Real Estate Investors Recession Market Update #2
Real Estate Market Update for Investors: Questions about the volatility of the real estate market and how to make sure we’re investing correctly right now are on every investor’s mind.
New Investors ask if we should wait or start investing in real estate now. Established investors ask if we should invest in real estate differently than usual. All investors ask if there will be a housing market crash. These questions are legit, with interest rates rising, inflation skyrocketing to 10%, and home inventory at a 3-year record high.
Keep reading to learn what you need to know and do to prepare for a real estate market recession.
- Real estate investors need to understand the entire market.
- Prepare by ensuring you can buy the properties without overloading your financial liabilities.
- Location is vital. Know where to invest and make sure you are buying the right property.
- Look for multiple sources of financing for the properties.
- Learn how to analyze the deals. Buy low and sell high.
- Buy for the long term. Buy and hold rental properties. Avoid buying and flipping properties.
- Scale your business so that it works like a well-oiled machine.
Recession And The Status Of The Current Market Cycle Are Hot Topics
Are we in a recession right now? We may be in the early stages of a recession. Our last normal market fluctuation was 14 years ago, usually occurring every six to eight years. We are long overdue for a market correction.
Many people remember the 2008-2009 recession and fear history will repeat itself. Many homeowners lost their homes to foreclosure, and rental needs exploded. Where are we in this current market cycle? Are we still in the peak phase of the current market cycle?
Everyone sees the writing on the wall. Many fear the government is unwilling to be the bearer of bad news, so their numbers may be only half-truths. The market is different than expected, with interest rates going up to almost ten percent and inflation at an all-time high.
The pocketbook doesn’t go nearly as far as it did just a year ago. Some investors suggest buying now because you won’t be able to buy later. The prices are skyrocketing. Eventually, the bubble will pop, and a market correction will occur.
Buy Rental Properties For Long-Term Investing During A Volatile Market
Today’s market is not suitable for flipping properties or purchasing your residence for a short period. Both rely on a sustainable market and low-interest rates and are very high risk today due to becoming overleveraged.
The key is to invest in buy-and-hold rental properties or Airbnb properties. The goal is to create passive income that does not rely on market volatility. Long-term leases make sustainable rental income because housing is an essential life need.
The market can go up, down, or sideways and owners of rental properties will survive. Rental income will increase as the market demand for rental properties increases.
The Difference Between A Recession And A Depression
Depression is a period of severely reduced economic activity. Everyone is struggling to pay for necessities, and unemployment is very high. No one is purchasing nonessentials. The last United States of America depression was in the early 1930s.
A recession is a period of reduced economic activity. People are being negatively affected by the value of the dollar. Money does not go as far as it used to. Many consumers struggle to pay for necessities like food, clothing, and housing, while others only have to cut back on nonessentials.
Many consumers are still traveling, buying luxury items, and spending thousands on entertainment options. Airlines are being overbooked, and flights are being canceled.
People are still spending much money. Whether it is due to saving during the COVID-19-related shutdowns, or the economy’s stability in general, most people do not feel the effects of a recession yet.
Housing Is A Basic Necessity Because People Need A Place To Live
People will always be looking for a place to live no matter what. People may stop spending money on unnecessary items, but necessities like food, clothing, and shelter will always be in high demand.
Consumers become homeowners during a flourishing economy. Homeowners sell their properties during difficult times and pay lower rental rates to free up monthly income.
Investors become rental property owners in a downturned economy. Rental demands increase because people cannot pay their mortgage and lose their homes in foreclosure but still need a place to live.
Purchase Class C properties. Look for unremarkable, average properties. You are not looking for luxurious homes because these are the homes that are being foreclosed.
Two advantages of purchasing lower-class properties are attracting more renters and renting more often.
As a landlord, offer good properties with decent rental rates—purchase well-maintained homes in good neighborhoods. Many homeowners will be downsizing but still want quality and to feel safe in their environment.
During a recession, lease your properties lower than market value. The idea is to make passive income to sustain you during lean times, but not at the expense of those who have recently lost their home.
Over time, increase your rent as the market stabilizes and families begin purchasing homes again.
Now Is The Best Time To Invest In Real Estate For Passive Income
Real estate prices may increase, but you can always find great deals in the current market. The best time to invest in real estate is at any point in your life. Investors look back ten, five, or even a year ago and count their losses because they missed investment opportunities.
Create Wealth-Building Passive Income With Long-Term Real Estate Investments
The goal is to capture the passive income now. If you wait to invest ten years from now, that’s ten years of valuation and ten years of rent that you miss.
Control what you can and plan for the big picture. Invest in long-term rental properties and see the valuation of the property going up ten years from now and collect thousands of dollars in passive income.
Focusing on short-term property equity and market corrections creates an unwarranted emotional rollercoaster ride.
Historically Real Estate Value Increases Over Time
- Value of homes goes up over time due to inflation.
- Rental rates go up over time due to changes in the market and inflation.
- Build generational wealth by holding the property for decades.
Hold on to your properties if the real estate market crashes and property values go down. Your goal is to create passive income and build generational wealth.
- Long-term real estate investing is not about the property’s value or flipping the property quickly.
- Long-term real estate investing is not about gaining appreciation.
Buy your real estate investments low and sell them high years from now.
The best time to invest in long-term real estate is today. Unlike the stock market, the real estate market is a stable investment.
- The real estate market changes slowly. No daily fluctuations here.
- The housing market declines over months or weeks, not days.
- The investment market will not completely crash. Real estate will keep some value.
- Rental properties will provide monthly cash flow as long as you own the property.
How To Create Passive Income Every Single Month
The first step to creating passive income every month is to cover all your expenses related to the property proactively.
Account for vacancies by putting aside rent for X months when you purchase the property. Replenish as soon as possible when used.
Build your numbers to account for property management services, maintenance, and upkeep. Murphy’s Law always stands at the corner if you are unprepared.
Rental rates need to cover most, if not all, of the property’s mortgage, insurance, and taxes.
Your goal is to make at least $250.00 in cash flow every month after all expenses have been deducted.
Slowly you can increase this cash flow amount over time as the market stabilizes and property values increases. You can also improve cash flow by purchasing more properties.
Cash Flow Is King In Real Estate Investing
Don’t buy a property hoping for the value to go up. Don’t focus on the market cycle. Property values will go up and down many times while you own the property, but you will keep earning cash flow monthly.
Avoid A Bidding War
When people are fearful of buying, that’s the time when we need to start thinking about buying. We must be fearful when other people are greedy and avoid the bidding war.
“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”Warren Buffett
Keep putting in fair offers on reasonable properties. Build your real estate business to run itself, and make money in passive income every month.
You are now well prepared as an investor to face a recession. Invest wisely, scale your business, and create generational wealth with passive income through long-term rental properties.
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