This article explains how to maintain a stable income during a recession and how to get ahead while others are floundering.

Necessity is the mother of invention

What do Airbnb, the Walt Disney Company, Uber and Microsoft have in common? They’re all successful companies founded during U.S. recessions.

As we head into the twilight months of 2022, a recession is not yet official — but the effects are here, nonetheless.

Home sales volume and home prices are in full retreat, homebuyer purchasing power is in the dumps and buyers are saying no thanks, I’ll wait.

Even the whiff of a coming recession may tempt you to crawl under a rock. But the most successful businesses find ways to survive and grow during economic downturns — and real estate professionals are not exempt during 2022’s as-yet undeclared recession.

Pare down debt

While rising mortgage interest rates are wreaking havoc on the housing market, interest rates can also impact your personal life in a big way.

To avoid the worst effects of spiking interest rates, it’s important to limit the amount of debt you take on during the recession — and to pay off existing debt.

The most common type of high-interest-rate debt is credit card debt.

The average annual percentage rate (APR) on credit card accounts accruing interest is 18.43% as of October 2022. This is the highest rate since the Fed started tracking this rate in 1994, according to LendingTree.

Worse, the sheer amount of credit card debt continues to climb in 2022.

Banks have issued over $918 billion in active consumer loans — including credit cards and personal lines of credit — as of October 2022, an amount which has grown 25% since its most recent bottom in April 2021. This number has continued to rise in 2022, despite rising interest rates, according to the Federal Reserve Bank of St. Louis.

While it may be tempting to reach for your credit card during lean economic times, instead find ways to adjust your lifestyle for a lower cost of living. Or, as a real estate professional during a sales slump, secure side gigs to prop up your earned income in real estate.

For resources and tips on how to pay off your credit card statements and reach a zero balance, visit the Consumer Financial Protection Bureau (CFPB).

Take on side gigs in real estate

When you sense your income beginning to slip, the only thing you can do to make it up is to overproduce.

For real estate professionals, this means pursuing additional streams of income in or adjacent to real estate, such as becoming a:

In a buyer’s market, characterized by less buyer competition and decreasing home values, sellers seeking to stand out will offer seller financing. Also known as carryback financing, agents who are familiar with these types of arrangements will be poised to profit from listings during a downturn. [See RPI e-book Creating Carryback Financing]

Agents can also become versed in property exchanges, also called a two-party exchange. In this situation, two owners exchange equity for equity when exchanging property disposed of for property acquired. [See RPI e-book Tax Benefits of Ownership]

Experienced sales agents may also consider becoming a broker, which grants access to a higher income. Greater earnings flow to licensed brokers, whether as the result of negotiating a better fee split percentage with your employing broker or simply taking on the risk of running your own business — self-employed and acting alone or by employing other licensees.

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Prepare for distressed sales

Real estate agents who rely on a steady stream of regular buyer/seller clients in 2022-2025 will see their sales numbers plummet.

To earn a livable income, you will need to embrace investor sales and turn your attention to buyer clients. In times of economic recession, this means building connections to be first in line when real estate owned (REO) property hits the market.

Smart investors buy when the market is at a bottom — but during these down times, when cash is king, real estate investment can be a hard sell.

A real estate syndicator works with the cautious investor, creating a limited liability company (LLC) of cash investors who may otherwise be unwilling to individually purchase property during a recession or early recovery period. While this means sharing profits, it is attractive during a downturn because it also means sharing risk. [See RPI e-book Forming Real Estate Syndicates]

The real estate broker who negotiates the acquisition of the property and organizes the group is known as the syndicator or manager. The broker also performs property management services during the group’s ownership of the property, and handles the resale of the property, set up to earn and eventually profit from a long-term rental property investment.

Related article:

MLO networks are your recession lifeline

Invest wisely — or not at all

When you do have access to extra money, it’s always wise to put it to use.

Investment discussions are often limited to stocks or real estate, but neither of these are a good choice for investment during a recession. Looking ahead, the next Buy Phase for real estate won’t occur until prices have fully bottomed, expected here in California around 2025-2026.

Instead, consider parking your money in ultra-safe investments, like government bonds. Specifically, bonds indexed to inflation are offering high returns at the end of 2022, with the I bond offering a 9.62% return for the next six months as of October 2022, according to TreasuryDirect.

These rates will fluctuate with future variations in consumer price inflation. But for now, 9.62% is better than leaving your cash in a savings account. However, only choose this investment course if you don’t mind forgoing easy access to funds, since there is a penalty if you cash out before five years have lapsed from purchase.

As during any type of economic environment, it’s best to hold onto enough cash to cover emergencies.

If you are starting to feel over your head just reading about investments and income streams, we suggest seeking advice from a financial advisor.

Like a real estate agent, true financial advisors have fiduciary duties to act in your best interest. To avoid salespeople who are more likely to represent the interest of their financial company than your own often means paying out of pocket for advising services. But paying a financial advisor is often the best way to ensure they are real fiduciaries, according to Bankrate.

Examine and revamp your business

As you examine how you can adjust your personal finances during a recession, don’t neglect your business. Even though sales are down now, they will return with the next housing market rebound, which firsttuesday forecasts will arrive around 2026.

In other words, don’t quit your day job just yet.

Within your brokerage activities:

  • identify and kill projects sucking your valuable time and energy;
  • conduct a full audit of expenses and identify where costs can be cut and processes and personnel consolidated; and
  • turn failures into opportunities by analyzing sales data and innovating solutions.

You may be tempted to view this downturn as a burden on your business — or, you can use this opportunity to innovate, learn new skills and grow your contacts. Use 2022’s housing market slowdown to set your business — and personal sources of income — up for success in the years to come.

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