What Happens to Real Estate During a Recession with houseplants

What Happens To Real Estate In A Recession And When You Should Buy

Recessions can be a tough time for many, including real estate owners and investors. But, as with any challenges that arise in life, the more you know about it – and the more you educate yourself beforehand – the better equipped you’ll be to navigate said challenges.
 
So the question is, what happens to real estate in a recession? How is the real estate market as a whole affected? And perhaps most importantly, when should you look to invest in more real estate?
 

In this article, we’ll look at the what a recession is, what happens during a recession, take a look at previous recessions, and look forward to the events to come in the following months and years, so that you’ll know exactly when it’s the right time to buy.

What Is A Recession?

By definition, a recession happens when the economy shrinks for at least two consecutive quarters (i.e., six months of negative economic growth).
 
This is measured by GDP (gross domestic product), which represents the total value of goods and services produced within a country – every home built, every latte sold, etc.
 
A recession, then, is a period of at least six months when GDP goes down rather than up. When GDP climbs back to pre-recession levels, the recession is over.
 
Typically (though not always) a rise in unemployment can be one of the early indicators of a looming recession.
 
That being said, in every crisis lies opportunity. By understanding how recessions work and the typical sequence of events that occur during and after a recession, you can set yourself up to create life-changing wealth in the recovery following any recession.

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The Stages Of A Typical Recession

Based on what has happened in previous recessions, here’s a breakdown of what typically happens during a recession.
 

Stage 1 – Unemployment Rises

In the early stages of a recession, unemployment climbs.
 
This is because, as economic activity slows down, companies make and sell less, which means they need fewer employees. As such, many companies lay off workers to cut costs.
 
During the Great Recession of 2008, 2.6 million people were unemployed. 
 

Stage 2 – Government Stimulus 

As economic activity slows and unemployment rises, the government may step in in an attempt to keep the economy afloat, through things like stimulus programs for individuals and businesses. 
 
Often, this may provide temporary relief, which is what we saw in both the 2008 recession and the COVID-19 pandemic.
 

Stage 3 – Loan Defaults

During the next stage, as the recession continues and businesses continue to close down or operate at diminished capacities, we often start to see a wave of loan defaults. 

As tenants are not able to pay rent, and many real estate owners deplete their reserves, more and more loan defaults occur, both for residential real estate loans as well as for commercial loans.

 
When this happens, banks may start to take over many of those properties, as they did in the years following the Great Recession of 2008, which brings us to the next stage.
 

Stage 4 – Bank REO 

As property owners default on their loans, banks then start to foreclose on those properties and take over those properties that are not sold at auction. 
 
This is when we typically start to see a wave of bank REO (real estate owned) properties start to hit the market, as we saw in the months and years following the Great Recession.
 
Banks are not in the business of property management, so often, they’re itching to offload these properties quickly and thus, at a discount. This is when you should get your checkbooks out and prepare to buy.
 

Stage 5 – Time to Buy 

As those bank REO properties start to hit the market at a steep discount, that’s when you know it’ll be time to buy.
 
The question is, when exactly will this happen? The short answer is, it depends. It depends on a LOT of factors, to be honest, and every recession is unique.
 
Based on the speed at which the real estate market typically moves (i.e., not very fast at all), it’s safe to expect some amount of lag. 

Thus, in the early stages of a recession, be patient and make sure that you have ample liquidity prepared for when the time does come to buy.

 
And if you’re investing actively in real estate (as opposed to passively investing in real estate syndications), we highly recommend you consider learning to raise capital, so that you can pool together money from private investors to take advantage of more deals when the time is right.
 

Stage 6 – Inflation 

Often, the final stage that we can expect to see is inflation. 
 
Inflation may sound daungtin, but here’s the thing. Inflation is actually a good thing for all of us as real estate investors.
 
Why? Because inflation means that your money is getting devalued. That same dollar from a year ago might only be able to buy a fraction of what it can buy in the coming years.
 
That’s why real estate is such a great investment, because it’s a hedge against inflation. When you invest in real estate with a fixed rate loan, you are locking in your payments, sometimes for 30 years or more.
 
Even as your money becomes devalued, you are still making the same mortgage payments month to month, all while your real estate values continue to appreciate.
 
This, on top of the benefits of cash flow passive income and tax benefits, is yet another reason why we should all be investing in real estate.
 

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Next Steps

If you’re looking to invest in real estate syndications to help bolster and diversify your portfolio ahead of the next recession, we invite you to join the Goodegg Investor Club, so we can keep you in the loop on opportunities to invest alongside us.

You can also check out our open deals page to learn more about our current or upcoming opportunities.

Learn More

If you’re not yet ready to invest but are curious about how all of this works, we invite you to dip your toe in the water with us through our free 7-day email course – Passive Real Estate Investing 101

You can also get a copy of our book – Investing For Good – or check out our Life & Money Show Podcast.

To learn more about us and our experience, be sure to download a copy of our track record, which shows the projected and actual returns we’ve achieved across all the deals we’ve exited to date.

Connect With Us

If there’s ever anything we can do to help you on your journey, feel free to email us at [email protected] or call / text us at (888) 830-1450

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