Advice for the Savvy Real Estate Investor
Economic down cycles offer incredible opportunities for savvy real estate investors. Wealth is created when buying low, not acquiring at the peak of the market. The biggest mistake investors make is purchasing too high. Times are rolling, money is flowing, but what goes up must come down. This is exactly how investors get burned. They purchase too high and the market stalls.
The opportune time to buy is when the market is distressed. It’s the classic buy low, sell high. This is always the reason to keep cash on hand and be ready for bad times. Millionaires are born in down markets. Seize the opportunity and make a wise investment decision.
Here are several tips to investing during a recession:
1) Buy Multi-Unit Properties
De-stabilize your risk by owning a multi-unit property. A single tenant can be risky, as the property will generate zero cash flow if the tenant does not pay or vacates.
A multi-tenant asset will still generate income if one tenant moves out lessening your risk. Owning a several unit property will also provide better economies of scale when accounting for maintenance expenses. Whether you but one unit or three units, the expenses, not including tax payments, might be very similar.
2) Choose Prime Locations
In a downturn, buying property in fringe neighborhoods can create a risk. The working class employee may be the one taking the biggest hit financially and have difficulty paying their rent. This type of market should be used to acquire prime real estate at discounted prices.
Locations such as New York City, Miami, San Francisco, Washington D.C and others major markets are those that should be considered for investment.
3) Seek Value-Add
Properties with some “hair” on them may be the most opportunistic. Of course, we want a stable income-producing tenant to help cover the mortgage and tax payments. However, if we can achieve this goal with only a portion of the property being rented, it creates tremendous upside once the asset is fully leased. Perhaps the property can also accommodate several additional floors. It may be a value-added opportunity once the market rebounds
4) Use Leverage
While it’s not ideal to put yourself in a perilous financial situation with too much debt, if you are able to stretch your financing to secure a property that will net a safe return, leverage may valuable for you. The idea is to purchase a stable asset and sell or re-finance down the road to pull your cash out. Make certain you are able to cover your monthly property expenses after your debt service. Otherwise you could be in for a big problem.
5) Consider Seller Financing
Some owners may offer seller financing if the property is difficult to obtain lending. Negotiate with the seller to achieve an affordable down payment, interest rate and other terms
People often freeze in times of a crises, but when it comes to Real Estate investing, there is no better time to pull the trigger than in a challenging market.
As an investor, it is a great time to look for property. The best time to purchase is always in a downward cycle. There will be many opportunities for investment in the near future. Most importantly, we wish everyone much health and safety during these challenging times.
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