Investing in Real Estate During a Recession
The USA is no stranger to a recession, and neither is the rest of the world. One common aspect of each recession is a fear surrounding our assets and general finances. With the current recession, the same fears have been sparked in most investors.
The recession has made people hesitant about investing, even in real estate. However, real estate investing in a recession does not differ much from investing during other economic cycles. You’ll need the same foundational principles in any market to invest in real estate.
These are the top three things you’ll need:
#1 The right money mindset
Most people lose their money mindset when a recession begins. They start panicking, which makes them think about their money differently. They stop thinking about money as a tool to build wealth and forget that it should work for them.
The fear brought on by a recession often makes people shrink their money mindset. Most people regress into a scarcity mindset, which won’t make you money. Instead, you should operate in an abundance mindset regardless of the economic cycle.
To make money in any cycle of the economy, you need to have your foundations together. The first of those foundations is an abundance mindset, and the second is understanding your views about money. You need to be in control of your money instead of having your money control you. So, you need to work on your money mindset.
Your money mindset is the overall attitude you have about your finances. It's typically influenced by your upbringing, personal experiences, and general perspective on wealth. To cultivate your money mindset, you need to do affirmations about passive income, building wealth, increasing your income, and abundance being your birthright. Do your affirmations regularly, and constantly evaluate your mindset.
Be mindful of the information you absorb in your daily life. Watching the news all day will shrink your mindset incredibly because you'll constantly be worried that everything in the world is wrong. Try to consume more positive content so you can increase your positive thoughts. Dwelling on positive things will allow you to create an abundance mindset.
#2 Mind control
Mind control refers to the level of control you need over the affairs of your life. Some people have a very hands-off approach, while others are micromanagers. So, you must have an honest conversation with yourself about the type of person you are.
Mind control is especially important in real estate investing because each type of investment requires different levels of control. So, you have to know and be true to yourself. In so doing, you’ll understand the level of mind control you need for each investment.
Capital investments are completely hands-off, meaning they wouldn’t be suitable for a micromanager. Micromanagers want to know every single detail about their investment. So, passive income might not be the primary form of real estate investing for someone with this type of control. If you’re a micromanager, you’d be better off investing in a fix-and-flip because it requires a hands-on approach.
#3 Understanding your risk profile
Most people overlook this aspect of real estate investment, but you need to understand your risk tolerance. Your risk tolerance level is a sliding scale of several factors, including your lifestyle, age, job security, kids, aging parents, savings, and retirement. Your risk profile also includes the amount of money you have for investing, mind control, and your money mindset.
Risk tolerance tells you what you can afford to lose at any given point while still being financially stable. For instance, a 20-year-old single person has a higher risk tolerance than a 45-year-old married person with school-aged children. At the latter age, your risk tolerance is lower because you need the capital, time, and awareness for other things besides your investments. However, a higher income can increase your risk tolerance despite these factors.
It’s crucial to remember that a risk tolerance level is not a science; it's an art. It’s a matter of understanding your life and then figuring out the sliding scale for your life. Your risk tolerance level will also change as your life evolves. If your income suddenly decreases, your risk tolerance level will also be lower.
You need to understand your risk tolerance level at every point in your life because it will dictate the type of investment you can get into, especially in a recession. Your risk profile allows you to find the right real estate investment avenue for you. This will save you the mountain of stress that comes with throwing money into a real estate investment that’s not ideal for your risk profile.
If you don't understand these three factors before you jump into real estate investing, you’ll lose a lot of money in any cycle of the economy, more so in a recession. So, take the time to understand each point. Most importantly, take the time to understand yourself and choose the right real estate investment.
I help people grow their wealth through real estate investing and entrepreneurship. Visit www.EpicImpactInvestors.com if you are looking to passively invest in real estate. You can schedule a consultation by clicking here. I’m always happy to help.