When you are looking to invest, an ideal time is when prices are at their lowest. It means that a recession is a good time to buy real estate. After all, the economy will rebound at some point and you will be well-positioned to profit when it does.
However, there are times when you shouldn’t invest. And also, there are ways to invest that will be better or worse than others. Nothing is cut and dry, after all.
For instance, when you are looking to invest in real estate that could mean buying fixer-uppers and then flipping them. Or, it can mean buying up properties to rent.
Which is better? In this article, we will go over a few things to keep in mind so you can decide for yourself.
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During recessions, banks are very timid when it comes to giving out loans and mortgages. They are not sure that they will get their money back as defaulting on loans is far more likely during a recession. Particularly one which lasts longer than anticipated.
If you are flipping houses then you will need to get loans for the repairs and renovations which can cost more than the mortgage in some cases. In this scenario, you’d need a hard money loan that needs to be paid back within a year for most.
When buying rentals, the banks are usually more forgiving. Since buying slows during a recession and more people look to rent, they see an opportunity for people looking to buy that type of property. If you already have some background in rental properties then you’re more likely to get the loan.
If you are having trouble finding financing, then you may want to try real estate crowdfunding for your initial investment. There are a lot of different ones out there with Fundraise being very popular.
The way it works is that you find a group of investors that will help you come up with the cash. Then they share in the profits later.
Understand that it’s a cycle
No recession lasts forever. Even the Great Depression ended eventually. So, when you are investing you have to know that you will one day see a return on the investment.
With that said, however, you have no idea how long the recession will last. Understanding the cause and what the likely possibilities are will help you decide on which way to invest.
During a lengthy recession, rentals are going to hold steady. People are going to wait out a recession and hold off on buying because of the uncertainty. They aren’t sure if they will have a job, or their income is reduced and they need to wait until it gets back to normal. If it seems that the recession will last a long time, then buying rental properties is your best bet.
If the recession is more like a speed bump and it looks like things can turn around fast, then flipping is a good idea.