Every housing market investor or homebuyer faces the possibility of an economic meltdown.
It has happened in the past, most notably to thousands of homeowners during the Credit Crisis, and it has the potential to happen again.
Years of hard-won saving and careful money planning towards a housing market purchase can evaporate in no time.
Fortunately, there are steps housing market investors can take to protect most of your property from a housing market crash or even a global economic downturn.
Housing market investors can build a sound defensive plan on preparation and diversification, and these two elements can work together to help investors weather a financial storm.
How to Avoid a Housing Market Crash Money Pain
In many parts of the United States, a real estate market decline appears to be unavoidable.
Several major institutional real estate investors say there are indications a market slump is due, so with that in mind, now is the time to prepare for another real estate market downturn.
Also read: End of the Housing Bubble? 13 Predictors of a Housing Market Crash
If the home market slump occurs, being prepared is the best defense. Here are some of our best recommendations for recession-proofing your real estate assets and thriving in a weak market.
1) Keep Cash in Hand and Diversify Your Liquid Fund Sources
In some way or another, recessions impact all households – businesses close, unemployment rises, and homeowners are more likely to miss monthly mortgage payments.
However, it’s not all doom and gloom. For the nimble and well-prepared investor, it’s possible to thrive in a housing market downturn.
Those who understand how to acquire property in a downturn know that opportunities may arise during this period. There is usually an oversupply of homes available at discounted prices in a declining market.
Most property sellers are in financial difficulties and want to sell as soon as possible.
One thing you can do to improve your chances of surviving the next real estate slump is to build up your cash reserves and other liquid assets.
Make sure you’re not over-leveraged and don’t waste money unnecessarily. You will be able to proceed with purchasing an investment property if you have easy access to funds, and you’ll be able to buy more real estate if you have more liquid funds.
2) Ensure That Your Properties are in a Well Maintained Condition
If you’re worried about the possibility of a real estate slump, making your rental properties the best available in the local market is an excellent way to protect your portfolio.
Preventative maintenance, property repairs, and critical upgrades are all worthwhile investments.
It can help you enhance the quality of your rental properties and keep them appealing to tenants looking to renew their leases.
Also read: Must Watch Indicators for Real Estate Investors to Warn of a Housing Market Crash
Tenant retention is critical to weathering a downturn, so if your rental property is in the best condition possible, it will continue to rent regardless of market conditions.
Furthermore, while deferring maintenance is common as people try to balance their budgets, it’s best to take care of all maintenance issues right now.
3) Develop Banking Relationships
It is also the right time to establish several banking contacts if you need to borrow funds for future property investments.
It’s preferable to go with a local community bank or credit union with experience working with real estate investors. It’s easier to get a loan from a bank you’ve done business with before.
If your credit score is low, don’t forget to improve it. While mortgage rates are often low during a recession, you must take advantage of the opportunity to get clear of anything that can prohibit you from refinancing in the future.
4) Get Rid of Risky Assets
A sensible precaution for real estate investors is to trim their portfolio of more risky or underperforming properties.
If the property has failed to provide the anticipated ROI during a strong market, there’s no reason to believe it would perform any better during a real estate slump.
Should you decide against selling, you would need to consider whether the maintenance and funding costs are sustainable during a market slump and at a time when the property value has fallen.
Also read: Housing Market Prices: Big Reasons Inflation Could Lead to Prices Dropping
Get rid of any rental properties that are not doing effectively and maintain just the ones that can withstand the storm in your real estate portfolio.
Because property prices are still high, this is the right time to sell investment properties that have appreciated considerably.
5) Purchase Cash Flow Properties
To prepare for a housing market slump, investing in cash flow properties is another consideration. In a property market downturn, properties with positive cash flow become more valuable.
Having a rental property with negative cash flow during a real estate slump can financially put you in a tight spot causing more than just money problems.
Use the right tools in your property search and research to ensure that you only buy income homes with positive cash flow. These real estate investment tools allow users to search for and analyze properties for sale in the housing market.
6) Negotiate Long-Term Leases
Vacancies tend to rise during a housing market downturn. Having long-term tenants is one method to guarantee consistent income flow.
Take notice of financially secure tenants who would be able to pay rent even if the economy tanked, and talk to them about extending their lease term or renewing their lease before it expires.
Everyone began the year with a positive attitude and a sense of optimism.
Also read: Reasons to Now Fear the Pain of Housing Market Prices Fall
However, the continuing COVID-19 spread and other economic factors impacted home-selling activity, and a housing market crash appears to be a possibility.
The key to weathering a potential real estate downturn is to plan, and take advantage of the remaining good times and prepare for the next housing market downturn.
Current and prospective property investors can use the above tactics to create a housing market downturn plan that will help them survive and grow.
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Disclosure: The author is not a licensed or registered investment adviser or broker/dealer. They are not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money.
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Tim Thomas has investments in real estate.
This post was produced and syndicated by Tim Thomas / Timothy Thomas Limited.
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