Buck the trend and start Recession Investing!

Recession investing can be one of the best ways to get ahead for the little guy who is just starting out in property or share investing, even though you might think it's crazy to invest in property (or anything else) during a downturn. The really big shots already know that recession investing is going to make them money.

I like what one of my teachers, Jamie Mcintyre, tells his classes about investing:

"Great investors always do the opposite of what the crowd does"

There's good sense in this.

Everyone else in between the two ends of the Great Investor scale - the Mr and Ms Average of this world - doesn't realise this, or is too afraid to take action. Recession investing is anathema to them and they remove themselves from the market just when they have a chance of making it big.

All this really does is confirms their deep-set belief that no-one makes money investing in a downturn. After all "Money doesn't grow on trees" (oh yes it does...) is something they were always told while growing up. And, they can argue, recession investing didn't make anything for them.

That's because their "investing" involved getting the hell out of the market!

You've got to be in it to win it!

That's right! Property investing - any kind of investing - just like sports, involves participation in the game or the market. If you've hidden your money under the bed, then it's not out there earning its keep for you in the right places.

Of course you might choose the wrong ones...

Sure, everyone makes mistakes, but a baby learning to walk does the same. If they got depressed about not making it on the first, second, third or tenth try, we'd all still be crawling around on our hands an knees, or worse, lying on our backs, quite helpless.

Have you lost money on investments before?

Are you shy about trying anything else because of it?

Don't be! Now is the perfect time to start making money with your investments, if you know how.

Remember what I said about getting yourself an education in property investing? Go for a refresher if you don't, then come back here. People who started with little or no money have made millions every year because they weren't afraid to pick themselves up, dust themselves off, and try, try again. Many of them, strangely enough, are probably not as smart as you are either. They just made sure they learned the techniques that worked, and kept putting them into action.

Here's another example of doing the opposite of what everyone else is doing with recession investing:

Say you bought run-down property during the early surges of the boom. You renovated it quickly and turned it over for a large profit because the work you did and even the short time off the market during those times made the value go up. Some people made hundreds of thousands of dollars doing this.

Then you kept doing the same thing until the property market topped out and then crashed. Suddenly you had a bunch of properties you had a) paid too much for, and b) spent a heap on renovating. Suddenly you found yourself in a lose/lose situation for the technique you'd been using successfully for years. If you were lucky, the rental crisis meant that you could rent your expensive mistake out for something approximating enough to cover the mortgage repayments, but it's more likely that you bought in an area where the numbers for property prices and rental returns simply don't add up.

If, on the other hand, you had kept an eye on the average prices in the property market, you'd have seen that the boom was coming to an end and the values were starting to level out instead of skyrocketing as they had before. You'd have realised that it would be time to change tack, and started to look for properties in the median price-range suburbs or towns that would give you a solid return for your money. The smart thing to do at this point would have been to consolidate your earnings into properties that needed little work done to increase their rental returns enough to give you some cashflow back in your pocket while you rode out the property plateau and the crash.

In Australia you'd have seen those rental returns increase dramatically due to the rental crisis, and provided more homes to rent out. If all of this was part of your retirement plan, you could have allowed the extra money to pay down the loans until the next boom, and then leveraged your equity to get back into the renovation game when the prices started to rise dramatically again. Better still for a recession investor, you could do your research and use some of that equity to build more wealth by investing in some solid stocks and shares that had come down in price, but were likely to still survive and thrive when the worst of it was over.

You see?

Persistence doesn't pay if the technique you were using the first time around doesn't work.

If it doesn't work, do yourself a favour and do something different. Keep doing something different (keeping the bits that actually do work along the way) until it really works well for you, and then persist until it works even more. Knowing the ways around the problems you face during the investment cycle (property or shares), and changing your techniques to suit the market, means you will always be moving forward at some pace, rather than going backwards.

I did this when my first business went to the wall. Believe me, it was hard to let go of what we had built up together, but I knew that if I didn't do something else, things were going to keep getting worse.

I picked myself up, dusted down, and started reading. Then people started to ask me about things which were an interesting combination of what I'd been doing before and what I had learned. Something new and better came out of it, and I started to build a new future from my family based on smart techniques I had discovered. This site is part of that planned future, and strangely enough, the salvageable parts of my old business are starting to make sense and make money again too.

Never give up! Just persist differently.

What are the basics of recession investing?

  • Buy at the bottom and sell at the top. Not the other way around.
  • Figure out a way to hang on to properties that might not do so well if you sold during a downturn, until things start moving up again. The way you figure out might turn out to be a great way to make more money as well.
  • Use this time to review your investments and work out which ones are performing and which ones aren't ever going to perform.
  • It's okay to sell something to improve your stability in the market during a recession. Just don't sell everything!
  • Develop an ability to be flexible in your working methods.Sticking to techniques that worked in boom times won't work for you now. I guarantee it!
  • If you're in a position to, and as long as you do your due diligence as normal, take the opportunity to grab all the investments (rental property or otherwise) that you can while the prices are low.
  • Recession investing is often more about finding problem properties and fixing them. Pick up the courage to bargain hard when you find something you know you can fix.
  • Don't be afraid to spend a little more money on improvements, or do a little more work to get a rental property investment working for you, rather than against. I've seen many recession investors buck the trend in this way and start making even more profits than before with a little elbow grease!

Be a Recession Investor, not a Recession Runner.

People who panic during a recession and sell every investment they have in property, stocks and shares aren't helping themselves. They are locking in their losses and allowing themselves to think they "got burned" when all they needed to do was think laterally to find a solution that would make more money, or at least allow them to tread water through the bad times.

These people who run from recession investing are also feeding the recession itself.

When everyone sells their assets and sits tight on their (very much reduced) cash pile, the values continue to go down for everyone, businesses do go bust as a result, and people lose their jobs.

Recession investing is often about spending a little bit now to gain a lot later on.

Think about it: you do a small renovation on your carefully chosen investment, and in the current tight rental market, it improves the rental return on your property to a level where you can afford to keep it, even if you somehow lose your job, because it's paying for itself. The added bonus is you probably kept some tradesmen in work during tight economic times.

You might have been able to negotiate a cheaper rate on labour and materials because everyone is reducing prices to encourage people to buy their products and services. So by recession investing, you're saving money on what things would have cost during a boom (and that probably includes the actual property, if you bought it in a flat bottomed market)!

When the downturn is over, your recession investing pays off more even more, because you've done most of the work to bring the property up to standard. The worst you may have to do now is give it a quick touch-up of paint, and if you decide to sell your trusty rental property investment, the value will have skyrocketed along with the rest of the market as the recession ends.

Most people investing in rental property wouldn't necessarily decide to sell though. They'd use this increased equity in their property to buy into more properties and keep on moving up.

The typical recession investing success story:

I've seen houses sell for $20,000 below their land value because every other buyer thought it was going to cost $20,000 to knock the building down and more to start again.

Doing proper due diligence on the $180,000 property (to ensure the property wasn't actually falling down), and using the $20,000 to carry out repairs, paint, and do a general tidy-up of the property raised it's value by a further $40,000: to $240,000, where the property should have been placed in the market, even in a recession!

So don't allow the recession to burn you: Get out there and start recession investing.

You may be really surprised with the results!

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