As talk of a possible recession increasingly pops up, some investors are debating whether or not now is the time to downsize their real estate portfolios, according to an article by the Forbes Real Estate Council this week.
“The first thing to realize is that a recession is always coming,” the article states. “Anyone who owns their home or invests in rental properties will weather any number of recessions over many years. There are opportunities and deals to be had in every market. Successful investors who know how to work a recession never sit on the sidelines, but rather know how to recognize those opportunities.”
Investors who suffered during the Great Recession last decade were hit by plunging home prices, and have good reason to fear that another recession would impact housing markets similarly. But most economists say that we’re unlikely to see a repeat of 2008 even if there is another recession, as the real estate sector has historically performed well during earlier economic downturns. In addition, a fall in home prices doesn’t always equate to a similar drop in rental rates, Forbes noted.
Still, many investors are looking at strategies to avoid the negative impacts of a recession just in case. Such strategies include beefing up their cash reserves and generally moving more cautiously so as to not overleverage themselves, Forbes reported.
The article also warns investors against panic selling at the bottom in the event that a recession does hit the real estate sector hard.
“Even if prices drop, they will recover. Economic cycles make property values go up and down, but over time real estate historically always goes up,” the article reads.
The key to overcoming any dip in the economy is to maintain a positive cash flow, Forbes said.
“Even if on paper, the value of your investment properties drops, if they cash flow positively you’ll emerge from the recession a happy investor,” the authors added.
Recent trends have seen real estate investors buy up more properties in high-demand areas such as college towns, which often tend to be more insulated from market swings. And some investors are banking on a recession as an opportunity to take advantage of lower prices, sitting on cash reserves and waiting to pounce. Many smart investors bought up some heavily discounted properties in the last recession, and will be looking to do something similar again.