Inflation is higher than it’s been in decades, signs of more supply chain problems to come are increasing, and the stock market is down over 20% on the year. It’s looking like we may be close to a recession, but that doesn’t man you should panic.
We tell stock investors that short-term pains should largely be ignored when you have a long-term investment focus. The same is true for real estate investing. If you own good, profitable properties with reserves and have a sensible loan-to-value, short-term hiccups in the market shouldn’t give you an ulcer.
That said, no one’s perfect. It always helps to build your portfolio in a way that helps you sleep at night — especially when the economy seems to be turning in the wrong direction. Here are a few real estate investment options that can be good plays during a recession.
1. Existing properties
The first step is to do all that you can to keep holding your existing properties. Any property that you’ve owned for five or more years likely has built up a ton of equity and could give you a nice cash influx to sell, but it also probably has a great cash-on-cash return.
The real estate market is in a purgatory period. Rates are up and mortgage originations are down, but prices haven’t started making any material moves down yet. There is still enough demand, and housing inventory is still low.
That means you have two choices: Sell now and buy a new property while the market is likely close to a peak, or hold on to your investment, continue collecting cash flow, and save for the opportunity to buy when prices are lower and rates stabilize.
As long as you have a good loan-to-value on your property, short-term drops in real estate prices don’t matter.
Assuming you choose not to sell now, the investment you can make is in your existing properties. Add amenities where possible. For example, if you own properties with large yards, add a storage shed to the yard that can be used for an additional fee. If you have older appliances, invest in new ones. Anything that can make your property more attractive and boost your rental income if the rental market slows will help.
Farmland is one of the most inflation-resistant real estate investments. As prices go up, people will choose to conserve some items and even stop purchasing others. But they won’t stop buying food. If you own land where corn, soybeans, or wheat is farmed, your cash flow should rise along with inflation.
The key here is finding someone to farm …….