Market collapses present opportunities, not problems
Inexperienced property investors are terrified by the thought of a recession decimating their property portfolios. Until you have invested through a recession, it’s natural to be worried. After all, during recessions people lose their jobs, wages are cut, and doom and gloom stop people spending what money they do have.
During a recession, stock markets will probably fall, and lower interest rates will reduce the income you receive on your savings accounts. For most investors, a recession spells losses.
In this post, you’ll find out why you don’t need to be scared of a recession as a property investor. You’ll also meet Dan, whose lifestyle was catapulted skyward through a recession because of his property investments.
Property investment is made to be recession resilient
Of all assets, perhaps the most recession-proof is residential property. Commercial property is prone to businesses failing, but everyone needs somewhere to live. I’m not saying that prices won’t fall − they will. But those house price averages you see collapsing are only averages.
If you have invested with a positive strategy and taken advantage of effortless property management, your investment properties will benefit from:
- strong property fundamentals;
- their appeal as ‘everyperson’ homes; and
- a tenant vetting process that has targeted the best tenants.
Why the property market cycle matters
So we’ve entered a recession… so what? By evolving your investment strategy through the property cycle, you’re one of those investors who stopped buying property a long while ago and now have a sizeable equity buffer. While other investors were chasing prices higher and taking on extra mortgage debt, you sat back and prepared for the inevitable pullback in the property market.
During recessions, you’ll find plenty of opportunities to buy great properties at knockdown prices. Many of these will be from other investors who carried on buying regardless of the property cycle. Now they need to sell at any price. Their poor cash flow won’t sustain their mortgage repayments.
You might decide to take advantage of some of these opportunities, providing the property fundamentals and cash flow projections are on your side. On the other hand, you might find yourself in the position in which Vince found himself.
Meet Dan – the property investor who was made by recession
One of our clients in the UK – let’s call him ‘Dan’ – was a self-employed gas hot water inspector and serviceman. When the last recession hit, his business was decimated. He found himself in the position of not having to work.
Dan had been building a property portfolio for a while, benefitting from leveraging by using buy-to-let mortgages to invest.
He’d only invested in properties where rental demand was going to be consistent. He’d invested in line with regeneration projects, and in properties that benefitted from strong property fundamentals. His tenants had been properly vetted, and he was a good landlord.
When the recession hit, the Bank of England cut interest rates. His mortgage payments were also cut. His rental income after mortgage costs rose to £2,000 per month.
Dan had always worked six days per week to keep the wolf from the door. Now he found that despite having to close his own business, he was able to maintain his lifestyle: his net rental income replaced his previous earnings.
But he didn’t rest on his laurels. Dan managed to get a job with British Gas, working fewer hours than before and banking most of the £2,000 surplus as he built up his personal wealth faster than he could ever have dreamed.
Recessions and the property market
In conclusion, if you’ve done your research and invested in prime property, and have done your due diligence and cash flow projections, then there is no reason why your property investments shouldn’t weather a recessionary storm. You’ll have opportunities to buy at bargain basement prices, too.
People need a roof over their heads in the same way they need to eat and drink. That’s a huge advantage that you have as a property investor over other investments.
To find out more about the property market cycle and how to invest profitably in it, give my team a call on +44 (0)207 923 6100. You’ll get the benefit of their experience and our insightful research.
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