Investing in Real Estate During a Recession
Mindy Jensen has been buying and selling homes for more than 20 years. Her preferred method of investing is the flip buys a house, moves in, makes it beautiful, sells it after two years to take advantage of the Section 121 Capital Gains Exemption, and starts the process all over again. She is currently working on her ninth live in flip. She also the co host of the BiggerPockets Money Podcast.
As both an agent and an investor, Mindy LOVES real estate. She has taken part in syndications, private lending, and deals involving seller financing. She owns a single family rental, a short term rental, a mobile home park, a co working space, and her most recent purchase a caboose!
Mindy is an alumnus of the School of Hard Knocks and will happily share her experiences with anyone who asks. When you can get her to stop talking about real estate, you can find her on her bike or adventuring in the beautiful mountains of Colorado.
Mindy is a licensed real estate agent in Colorado.
It’s never fun to navigate stormy times but recessions are just as much a part of investing as sunny days. Smart real estate investment strategies will keep you steady, despite the rough waters of a financial crisis.
This roller coaster start to 2020 might make you anxious about your investments, but the experts at BiggerPockets know exactly how to weather an economic downturn. Here’s what you need to know about today’s economy, including how to manage your existing investments and where to put your money next.
Mapping the 2020 Global Financial Crisis
An unprecedented global pandemic, the novel coronavirus also known as COVID 19 has ground almost every nation and financial system on earth to a halt. What began as an outbreak within isolated regions in China has spread across the globe, growing exponentially. More people have now died from COVID 19 in Italy than in China, despite Italy being on lockdown for weeks.
There is currently no vaccine and early data show it to be extremely transmittable. Mortality rate estimates vary, with current case fatality rate estimates hovering around 1.4 percent. The virus disproportionately affects the elderly and those with existing health conditions, especially autoimmune disorders. crossed 10,000 total infected persons on March 19th, replica hermes men shoes tall
accumulating 40 percent of that total in just 36 hours. We are still quite “behind the curve” on accurate data; we won’t know how widespread the virus is in America for a couple of weeks. We also don’t know how well our national healthcare infrastructure can handle shortages in protective gear, respirators, and ICU beds. This is due to several main factors:
Coronavirus testing kits are in woefully short supply. Most people have to wait days to receive a test and another three to five days for the results.
The long incubation period lasts up to 14 days, or possibly even longer.
Because we don’t know when we’ll hit peak levels of infections, we can’t know how long the economy will be running at the drastically reduced level we’re seeing now. The effects ripple and are felt by all.
As Larry Summers, former Harvard president and NEC chair under President Obama, put it recently, “Economic time has been stopped, but financial time has not been stopped.” We can seclude ourselves for a few weeks or months and our economy will “be there waiting for us,” financial time doesn’t pause. Rent and mortgage bills don’t stop. Credit card bills don’t stop. Suppliers don’t stop needing to get paid. Taxes are still collected.
It’s a different type of economic shock than what usually kicks off a recession. In essence, the world needs to limit economic activity in order to slow the spread of COVID 19.
In short, nobody’s going anywhere and doing much of anything. It’s an otherworldly standstill and we don’t know how long it will last.
Does Coronavirus Mean the Next Recession Is Imminent?
We are most certainly headed for an economic crisis. That is, for all intents, not up for debate anymore. Our current fiscal quarter, Q1 of 2020, will likely be considered the recession’s official start date.
LEARN MORE: What is a recession?
The National Bureau of Economic Research is the “official scorekeeper” of recessions. They have some discretion over what officially constitutes a recession, but the generally accepted definition is two consecutive quarters of declining economic output, as measured by gross domestic product (GDP).
An economic recession is a natural byproduct of the business cycle, which acts like a wave. There are peak periods, where GDP growth is at its highest, and valleys when GDP growth declines, the economy experiences negative growth, and a recession occurs. Why is the business cycle like this? Economies are made up of individual players, and individuals are prone to periods of greed, stagnation, optimism, and fear.
Expect to feel the most economic pain in Q2 of this year or April 1 through June 30. There will be a massive shortfall of economic output, simply based on the lack of travel and lodging, entertainment, eating, and social interaction. St. GDP could fall by as much as 50 percent in the second quarter of 2020 and the unemployment rate could rise to 30 percent.
What Is Happening to the Stock Market?
The stock market in the United States is falling faster and steeper than at any point in modern history the S 500 fell 30 percent in less than one month, entering into a bear market. The Dow Jones Industrial Average made a cross in late March, meaning its 50 day average fell below its 200 day average. That often seen as a portent of worsening economic futures. To see a similar stock market crash ripple through the financial markets on Wall Street, you’d have to go back to the Great Depression era.