make the investment at the beginning or during the downturn, you may find yourself having to cover most of the costs with tenants unable to afford a proper rent amount.
The real estate investment business hinders on your ability to keep your tenants happy. This would apply during an upward or downward spiral of the economy. Of course, during a recession, as mentioned above, most tenants begin to start looking around for cheaper places leaving the investor behind to cover the costs of the mortgage on the property alone.
Keeping your tenants happy is a critical step in maintaining your business. Become the best landlord that they could hope to come across and help them stay with you during their most challenging times. People and businesses are most likely to remain in an area where they are cared about.
The tip to diversify is one that will apply whether there is a recession in the economy or not. Diversification means that you have not left all of your eggs in one basket but, instead, branched out toward other money-makingendeavors. Though the real estate market is much less volatile than the stock market, for example, it is not completely without risk.
Spread out your financial investments across different areas or types of real estate. This will help you maintain significant cash flow and pull all of your investment to the other side of the economic recession.
When preparing for a downturn in the economy and housing market, as a real estate investor, it’s important to remember that it should be treated like any other business would. Plan ahead of time as you save money for potential losses that might arise as the housing market begins to go into recession slowly.
Your tenants, whether residential or commercial, are the bread and butter of any real estate investor. They are what help you pay your mortgage and leave you with residual money. Keep your tenants happy, especially during those harder times, so that their loyalty toward you will outweigh their need to begin searching for a more affordable place to spend their hard-earned money.