4 Ways to Recession Proof your Real Estate Portfolio

This year has been challenging for everyone, but those holding on to real estate have really been feeling the pinch. Interest rates have gone up 10 times in the last 18 months with the Bank of Canada not ruling out further hikes if necessary. In every challenging situation I always reflect on what’s going well and what’s not so that I can adjust and be in a better position to tackle these challenges if/when they come again. Here are my top 4 ways to recession proof your Real Estate Investing Portfolio. 

1. Diversify your Investment Portfolio. Diversification is so important in any investment portfolio and real estate is no different. Consider investing in different types of real estate whether that be residential, commercial or multifamily. You can also have a mix of both active investments which you are managing yourself and passive investments which you have others managing for you. Lastly, spreading out your investments geographically may also help as different regions may be affected differently during economic downturns. 

2. Maintain strong Liquidity. Prioritize investments that generate positive cash flow. Although principal paydown and appreciation both contribute to wealth building in real estate, cash flow keeps your property afloat on a monthly basis. If your operating expenses suddenly start increasing, it may be challenging to get access to equity to cover rising costs. It’s essential to keep cash reserves on hand to cover planned or unplanned expenses such as repairs, vacancy, or rising mortgage payments. 

3. Manage your Debt Levels.  Savvy investors tend to feel the urge to have all their available money out “working” for them. But it’s prudent not to over leverage yourself, especially during uncertain times. Having access to a line of credit to tap into if reserve levels fall or your circumstances change can be helpful. Of course, you’ll need to make sure you can cover the associated interest charges that come with it. 

4. Seek Professional Advice. Lean in on your professional network to provide you with expert advice tailored to your specific circumstances. A fractional CFO as part of your professional finance team can help with identifying opportunities to reduce costs, manage your cash flow and forecast/budget so that you can adequately plan for what’s to come.  

Managing your finances can be daunting. If you’re looking for tips and tools that can help you stay on top of your finances you’re in the right place! Keep an eye out for new tips and tools coming soon!

If you’re a seasoned mid-size real estate investor and looking to partner with a fractional CFO so you can experience a more hands off approach to your finances, book a Discovery Call today!