Recession is defined as an economic contraction at least two quarters long. While the U.S. economy is still expanding, there is concern that a recession is looming. A recession can ripple throughout the economy, causing contractions in income, employment, manufacturing output, and retail sales.
The U.S. economy has expanded for over ten years. Consequently, many real estate investors have never experienced a recession. Here are five reasons you may need real estate services during a recession:
Demand for Residential Rentals Goes Up
Because income tightens, fewer people buy homes during a recession. However, people still need a place to live. This means that demand for rentals increases. In fact, 50% of renters rent because it is easier to live within a budget and involves less stress than buying. As demand increases and supply drops, rental prices can go up. This is good news for property owners.
Residential leasing services can help manage your rental properties as your occupancy rate goes up. And if you are looking to acquire rental properties to shore up your revenue during a recession, Pioneer Real Estate Services has agents and brokers on staff to help identify potential investment properties.
Unemployment Goes Up
Sadly, unemployment also goes up during a recession when businesses lay off unneeded workers due to reduced demand. Thus, it is critical to use residential property management to carefully review all potential tenants.
While you should have few problems finding substitute tenants when a tenant is laid off and cannot meet his or her rental obligations, there are costs to replacing a tenant. This increases the importance of finding tenants who meet your rental requirements and can weather the recession without breaching their leases.
Unfortunately, evictions also go up during recessions. Most residential property management companies can also handle this process as well.
Demand for Commercial Rentals Goes Down
During a recession, business creation usually slows because entrepreneurs tend to save money and sit on the sidelines rather than taking on risk. This means that it may be difficult to find commercial tenants if you own commercial real estate. Even if you find tenants, the rent may need to be discounted. Fortunately, real estate services include commercial property management that can manage your tenants and leasing services that can help you find new tenants. These real estate services may be critical to weathering a recession as a commercial property owner.
Demand for Residential Sales Goes Down
Similarly, sales of residential property go down during a recession because many consumers and real estate investors avoid tying up their funds, preferring to remain liquid during the recession. As a result, sellers of residential property may run into trouble finding buyers during a recession.
If you own residential property that you intend to sell during a recession, having a company that can provide real estate services, such as listing and brokering residential sales, could be the difference between selling the property or having to hold it through the recession. On the other hand, if you need to hold the residential property, you can convert it to a rental property during the recession, then sell it once the economy begins expanding again. As mentioned above, demand for residential rentals and rental rates goes up during recessions.
Interest Rates Go Down
Ending on a positive note, interest rates go down during recessions. The intention of this monetary policy is to pull money off the sidelines and back into the economy. When interest rates go down, two consequences result. First, saving becomes unattractive since banks pay low interest rates on savings accounts and money market accounts. Second, borrowing becomes attractive since low interest rates mean low loan payments.
Therefore, if you have the assets, a recession is a good time to buy commercial and residential real estate. Prices are low because of the reduction in demand and interest rates are low due to stimulative monetary policies. Real estate services can identify real estate that can be purchased below market value during a recession and sold at a profit once the recession is over.
Even though the economy slows down during a recession, you and your real estate investments do not need to sit on the sidelines. With careful management, you can not only weather the recession, but you can profit from it.