Recession-Proofing Your Investment Portfolio

Since 1950, the US economy has suffered 9 major recessions. All recessions were preceded with an inversion of the yield curve for the US treasury bonds.  The yield curve is the spread between short and long-dated treasury bonds. An inverted yield curve is an indication that the short term rates are higher than long term rates. It is also the first sign of a shrinking economy and a reliable recession indicator.

This inversion recently took place on August 27, 2019. It may take up to 34 months for a recession to hit.

What does this mean for real estate investors?

An economic slowdown is a natural process of any market cycle. Active real estate investors during the last recession benefited phenomenally. There were discounted properties everywhere with potential for huge profit margins.

Consider the following steps today and prepare for the expected market shifts.

  • Get access to funds

If you have risky investments, this is the time to sell and have more liquidity. Do not over-leverage as you may need access to funds. Make sure you are in a capacity to buy properties to add to your rental portfolio when the time and the price are right.

  • Buy right

See that you invest in properties that allow cash to flow regardless of the market. Rental properties are good long term investments. They can survive a recession because there is always an influx of renters.

You should avoid buying properties that need fixing during this period. You may end up spending money fixing a property that will attract less return.

  • Build financial relations

During a recession, banks and lenders are not enthusiastic about giving out loans. You should start to build financial trust early to gain an advantage when you need a line of credit. If you are a real estate investor, now is the time to look for connections with long term lenders.