Are we in a recession yet? The answer to his question is not yet. Recession 2020 won’t officially start until we’ve had at least six months in a row of economic downturns.
There’s no denying that we’ve had a lot of bad economic news lately especially when we consider the fact that consumer spending in the United States is down by roughly 8% and the economy shrank by about 5% in the last quarter.
Even though the financial news has been negative, the factual recession won’t officially begin until September and by every count, the White House and economists across the United States have said that the economy is indeed heading to a recession.
Is the recession going to be the “end of the world” like some economists and writers would make you think that it is? The answer to this question is no. Recessions are never the end of the world, for people who are interested in passive real estate investing, they are a time in history that spells opportunity for investors.
This article will break down some of the things to look for when the recession 2020 officially starts and provide you with tips on how to navigate it, especially if you are a multifamily investor.
What to Expect from Recession 2020
Before I start talking about how recession 2020 it’s going to affect multifamily Real Estate Investors, the important thing I want to talk about is the fact that the economy has been in recession before.
Over the last 100 years, we’ve had 13 recessions in the United States. That’s a lot of recessions, and the big recession you may remember is the “Great Recession” which occurred after the housing bubble deflated in 2007.
During the “Great Recession”, GDP went down 4.3%, unemployment peaked about 10%, and there was a general concern if the country would make it through those trying economic times or not.
Sadly, the 2020 recession that we’re facing will be a lot worse than the last recession, or possibly even the Great Depression, because we’ve seen roughly 30 million people in the country go on unemployment, companies going under, and lots of negative economic news.
What does this mean for real estate passive income Investors? Even though many people will look at the coming recession with a doom and gloom approach, the reality is that if you should look for opportunities because this next recession may represent some of the best economic opportunities that you’ll ever see in your lifetime.
Now is the perfect time to start focusing on building your cash reserves, cutting your costs with your existing multifamily properties, and getting yourself ready financially to start looking for fantastic deals in 2021 because that’s when some excellent multifamily deals should become available for investors.
Are Multifamily Properties Recession Resistant?
If you follow the news as I do, especially when it comes to the pending recession, and its impact on multifamily properties, you may have seen some economic analysts ask the question “are multi-family properties recession-resistant”?
The answer to this question is yes, multifamily properties are “largely recession-resistant” but what does “largely recession-resistant” means?
As with any economic downturn, or recession, that we’ve had within the last 30 years, Class A multifamily properties are generally the first to take a hit when a recession occurs because of the simple fact that even people who rent Class A units also feel the economic impact of a recession and may downgrade to Class B units.
When it comes to Class B and Class C multifamily properties, the reality is that those multifamily properties are recession-resistant because people are always going to need a place to live, regardless if they live.
The best thing that you can do is to focus heavily on tenant screening before renting to new tenants because of the simple fact that focusing on tenant screening will enable you to rent to people you have no doubt or financially stable, make 3.5X the amount of rent, and will be able to continue renting regardless if there’s an economic recession or not.
Don’t like screening tenants? If so, no problem, the solution is to hire a property management company because, a qualified property management company will save you the time, money, and hassle of tenant screening and also managing investment property yourself.
Recession or not, most renters know the negative impact of having an eviction on their rental records and are going to do everything that they can to pay their rents during the months ahead, even if they are currently on unemployment or between jobs.
Evictions do hurt a renter’s rent record, just as a prolonged period of unemployment can also hurt a worker’s employment record. Both will have to be explained, and most people don’t like to deal with the consequences of either option so they will strive to continue working and renting even during the coming economic recession.
Thanks to recent data from globest.com, we know that rent payments nationwide have been good and are comparable to where they would be during normal economic times. In fact, for May 2020, collections data from companies like LeaseLock show that first-day rent payments are actually up for May when compared to April.
This is encouraging news because it shows that most tenants are committed to paying their rents on time, at the first of the month, and are prioritizing making those payments over their other financial priorities.
Yes, the recent economic stimulus payments, and also unemployment, are helping unemployed tenants across the country continue to pay their rents but also the simple fact that renters are prioritizing paying their rents first is a good sign and it’s also a reason to give multifamily landlords hope in the months ahead.
Planning on Adding New Multifamily Properties To your Portfolio? Contact Trier Capital
Are you planning on adding additional multifamily properties to your portfolio in 2020 or 2021 but you’re not sure if you have the energy or the desire to do it all yourself? If so, contact Trier Capital today by calling us at (630) 229-2383 or click here.
We specialize in multifamily investing and can help you with building multiple tax-efficient, passive income streams that you can add to your portfolio of investment properties.
Stop trying to do it all yourself, our team of investors assists you with building a portfolio of passive income streams so that you can enjoy the passive income that comes from owning multi-family properties once again