Whether you’re swapping stories on the golf course or making small talk at a co*cktail party, our current economic climate seems to edge itself into virtually every conversation. While some investors instinctively pulled their investments in preparation for the downturn, more seasoned investors recognize the unique opportunities that hide in the shadows of a recession. The question is, how do you take advantage of these opportunities while safeguarding your investment against the unknown? Well, in my experience it has a lot to do with shifting your mindset to think beyond the current economy, having the courage to jump on opportunities when they arise, and remaining mindful of your financial needs (and goals) along the way.
Be Brave Enough to Think Long-Term
Simply uttering the word recession will alter the buying habits of many Americans, and rightfully so. Even when a recession is expected, there’s some degree of uncertainty surrounding its duration and severity, but there’s always a silver lining. Many of today’s millionaires were actually born out of past recessions, and this one will be no different. So, what’s the secret? Well to answer that, I’m going to reference one of America’s most successful investors, Warren Buffet, who famously stated:
“Be fearful when others are greedy, and greedy when others are fearful”
With this simple statement, Buffet is hinting at the cyclical nature of our economy and reminding us of the financial benefits of thinking long-term. He simultaneously cautions investors to be weary during times of prosperity while reminding us that every economic downturn will eventually have an upswing — and it’s this exact mindset that creates millionaires out of recessions.
Admittedly, it can be difficult to think optimistically while others proclaim the sky is falling, but it’s crucial, nonetheless. Be brave enough to trust that the market always bounces back, and you’ll have a shot at coming out of this economic downturn more prosperous than you entered.
Don’t Settle for a Good Deal When There Are Great Ones to Be Had
Once you’ve shifted your mindset to focus on the long term, it’s time to seek out opportunities with the most growth potential. Of course, this will vary by region, but a couple of asset classes that hold their value (and can even appreciate) during economic downturns are multi-family properties and college housing. Why? Well, as the recession negatively affects businesses, some Americans will inevitably lose their jobs or have their hours reduced. Unfortunately, this will force some families to downsize into less expensive properties (like multi-family units), increasing their demand and subsequent value. Others will take the opportunity to go back to school and seek out more affordable college housing, which will increase the value of college rentals as well.
While I would be remiss to exclude recession-specific opportunities like foreclosures, distressed sales, and short sales — these types of properties come with unique complications (and paperwork) that warrant consideration. So, although it’s possible to scoop up a phenomenal deal, always perform your due diligence with these types of deals.
At the end of the day, the types of properties you choose to invest in during a recession will depend upon your financial needs and goals, which is why it’s crucial to get clear on those before jumping on a seemingly once-in-a-lifetime opportunity.
Keep Cash Flow in Mind
With money tied up in long-term investments, a lack of liquidity can make properties with recurring cash flow and low carrying costs a top priority. In terms of cash flow, income properties are one of the best options as your renters will cover the carrying costs. If being a landlord isn’t your forte, there are other strategies you can use to minimize your carrying costs. The first option is to force appreciation by investing in renovations. While this option does require an upfront cost, the right renovations (kitchens and bathrooms) can drastically improve the value of a property and the equity you’re able to pull out of it. When liquidity is an issue, you’ll also want to look into strategies that allow you to defer your taxes until the property has generated enough cash flow or equity to pay for it.
Now, if the mere thought of being a landlord, completing renovations, or figuring out tax strategies have you running for the hills, partnering with an investment fund can provide the best of both worlds. With the right fund, you can effortlessly grow your investment (likely more than you would on your own) and benefit from the knowledge of industry experts, without any of the heavy lifting.
Regardless of which investment strategies suit your current lifestyle and long-term goals, remember that the millionaires of today all have one thing in common, they went for it. So, do your homework, decide which investment suits your needs, and make it happen — after all, no one ever made millions by sitting on the sidelines.
