Over the past eight years, we’ve seen a lot of economic recovery and growth in the United States. After the devastating crash of 2008, people thought that real estate would never be a viable investment again. However, shortly after the housing bubble burst, many investors found that they could make a profit and help financially distressed homeowners by buying their homes, renovating them, and selling them at fair market values.
I’ve been flipping houses for a lot longer than eight years, and I’ve seen my share of economic dips and peaks. When people tell me that house flipping is a dead investment strategy because the economy has recovered and there aren’t nearly as many distressed properties to buy, I have to chuckle to myself. I’ve been in this business long enough to know that there will always be great deals on houses to flip and that the economy is always more volatile than people think.
So, should you be preparing for another economic crisis? And what should you do if we see a market collapse in the next year?
Markers for a Coming Crash
According to multiple sources, the US economy is poised for another crash and recession at any moment. According to The Motley Fool, a respected economic blog with a lot of insights into real estate and investing, there are several factors pointing to another recession beginning later this year. For example, there have been approximately 24 similar recessions over the past 100 years, and with market-based economies being the boom-and-bust creatures that they are, we can almost expect recessions every eight to ten years.
Not only are recessions and markets cyclical, but so is our behavior. After the crash in 2008, many people swore off the idea of buying homes altogether, and thanks to some new legislation, a lot of people who’d gone through short sales and/or foreclosures wouldn’t be eligible to buy again for a few years.
Jump ahead to today, and we’re starting to see more and more millennials buying homes, while just a few years ago economists and real estate experts were speculating that this younger generation was too disillusioned with home buying and would never “settle down.” Likewise, many of the people who were ineligible to buy for a few years are now becoming eligible once again, so we’re seeing more and more people buying homes and committing to mortgages.
In the case of a sudden economic downturn, many people will suddenly find themselves in economic distress, and they’ll be in the same position that homeowners were in eight years ago.
What Does an Economic Crisis Mean for Real Estate Investors?
While real estate market values may tank and markets may crash, savvy real estate investors can weather just about any economic crisis. Keep in mind that you make your money on flip houses when you buy them, not when you sell. So, if you’re looking at buying, fixing, and flipping houses in a neighborhood where property values are depressed, you’ll need to adjust your offers to reflect current market values. You may also want to consider investing in some fix-and-hold properties, as well, as demand for rental properties tends to increase in an economic crisis.
It might seem counter intuitive to continue to invest in real estate in the face of another economic crisis and potentially falling real estate values. However, if you keep these values in mind and you look for neighborhoods with few vacancies that are close to urban centers where people want to live and can find reasonably priced housing (for sale or rent), you’ll be in good shape. Keep an eye on local and national markets and you’ll be prepared for anything the economy has to throw at you.