How Does a Recession Affect Investors?
We’ve heard the warnings for months now of an impending recession: wild inflation, soaring interest rates, slow economic growth. This time is different from other recessionary periods, economists tell us. But those whose portfolios took a beating when the housing bubble burst in 2008 may already have PTSD. So, how does a recession affect investors in Central Florida?
Regardless of how different this period feels to experts, many businesses and households have already begun tightening their belts. A lot of would-be homebuyers hesitate to enter the market, worrying about a recession.
It didn’t help that mortgage rates hit a 20-year high as the feds desperately try to cool a hot market. Higher rates mean higher mortgage payments that reduce the buying power of homebuyers and investors alike.
In general, for every half-percent increase in interest rates, a buyer’s power drops by about 5%. So a pre-approval for a $200,000 loan will drop buying power by $10,000 to $190,000.
As a result, housing sales slumped in the last quarter of 2022 (down nearly 20% from the same time in 2021).
Existing Rental Property
As housing sales slump, people have to live somewhere so they turn to renting until the market becomes more favorable. This is why rental properties tend to do very well in times of economic downturn. But owners need to carefully read the market to maximize their ROI.
If you already have existing rental property, a professional property management company can help you garner the best rent rates. They have the data to demonstrate which areas have the highest demand. And they can recommend sought-after amenities that can further boost rent rates.
Planning to add more rental properties to your portfolio? Experts recommend doing so quickly and locking in rates ASAP.
Remember, whatever interest rate you receive isn’t a 30-year sentence. Some experts recommend adjustable rate mortgages (ARMs) over fixed interest rates during this time. That’s because high interest rates are more destined to fall at some point.
However, if having a fixed monthly payment is more important to you as an investor, fixed rate mortgages are still the way to go. Plus, once inflation cools and interest rates fall again, you can refinance to a more reasonable rate.
Because of the skittishness of potential homebuyers, central Florida inventory has begun to rise. Again, a knowledgeable Orlando property manager can help you select the best buying opportunities from available housing inventory.
The Bottom Line
Talk of recession can raise fears and threaten to send investors into a panic. But armed with the right knowledge from reputable real estate investment experts, you can benefit.
For example, in 2021, buyers submitted offers well above asking price. Now, they can reasonably submit offers at or slightly below asking price as demand cools.
If you’d like to learn more about the investment opportunities in Orlando or the Central Florida area, reach out! The stellar sales team can help you find investment properties that match your portfolio needs. Call 321-236-6690 or use our online form to get started.