Finding a good real estate investment during a financial crisis is not so dissimilar from finding a good real estate investment in a normal financial market. A low price, great location, and an appropriate amount of cash flow are some of the primary characteristics you should look for when purchasing an investment property. These characteristics should not change with the market fluctuations. However, the nature of these characteristics will be different in a financial crisis.
The difficult part about real estate investment during a financial crisis is that there are very few banks and financial institutions that are willing to loan money. As such, you have to come up with more money upfront or have to make an all cash purchase. This can be difficult if your money is tied up in equity or if you otherwise lack the cash necessary to obtain a property.
Although access to cash to purchase a property may be a problem during a financial crisis, low prices take on a new meaning during this time. If a financial crisis is present, real estate prices may suffer. Additionally, job loss and other employment cut backs may cause people to start to default on their loans. In such an event, banks may be desperate to unload properties in order to obtain cash. This may cause you to discover extraordinarily low prices for properties.
The idea of a “good location” also changes during a financial crisis. If a property decreases in value and there are mass foreclosures due to job loss, you may find that an upper-middle class neighborhood that used to be filled with happy homeowners is now filled with lower-middle class renters. This can affect the character and desirability of a neighborhood.
Finally, cash flow changes in a financial crisis. Although there may be an influx of renters during a financial crisis, you have to be careful about who rents your property. Due to job loss and the inability to obtain a loan, you may find that tenants are defaulting on their leases more often than usual. This can be a problem because most states require that you follow a judicial eviction procedure. This means that it will cost you money and time to get your tenant evicted and to find a new tenant. All the while, you are still responsible for all mortgage payments, taxes, and insurance payments for the property.
Although the general characteristics remain the same, these characteristics are altered during a financial crisis. As such, stay alert and notice these difference or else you may experience a financial crisis of your own.