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7 Ways to Recession Proof your Real Estate Portfolio

Portrait Andrew Schulhof

#303-1338 West Broadway
British Columbia
V6H 1H2

With rising rates and an inflationary environment, the likelihood of recession grows larger. It is extremely important to take the time to make sure your real estate portfolio is built to withstand what may lie ahead.

With all the concern over the speed at which the prime lending rate increases and the substantial level of increase, a lot of home owners and investors are very concerned. Their reason has to do with the cost of the monthly mortgage payments. So many property owners were to a degree lulled to sleep due to the record low interest rates that have persisted for the better part of the last two decades. Many investors and home buyers purchased real estate based upon the monthly costs, which to a degree has been one of the major contributors to the massive increase in values in many Canadian cities and town.

A little Historical Perspective

We forget that 5-7% interest rates we are seeing today are still comparatively low in comparison to historic rates. Since the beginning of 1960 to around the year 2000 the average interest rate for a 5 year fixed rate was 10.26%, and from beginning of the year 2000 to the end of December 2021 and to February 2023 the 5 year fixed rate averaged 5.08%. The prime rate for the same time periods of 1960 -1999 was 9.48%, for 2000 – 2021 it was 3.87%. When we include 2000 up to February 2023 the average prime rate only increases to 3.90%.

Where We are With Today’s Interest Rates and Inflation

The point I am making with these averages is that they are a result of various governments around the world trying to avert uncontrolled inflation by quickly and significantly raising the interest rates to shock the system or at least slow down spending and hopefully reduce inflation. In turn this step could create the real possibility that Canada and many around the globe may experience a recession.

So what can an investor do to somehow recession proof your real estate portfolio? Here are 7 ways to recession proof your real estate portfolio. I touch on many of these points in my book Look Before You Leap, but Leap!

1) Diversify your Real Estate Portfolio

Investing in a range of property types and locations can help reduce your exposure to risk. For example, if you have all your properties in one location or one type of property, such as only commercial or only residential, a downturn in that market could have a significant impact on your portfolio. Diversification will usually reduce portfolio risk.

2) Maintain Strong Cash Flow

Having adequate cash reserves and rental income to cover your mortgage payments and operating expenses, even in a downturn, is crucial. This may mean reducing your debt levels or increasing your rental income to ensure you have enough cash to weather any economic storm. This idea of maintaining strong cash flow can result in some hard decisions to be made. As, an investor it is prudent be regularly re-evaluating each property in your portfolio on its current performance and strengths, plus its future growth in income and value. The reason for this is to determine if it may be dragging your portfolio cash flow performance down and if the prospects of a realistic turnaround are unlikely. In that case sometimes it is best to cut the losses and sell, but this decision is best made based upon the review of all the facts.

3) Focus on Long-Term Real Estate Investments

Investing in properties with long-term appreciation potential rather than speculative investments that may be more volatile is advisable. Look for properties in stable markets with strong economic fundamentals and good growth potential. When you invest with a long term focus you are better equipped to ride out the inevitable cycles that occur in all real estate markets, whether that is value fluctuations, interest rate fluctuation, rental vacancies, etc.

4) Keep an Eye on Market Conditions

Monitoring economic indicators such as job growth, population growth, and interest rates, and adjusting your portfolio strategy accordingly can help you stay ahead of any market downturns and make informed decisions about your investments. As real estate is a function or lagging indicator of the economy, it is prudent to not only stay on top of the above macro-economic issues but also the demographic shifts, the infrastructure changes, gentrification trends, and any other key changes that could impact neighbourhoods and housing.

5) Maintain Good Tenant Relationships

Good tenant relationships are key to maintaining a stable income stream during a recession. Having good communication, addressing concerns promptly, and providing a safe and comfortable living environment can help retain tenants, reducing the risk of income loss. If you can shift your mindset from that of a landlord to the business you are in as a rental housing provider and think of your tenants as valued residents/clients of that business, i.e. those that help you pay off your debt, you quickly realize that without them your business doesn’t work so you need them and they need your home to live in. You both benefit from this relationship and as such having that healthy relationship serves all.

6) Renovate and Upgrade Properties

Upgrading and renovating properties can increase their value and attract higher-quality tenants, ensuring a more stable income stream. In addition, renovations can help properties stand out in a competitive market, attracting more potential buyers or renters. In addition to upgrades and renovations, consider those areas of the property that may be under-utilized as there are opportunities. Can you rent out the garage, driveway, parking stall, a basement, a shed, a storage locker for additional income.

7) Partner with Experienced Professionals

Working with a team of experienced investment real estate professionals, including a property manager, contractors, specialized accountant, and investment focused real estate agent, who can help you make informed decisions and navigate any economic challenges is a wise choice. These professionals can provide valuable insights and support in making important investment decisions.

By following these strategies, you can recession-proof your real estate portfolio and reduce the risk of losing money during an economic downturn. Whether you are buying a home for you and or your family or an investment property, consider the fundamentals to ensure that your property’s value will grow and or positive cash flow for the long term. Email me, as I know I can help because I have been a real estate investor for over 31 years and a licensed real estate professional with a strong focus on investment real estate for over 27 years. I am here to assist you build your wealth through strategically selected real estate.

Get in Touch

If your are interested in investing in real estate, or looking to list your current home, I can help you form the appropriate strategy and answer any questions you may have. 

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