Market fluctuation, demographic shifts and economic volatility are some of the factors that shape the real estate market in the long run. With different phases of the real estate cycle, an investor comes across opportunities and challenges. During the growth phase, property value increases and investors benefit from it. But what about the declining real estate market?
Think about it as an investor: decreasing property values, longer selling periods, declining rental income, higher vacancy rates, and, on the other hand, high competition amongst sellers. As much as this sounds a bit stressful, with a flexible investment strategy, you can withstand this situation.
Focus on Cash Flow Over Appreciation
In a declining market, there is less chance of property appreciation so relying on that would be pointless. At this time, one must shift their focus more to cash flow to be on the safe side. Find and invest in rental properties where the demand is high for a consistent flow of rental income. Thus, reevaluate your portfolio and prioritise the one that provides positive cash flow.
Portfolio Diversification
In this situation, portfolio diversification can act as a shield against some losses. Instead of keeping the eggs in one basket, consider investing in several locations and property types. Diving into commercial properties can be one option while residential properties are suffering. On the other hand, industrial properties and multi-family properties can act differently during economic downturns.
Leverage Low-Interest Rates
When the market is in recession, usually the central bank (Reserve Bank of Australia) cuts interest rates to uplift the economic condition. By doing this borrowing becomes cheaper which encourages the investors to refinance.
Lock yourself in fixed-rate mortgages for new purchases to avoid interest rate hikes.
Stay Updated About the Market Trends
Investors must stay updated and informed in the time of a sinking market. It is necessary to follow and know about the real estate trends and updates which can help you to predict the shifts.
Thus, it is important to understand the local market changes, vacancy rates, and property prices while in touch with a real estate professional.
A declining real estate market doesn’t necessarily mean a disaster. By focusing on cash flow, staying updated, diversifying the portfolio, and consulting with a professional, an investor can overcome the losses strategically.
