It was thought that the effects of the crisis environment would be left behind with a V-type recovery. However, the decrease in expectations for this requires investors to be more careful. But, the current situation of the real estate sector clearly shows that it will be one of the pioneers of recovery. In crisis periods, real estate investors can take serious advantages with right steps to take. They can turn these advantages into profits.
Recent status in real estate sector shows what the impact of the crisis has decreased. The stagnation which is seen in every sector due to the pandemic also happened in this field. However, there has been a significant increase in demand recently. However, it is important for real estate investors to be cautious. Results that will occur otherwise may not meet expectations. The following tips about steps to be followed in real estate field in crisis periods will be very useful for you.
1. Follow Your Expenses Closely
When you invest in real estate, you face two different expenses. These are fixed and variable expenses. Expenses such as making insurance and mortgage payments, property taxes and routine maintenance are included in fixed expenses. There occurs no change in these cost items due to economic status.
Variable expenses, on the other hand, are affected by variable conditions of an economy such as crisis. Therefore, you should make sure that variable expenses of your investment provide a serious return. Make sure that the expenses you made on marketing and upgrades and the return on your investment are at the level you want.
The yield which occurs after return of investment may be a certain financial income. Apart from this, the free time you can use to reach tenants can be evaluated within this scope. Never forget that the important thing is to see the return of the expense.
2. Achieve Long-Term Gains with Short-Term Goals
It is recommended that investments made should always be medium and long-term in order to be profitable. In spite of that, due to the economic recession, it becomes more difficult to reach long-term goals. Hence, at this point, focus on short-term goals and ensure cash flow. Thus, you will be less affected by the mentioned crisis environment. This is maybe the most important issue that real estate investors should pay attention to in crisis periods. Small and short-term goals that you will set can be the keys that will bring you to success during recession.
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3. Make a Stress Test
Wouldn’t you like to know beforehand how your real estate will be affected by stagnation in crisis environment? The simplest way to find out is to make a stress test. See what can happen to you in worst-case scenarios, as if there was a crisis. You can make stress test by running different scenarios.
- Assume that your tenants have not paid for a long time.
- Imagine that the return time of your tenant doubled or tripled.
- Assume that the value of your real estate has decreased by up to 30%.
See how your current financial situation will be affected by these three simple scenarios mentioned here. Thus, you can prepare in advance for unexpected bad effects.
4. Don’t Change Your Real Estate Plan in Crisis Period
The simplest mistake that can be made in real estate in crisis period is to panic. Investors in panic can make sales at the wrong price and cannot control themselves. Experienced ones are aware that crisis periods can occur and they know that crisis periods are results of natural flow of an economy. Therefore, they do not panic and act according to the plan they have determined before.
5. Do Not Lose Your Tenants
In periods when economy is good, tenants can easily handle their part. Therefore, in such periods, relations between tenants and real estate owners become insignificant. However, the importance of these relationships emerges in a crisis environment.
Remember that your tenant is also affected by stagnation. Therefore, approach their reasonable demands positively. In such periods, it can be easy to lose a tenant, and it can be difficult to find a new tenant. Focus on not losing your tenant by taking into account your economic gains.
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6. Invest in Technology
It would not be wrong to say that the biggest reflection of an economic crisis is market shrinkage. Therefore, you need to find new markets in such periods. The simplest way to do this is to digitalize with your investments in technology.
With a system you will create, you can do your business on the internet. You can reach a much wider customer base by bringing real estate advertisement, meetings and similar transactions online.
7. Keep Cash on Hand
Although periods when an economy is in stagnation seem like a bad situation for real estate investors, they also offer important opportunities. Reduction in real estate prices can offer significant investment advantages for you. However, in order to take such opportunities, you must have cash that you keep aside.
In order to prepare cash, you must first stop your unnecessary expenses and focus on cash accumulation. To pay off your mortgages faster and increase your equity, you must generate cash flow from your rental real estate. Good relations and opportunities to be established with credit unions and banks will give you an advantage in reaching cash resources.
8. Follow the Real Estate Market in Crisis Periods
In crisis periods, serious stagnation may occur in real estate sector. However, that doesn’t mean you will stop. Follow closely how prices change by constantly following the market. Even if the market experiences shrinkage or recession, it does not stop completely. Being aware of uninterrupted market can enable you to seize very special opportunities.
9. Attach Importance to Digital Marketing and Branding
Quickly initiate branding process to increase your effectiveness in digital markets. In periods of economic stagnation, there is a significant increase in transactions made over the internet. Instead of cutting your budget to get your share from here, make smart investments in this area.
Never consider the money you spend on marketing as an expense. Consider them as an investment. It will provide the return you desired after a while. Some marketing steps you may take at this point may be:
- >>> Focusing on increasing the number of your website visitors,
- >>> Increasing visibility and awareness of your brand,
- >>> Increasing cash flow,
- >>> Connecting with other investors in your area,
- >>> Reaching your potential customers with advertisement videos that you will share on YouTube.
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10. Act Strategically
Prepare long-term business plans and think more broadly about your goals. Remember those many examples that show all of the economic crises in history were also great opportunities. Build your strategy with this thought and start acting according to this.(*)
With the moves made on a strategic plan, you can double your real estate investments in crisis periods. However, do not forget that you need to be rational and patient at this point.
The risk is that you don’t know what you’re doing. If you know what you are doing even in an economic crisis and take your steps according to this, you are not at risk. With right planning, strategic thinking and sticking to your plan, you’ll find that there is no better time of opportunity than crisis period.
Latvian real estate sector is growing day by day due to foreign investors’ interest towards the country. Advantages such as being a member of the EU and granting residence permits to real estate investors who meet certain conditions make this place attractive. We provide you with legal support for your investments in this field and complete related procedures in short time in accordance with existing procedures. In crisis periods, you can contact us to take advantage of the opportunities of real estate market issueless and quickly.
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Igors Krumins continues his activities as a commercial and international lawyer within the body of “Jurmala Invest”. He has more than 10 years of experience, especially in the investment sector, and has provided consultancy services to numerous companies with his legal expertise. He successfully completed his undergraduate studies at Baltic International Academy and graduate studies at Latvijas Universitate. Apart from his native Latvian language, he can also speak Russian and English fluently.