Recession-Proofing Your Investments: Diversification and Risk Management Strategies for Real Estate and Business Owners

April 3, 2025 by Mark Ferguson

We’ve seen some interesting times in the market lately, haven’t we? High interest rates, tariffs, inflation concerns, talk of potential slowdowns… it’s enough to make even seasoned investors a little nervous. While none of us has a crystal ball to predict exactly what’s next, we can be strategic about how we position our portfolios to weather potential storms. It’s not about timing the market perfectly, but about building resilience.  

Over the years, my own strategy has evolved. I started heavily in single-family flips and rentals, eventually reaching a goal of owning many properties. But as markets shifted and my goals grew (hello, $100M Mission!), I realized the importance of diversification and robust risk management. I moved into commercial properties and even acquired businesses like a laundromat and a liquor store. This wasn’t just about chasing bigger numbers; it was about building a more stable foundation.  

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So, how can you work towards “recession-proofing” your own real estate and business investments? Here are some key strategies I focus on:

Diversify Your Holdings (Thoughtfully)

Across Real Estate Types: Don’t put all your eggs in one basket. Single-family rentals, multifamily buildings, and commercial properties often react differently to economic shifts. While residential might see vacancies rise in a downturn, certain types of commercial (like essential retail or specific industrial) might hold steadier. Understanding the nuances between commercial vs. residential is key.  

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Into Businesses: Adding cash-flowing businesses can be a fantastic diversifier. My laundromat, for example, provides relatively steady income regardless of the housing market cycle. Look for businesses with resilient demand or those that complement your real estate activities. Just remember, valuing a business is different from valuing real estate.  

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Geographic Diversification (Carefully): While I primarily invest locally, some investors find success diversifying across different markets. If you go this route, be sure you understand the risks of long-distance rentals and have solid teams in place.

Master Risk Management Fundamentals

Maintain Cash Reserves: This is non-negotiable. Market downturns often mean longer vacancies, unexpected repairs, or difficulty refinancing. Having ample cash reserves allows you to ride out these periods without being forced to sell assets at the wrong time. Don’t underestimate how much you might need.

Focus on Value-Add Opportunities: Buying right is crucial in any market, but especially a challenging one. Look for properties or businesses where you can force appreciation through improvements, better management, or increased income. This creates equity and cash flow cushions that aren’t solely dependent on market appreciation.  

Conservative Underwriting: Don’t base your numbers on best-case scenarios. Stress-test your deals. What happens if rents dip 10%? What if vacancy lasts 3 months longer than expected? If the deal still works under pressure, it’s a much safer bet. Be realistic about repair costs and timelines.  

Secure the Right Financing: Understand your loan terms inside and out. Variable rates can sting in a rising-rate environment. Lock in fixed rates where possible, especially on long-term holds. Explore different financing options, maybe even private money, but always understand the risks involved.  

Solid Tenant Screening and Management: For rental properties, good tenants are your first line of defense. Strict screening processes and proactive management help minimize vacancies and costly evictions, protecting your cash flow. Don’t make common landlord mistakes.  

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It’s About Control, Not Prediction

Investing always involves risk. There’s no magic formula to completely eliminate it. But by diversifying intelligently and implementing rigorous risk management, you gain more control over your financial future, regardless of broader economic conditions. It allows you to stay in the game long-term, capitalize on opportunities others miss, and keep marching towards your own big goals – just like my $100M Mission.  

What are your favorite risk management strategies?

Let me know in the comments below!