Best Real Estate Investment Strategies in Declining Market

We are in a period of uncertainty as inflation is rising, the stock market pulls back, and the house prices are slowly declining.  Even though some say the US is in a recession and others say not yet, the official definition has been hit which is two quarters of declining GDP.   However, if your goal is to invest in real estate, a recession isn’t the worst thing.  After all, real estate 101 says buy low and sell high.  As the number of people looking to purchase property these days is declining, it is becoming more viable to buy low if you are patient.  Typically, during a recession, prices tend to drop, so it’s a good time to buy. There is less competition from flippers and newcomers to the industry, which helps keep prices low and increases the chances of finding a great deal.

If you’re patient, do your research, and get your timing right, you can put yourself in a position to succeed and build a business that will grow as we recover from the downturn. While the uncertainty makes it hard to know what the right decision is, the most important thing right now is to take a conservative, level-headed view of your situation and your plan. Don’t make any rash decisions that you might regret down the road. It’s never been more important to have a solid exit strategy.  

As the real estate values decline it becomes hard to fix and flip since you are selling into a declining market.  In addition, today’s interest rates have increased 2-3% making it harder for buyers to qualify.  Flipping is best during the recovery phase of a recession, and it does not work as well while the market is declining. However, once the recovery phase begins, contractors will be eager for work and prices will still be low and the buyers will step back into the market.

Because of the complications and timing of flipping, it might be worth looking into buying and holding until the market begins to recover. Unlike flipping, you don’t have to worry about selling right away, so you can be patient and hold onto the property until you make a sufficient profit.

Buying single-family or multi-family properties and renting them out is a viable strategy throughout all phases of a recession, largely because the rental market grows during recessions.  People still need places to live, after all. Some homeowners will downgrade by selling their houses and moving into a rental unit. Other people will hold off on buying their first home until the market recovers.  These factors result in a larger rental market than usual, meaning an increased likelihood of stable monthly income for landlords.  Of course, renting also comes with complications, such as doing repairs and dealing with tenant issues. To mitigate some of these complications it can help to do a lot of due diligence and pick your tenants wisely.

Be patient, do your research, and make informed decisions.  It is even more critical now given the current state of the world. Keep an eye on economic data and average sale prices in your desired market, days on market, etc. since they will affect your strategy.