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What landlords should know about living with higher rates in a recession?
- Your mortgage costs will go up. This means your monthly mortgage payment will be higher, which could put a strain on your finances.
- Your tenants may have also a harder time paying rent. If they lose their jobs or have other financial problems, they may not be able to afford to pay their rent on time and may slip into arrears.
- If the worst comes to the worst, you may have to sell your rental property. If you can’t afford to pay your mortgage, you may have to sell your rental property to avoid foreclosure. There are steps you could take to mitigate this eventuality.
How to prepare for a recession?
It’s important to be prepared for these challenges if you’re a landlord living in a recession.
Here are some tips:
- Keep a close eye on your finances. Make sure you have enough money to cover your mortgage payments & other expenses.
- Be prepared to raise rents. Even if your tenants are struggling to pay the current rent, you may still have to raise it in order to make ends meet.
- Talk to your tenants. If your tenants are having financial problems, talk to them about it. They may be able to work out a payment plan. You might even be in a position to reduce their rent in the short term. Keeping good tenants is often better than trying to find new ones.
- Be patient. A recession is a tough time for everyone, but it will eventually pass. They always do.. Just be patient and do your best to weather the storm.
- Be prepared to sell your rental property. This can be a challenge but try to prepare yourself, mentally and financially, for such an outcome. The release of equity may help you to finance other business opportunities or even look for rental acquisitions in more profitable areas.
The option of leverage
Landlords can re-leverage their portfolio by using the equity they have built up in their properties to borrow money to buy more properties. This can be a risky strategy, but it can also be a way to grow your portfolio quickly.
There are a few things to consider before re-leveraging your portfolio:
- Your current level of debt. If you are already carrying a lot of debt, it may not be a good time to re-leverage. Seek professional advice before making any adjustments.
- The interest rate environment. If interest rates are high, it will be more expensive to borrow money. Of course, interest rates will be high for everyone in the market, especially first-time buyers who will struggle to find a mortgage and raise a deposit. A strong portfolio with a substantial bank of equity will give you the flexibility and financial muscle others will lack.
- The rental market. If the rental market is strong, you may be able to get the best return on your investment. With people struggling to buy, the rental market is strong. However, it is stronger in some areas than others so do your market research thoroughly to maximise returns on your investments.
If you decide to re-leverage your portfolio, it is important to work with a qualified lender to get the best possible terms. You should also make sure that you have a sound financial plan in place to manage commercial debt.
Here are some of the benefits of re-leveraging your portfolio:
- You can grow your portfolio quickly.
- You can take advantage of low-interest rates.
- You can improve your cash flow.
Here are some of the risks of re-leveraging your portfolio:
- You could lose money if the rental market weakens.
- You could become overleveraged if the market turns.
- You could have trouble making your mortgage payments if you have a tenant who stops paying rent.
Overall, re-leveraging your portfolio can be a good way to grow your portfolio quickly, but it is important to weigh the risks and benefits before making a decision.
A recession is painful, but it does not have to be fatal. With professional advice and research on specialist finance comparison sites like Propp and a keen eye, you can weather the storm and even come out the other side smiling. Just remember, it isn’t the end of the world. That comes later.