No matter how hard certain economists have tried to deny the existence of an oncoming recession, more and more people have spotted the global slowdown in many markets. The writing is on the wall and there are some surefire signs that a recession is approaching, including an inverted yield curve, softer commodity prices and the contracting of manufacturing. These three indicators alone are enough for some companies to start tightening their belts in preparation for a market slowdown. Commercial real estate investors and property managers alike are beginning to wonder how to weather the oncoming storm and continue turning a profit. Our team at LCI Realty has compiled a list of ways that you can recession-proof your real estate investment strategy and breeze by the upcoming downturn.
Pay Down Your Debt
This is one of the key pieces of advice that any financial advisor will give you to recession-proof your business. Debt weighs on your finances in a buoyant market, but it can sink you when you’re in a recession. While you’ll want to take the steps you can to solidify your finances and not allow debts to overwhelm you in a downturn, be realistic about a debt repayment strategy so you don’t get too ambitious and end up over exerting your existing capital.
Keep Key Personnel In Place
Many companies let personnel go when they are entering into a recession in an attempt to free up resources and save where salary and benefit payments when possible. While this is a common strategy, it can also be detrimental to your overall company position through the recession, as well as when the economy begins to turn around. These key employees might be a redundancy in certain roles, but a creative manager or director can move around employees with potential to increase the business’s investment in their growth and to retain them during a downturn. For commercial real estate investors and property managers, maintaining people in key positions that share your values can help you to recession-proof your strategy.
Invest In Tenant Resources and Guidance
While not every investor has an influence on their tenant’s choices, property managers and financiers can help to recession-proof their real estate investment strategy by investing into tenants and their success. If you have a good relationship with your tenants, you can provide them with information about financial strategies, successful practices for their market segment and available guidance from experts in their industry. Presented right, these pieces of information can bolster the strategies of your tenants, which would keep your cash-flow in the positive territory.
Monitor Tenant Performance
While you will want to provide your tenants with resources to help them strategize and recession-proof their own businesses, investors and property managers should also monitor the successes and failures of their tenants. At a time when you need to tighten your belt and make sure that all your cash-flows are positive, you can’t afford to let anything out of your sight. Tenants that begin to perform poorly should be your priorities, not only to secure resources and guidance for them, but also to begin discussions of what to do with their tenancy agreement, including an early-termination allowance or terms for renewal based on their performance. That will allow you to invest in stronger tenants or replace struggling tenants with viable tenants at a time when you can’t afford to lose money.
Raise Tenancy Standards
While many landlords and investors take the opportunity to invest in low or no credit tenants at times of economic success, during a recession is not the time to take chances. These tenants might have a great idea or a positive effect on the local economy, but their risky financial profile could seriously hurt your cash-flow. You’ll want to recession-proof your real estate investment strategy by verifying tenant financial statements, as well as take on larger deposits, so you can cover costs if a tenant defaults.
Finding A Strategy Partner Through A Recession
No one should have to deal with a recession alone. Real estate investors and property managers can sometimes feel like they have to solve problems all on their own. Together, with the team from LCI Realty, we can help you recession-proof your real estate investment strategy. Give us a call today at 480-565-8981.