Today we’re going to talk about specific ways you can recession-proof your real estate business. Ways to help your business survive – make that thrive – in a down housing market.
This isn’t about fear-mongering or giving you an excuse to post lower income figures when the market slows. This is about accepting the reality that real estate (and the economy as a whole) experiences natural cycles. And that different market conditions require different business strategies.
Quick note: this post was originally published in December 2018. This is the new, improved version!
5 Ways to Recession-Proof Your Real Estate Business
Without further adieu, let’s jump into the list…
1. Set aside savings from every sale while the market is still hot
One way to recession-proof your real estate business is to make sure you have the funds available to ride out the recession. And that starts with saving money from each sale you close when the market is strong.
You already know you need to set aside money from each sale to cover taxes, insurance, and retirement savings. A recession fund is one more account you should be funding with every transaction.
We all know agents who were forced out of the business during the Great Recession. In fact, we all know agents who are forced out of the business before they really even get started. This happens constantly to new agents who don’t understand the need to have funds set aside to cover living expenses while they’re launching their real estate business.
Having a financial safety net will allow you to remain focused on your long-term goals regardless of what the market is doing on any given day.
And what if it’s too late?
Maybe you’re reading this after your market has already slipped and it’s no longer possible to take advantage of a hot market to save extra money. That’s ok. And you’re certainly not alone! The fact is, most agents don’t prepare early enough for an impending downturn, so we only start recession-proofing when things have already started to slow.
Take heart! There are still plenty of ways you can recession-proof your real estate business even in the midst of a recession. Keep reading!
2. Add a new income stream when you see the market slowing
I’m not going to tell you to funnel all your resources into creating a completely different business model when real estate transactions slow. But a slow market is a great time to allocate some of your resources toward creating new income streams that complement your existing business model.
There are three income streams in particular that actually offer more opportunity in a slow real estate market than in a strong real estate market. And they still offer opportunities to promote your real estate business and to meet buyers and sellers.
The three recession-happy income streams are:
- property management
- property tax appeals
- real estate investing
Let’s take a quick look at each of these.
1. Property Management
When people are nervous about the housing market, what do they do? They rent. So the demand for rentals increases in a down real estate market. And this gives you the perfect opportunity to create a new income stream by offering property management services.
As a property manager, you:
- promote vacant rentals
- screen potential tenants
- draft leases
- handle tenant issues and maintenance requests
- manage turns (the cleaning, painting, etc needed between one tenant moving out and the next moving in)
- collect rents and transfer proceeds to the owner (minus your property management fee)
For this full-service operation, you can usually charge 5-10% of the monthly rent as your monthly fee in most markets. You can charge as much as 25% of the rental income if you’re managing short-term vacation rentals (Airbnb-style).
Some owners actually prefer to handle the day-to-day management (maintenance issues, rent collection, and lease renewals) on their own. But they need help finding and screening new long-term tenants. In that case, you can easily charge a fee equal to half of the first month’s rent in most markets.
By providing their property management services, you’ll be the top-of-mind agent for property owners. It gives you a solid in when the market improves and you tell your owners how much they could make by selling. You may even be able to facilitate a deal for the tenants to purchase the property from the landlord! And if dual agency is legal in your state, you could make a full 6% commission on top of the fees you already made for your property management services!
It just takes a little organization to stay on top of your portfolio, so make sure you invest in some inexpensive, but effective, property management software.
2. Property Tax Appeals
Property tax appeals are the best-kept secret in real estate income! And the perfect way to recession-proof your real estate business!
Here’s how it works:
- County assessors use a formula to estimate property values county-wide for taxing purposes.
- In a slow market, assessors almost always overestimate the values, which leads to a too-high property tax bill.
- If the property owner, or their representative (that’s you!), can show the county that the fair market value is lower than their estimated taxable value, the county will grant a property tax reduction.
Homeowners are typically willing to pay good money to a real estate professional, like you, who already knows how to value real estate. If you can navigate this property tax appeal process for your homeowners, most will gladly pay you a fee of 35-50% of the tax savings you achieve for them.
I’ve actually been in the property tax consulting industry for over 10 years (yes, it’s a thing!). If you want to learn more about this little-known income stream, check out my post all about how to make money with property tax appeals.
3. Real Estate Investing
If you’re a real estate investor (or want to be one), a recession is generally a good time to buy an investment property.
Prices may dip, allowing you to get a good deal. You’ll probably also have more negotiating power than in a hot market. And if you’re far enough into a recession that interest rates are dropping, you can also lock in a great rate!
Plus, rents often still increase during a recession because there is more demand in the rental market. So buying a rental property during a recession increases both your monthly income potential and your ROI potential.
If you want to learn more about real estate investing, here are a few posts to give you an edge: Top 10 Real Estate Investing Tips for New Investors and The Only 3 Books You Need to Invest in Real Estate.
A slow market is the perfect time to launch an income stream that will complement your real estate practice. Don’t ignore this opportunity!
3. Increase your marketing budget during a slow market
What does the typical real estate agent do during a recession?
They stop spending money. They eliminate as many of their expenses as possible. Which includes their advertising expense.
This means you’ll have far less competition in the advertising game! So instead of cutting back on your marketing budget during a slower market, increase it!
We talked about setting aside some savings from every transaction in a hot market to pull you through the inevitable colder market that follows. Marketing is a great use of some of that savings. You’ll be one of the very few elite agents who are hard-core marketing to buyers and sellers during that cold market.
Want to make the most of your marketing dollars in a down market? Target a recession-friendly group, like investors.
We just talked about some of the benefits of buying investment property in a down real estate market. Savvy investors already know this, and they’re looking for a buyer’s agent to represent them. And now is the time to educate new real estate investors! Imagine writing a quick blog post teaching first-time investors how to capitalize on this down market. Then you share that blog post on all your social media channels. You’re going to drive new investors to your site who want to learn how to invest. And you’re going to wow them with your local real estate knowledge so they know you are the only agent they’d want representing them in this important investment purchase.
4. Invest more time in content marketing
Speaking of blog posts, a slow market is the perfect time to invest in your content marketing.
Content marketing is promoting yourself and your business through the content you create. Blogging, for example. Or video tours of different neighborhoods in your market. You create this content and get it out into the world by publishing it on your site, uploading it to YouTube, sharing it on social media, etc. This provides real value to your audience. Future buyers want to get to know the different neighborhoods, right? They can find your video tours online, which will help them decide on a neighborhood. And your name will be top-of-mind as the local expert when they’re choosing a buyer’s agent.
You may not be as busy with transactions during a slow market, so you can invest more time in creating this kind of content that will be used to market your business passively for months, and even years, to come.
If you need some help coming up with content ideas, we have a list of over 100 blog posts for real estate agents. These ideas can be blog posts, video posts, social media snippets, whatever works for you and your audience! Just enter your contact info in the form below to get this list of blog post ideas delivered right to your inbox!
5. Focus on a lower-price point during a slow market
One last thing to help you recession-proof your real estate business: focus on a lower price point.
During tough economic times, luxury items are usually the first things to be eliminated from people’s budgets. This includes luxury real estate.
Most buyers will be looking to buy a property they can afford in the current economy. Which will naturally be a lower price point than the real estate they would be comfortable committing to in a quickly-growing economy.
Meet buyers where they are. Provide them with the properties they’re looking for. Even if that means focusing on houses with a lower price point.
The Bottom Line
A slower real estate market is nothing to fear. There are plenty of things you can do to recession-proof your real estate business. Prepare for a slower market, and then capitalize on it!
Do you have other tips and tricks on how to recession-proof your real estate business? Let us know in the comments.
Get Your Complete Recession-Proof Guide!
If you’re serious about growing your real estate business during a slow market, check out The Recession-Proof Real Estate Agent. This book offers a complete step-by-step guide to recession-proofing your real estate business.
