Many investors favor expanding their real estate portfolio because it remains stable as it generates returns. Markets dealing with properties and other hard assets are usually one of the last segments of the economy to show the effects of a downturn or recession.
As a natural part of an economy’s cyclical patterns, recessions can’t be avoided. A strong real estate portfolio distances itself from a weak one by building much more preparation into the structure and spread of property investments.
Want to build a portfolio that can weather the worst of times? Start recession-proofing your portfolio using the tips below.
Invest according to location and property types
Should the opportunity present itself, invest in properties found in primary markets. Hold onto them even as property values slide during a recession. Properties in primary markets (regardless of classification) command more premium pricing since they lose their value at a slower rate and recover faster once the economy improves and returns back to normal.
Aside from searching for primary market deals, develop your portfolio’s reach and variety (diversification). Do you prefer one particular asset class? Stick to the property type but buy in different locations to spread your risk. If you’re a more moderate or aggressive investor, use your flexibility to invest in multiple assets and locations. Remember to check that your decisions are still in keeping with your overall investment goals.
In the meantime, postpone plans to invest in retail properties like shopping malls and hotels. People tend to spend less on travel and leisure during a recession, and these properties consequently suffer the heaviest losses.
Balance risk and return
Invest in residential real estate and stable commercial properties (warehouses and multifamily buildings) to enjoy consistent returns and low to moderate risk. You may not experience the high yields that riskier property types could generate, but you’ll appreciate the stability should market forecasts worsen.
Assuming more risk just to increase potential returns can jeopardize a carefully constructed portfolio. Focus on the long game. Hold promising properties over longer periods of time instead.
Many strategic investors, whether managing real estate or stock market portfolios, play the long game rather than try to time or outsmart the market. This approach requires less mental work and also benefits from the power of compound interest.
Keep tenant turnover low
Tenants can directly affect how much rental income your portfolio can generate. On top of that, properties with high vacancy rates can be seen as bad investments, causing property value to dip.
Take steps to retain your tenants and keep your portfolio performance positive by:
- signing longer leases (especially in multifamily buildings where month-to-month lease agreements have become standard)
- offering to lower rent, cover utility bills, or offer attractive lease renewal opportunities (allowing a tenant with a triple net lease to switch to a double, single, or even gross lease)
- entertaining alternative rent payment plans like custom installments to give tenants time to catch up and still maintain their lease
If you’re trying to fill properties with additional tenants, continue with customary checks, like running a background check. Doing this helps you establish a potential tenant’s finances and protect yourself from getting locked into an arrangement with an unreliable tenant.
Review your portfolio
Schedule periodic reviews of your property investments. Verify if they still contribute to your portfolio according to the goals you have set.
Keep an eye out for opportunities to improve your portfolio. Is a balloon payment coming up? Look into refinancing your loan in the current low-interest environment. You not only settle a large, looming lump sum, but you also lower your expenses relative to your returns over time.
Save excess cash as part of your emergency fund. Alternatively, you can keep an eye out for listings for single-family homes or multifamily buildings offered at a discount. These can be flipped for a profit as long as you keep renovation costs modest.
Time your improvements
Making constant property improvements are important when you want to increase your portfolio’s value. Turn improvement plans into action once signs of economic recovery appear. Here are some indicators that act as a green light:
- decreasing unemployment
- new and recovering businesses
- rebounding stock market
- renewed consumer confidence
- rising property values
- new jobs
Focus on renovations with high returns and add amenities that benefit the property and tenants. You can then sell properties at a profit or reap the rewards of having high-value assets in your portfolio.
Want to include Gulfport, MS real estate in your portfolio? Let the Owen & Co., LLC Real Estate team, guide you to the ideal property with our in-depth knowledge of the local market. Call us today at 228.822.9870 or send an email to info(at)owenandco(dotted)com.
