When the economy is in a recession, the last thing you may be thinking about is purchasing a multi-family rental property. Jobs are being lost; tenants have little money. How can you turn that into a successful real estate venture?
What investors should know, though, is that although a recession is scary, it's a perfect time to build your real estate portfolio. You can bypass those investors who are sitting on their heels and act when they are too scared. When people are too nervous to grow, you'll be well past them.
Benefits of Buying a Multi-Family Building in a Recession
The first benefit of buying when others aren't is that you have way more choices in the market. Recessions have a way of suddenly causing people to look at their finances, and it just may be so that investors can no longer afford the expenses associated with a multi-family property. You'll find more multi-family properties pop up for sale that aren't surviving in this type of economy. With this influx, you'll be able to find the perfect one that can meet your goals and needs.
Like we said, recessions tend to put a freeze on people's finances. No jobs equal no income. It may also mean that investors have little access to cash, too. Multi-family buildings require a large down payment and aren't possible to purchase by investors with little funds. If you have a large sum of money set aside during a recession, you are one of the few. If you want to purchase a multi-family building, you'll have a great chance of buying it because there will be very little competition from other investors.
Another benefit of buying in a downturn is the fact that you will see lower property prices. As multi-family property expenses add up each month and the income generated isn't enough, the owner will need to get rid of the property fast before too many expenses are incurred. When they go to list the property, the building will have a low asking price so that it will move quicker. You can use this situation to your advantage. Not only will you have a lower property price to begin with, but you can also try and negotiate for an even better price. If the owner really is in dire straits, he may take the lower offer, and you may get yourself a truly awesome deal.
The last benefit of buying when most people aren't is that any capital enhancement the building may require will be cheaper. If the property needs a new roof, or unit renovations, or a plumbing overhaul, it will be cheaper to complete this work when the economy is in a downturn compared to when the economy is healthy and strong. If you want to normalize an underperforming property through capital enhancement, the best and cheapest time to do so would be in a recession. You'll save money while still getting the necessary work completed.
Buying a multi-family property in a slow economy certainly has its advantages. You have more choice of properties, low competition, low prices, and a lower price for renovations. However, there are also benefits to acquiring a multi-family investment property in a higher market, but generally the perfect time to find the right deal for you is in a slow economy. With more experience with multi-family investment and operating them in recessions, you will be able to navigate both good and bad markets.