Council Post: How To Prepare For The Recession As A Real Estate Investor

It seems like all the talk these days is centered around the inevitable recession. I see an article every day claiming that the end is near. Recently, the yield curve inverted, which many point to as a strong indicator of an oncoming recession. But, there are also many experts who claim the economy is strong. They cite strong growth, spending, development and other indicators to support their theory. No matter which way you lean, it is inevitable that there will be a market correction/recession at some point. It’s impossible to say for sure when or how bad it will be.

As a real estate investor, you want to be prepared for when it does happen. If you think back to the last crash in 2008, the best deals were the years after that. If you had capital, you made a lot of money. It almost didn’t even matter what you bought because prices were so insanely low. What I’ve heard most from investors looking back at it is, “I wish I would’ve bought more properties.”

Even though you can’t predict when it will happen, you can still take steps to get prepared. If you’re prepared, you’ll be able to capitalize. Let’s go over how people will be affected during the recession.

Sellers

In a recession, there will be many more distressed sellers than there are today. Since the last downturn, sellers have been able to refinance or sell if they got in a tight spot because of appreciation. Since prices will be going down, many will not have enough equity to refinance or sell. They’ll have to face foreclosure or a short sale. The sellers who do have equity will want to sell out of fear that they’ll lose their equity if they wait any longer.

Flippers

Many flippers will have exited the market. Prior to the recession actually happening, they’ll notice inventory rising, days on market increasing and their properties selling for less than anticipated. As a result, their margins will tighten. They may lose money or simply not make the return needed to justify the risk. Therefore, there will be far fewer flippers than you see today.

Wholesalers

Many wholesalers will leave the market. Even though there are more distressed sellers, there are fewer sellers with equity. They’ll notice that there aren’t as many flippers to sell to anymore either. The flippers who have weathered the storm will ask for significant discounts in order to do a deal. Wholesalers’ margins will begin to tighten to the point where it doesn’t make sense to spend marketing dollars anymore.

Contractors

Contractors will not have as many job opportunities since there will be fewer people buying and renovating homes. In order to get jobs, they will have to lower their prices to stay busy.

Real Estate Agents

With fewer buyers and sellers in the marketplace, there will be more competition to acquire clients. Real estate agents will have to spend more marketing dollars to attract them or take discounted commissions.

All these people play a vital role in real estate investing. You should ask yourself where you fit in with all of this. What’s the best position to be in?

The answer: become a cash investor.

In today’s market there are a lot of cash investors, but many will be wiped out or scared during the recession. So there will be far less competition in all aspects of real estate investing. The cash investors who do stay in it will own the market during a recession. With cash, you have many options. You can choose to flip homes with little competition. You can buy a bunch of discounted rentals and build your portfolio. Or you can lend the money to operators and have them do all the work for you.

Again, the No. 1 regret people told me they had after the last recession was that they didn’t buy enough homes. It wasn’t that they wish they would’ve wholesaled more homes or sold more homes as an agent. The person actually buying homes is the one who thrives in the recession.

The cash investor will be able to buy directly from all the motivated sellers with less competition. They’ll be able to buy from wholesalers at deeper discounts because there are more deals than money. They’ll be able to get cheaper labor from contractors because they’ll be one of the only sources of consistent work, and agents will work harder to find deals for cash investors because there will be fewer retail clients.

As you prepare for an oncoming recession, the most important thing you can do is become a cash investor. Here are a few ways how:

• If you have properties or assets, consider selling some so that you have more liquidity.

• If you’re a wholesaler or real estate agent, look into raising capital so that you can start buying the deals you find.

• If you’re a flipper, start building more relationships and using more lenders now so a trusting relationship is in place before the recession hits.

We don’t know when the next recession will be, but it doesn’t really matter. You should be preparing as if it could be tomorrow. Figure out how you can become a cash investor, and you will be ready for it.

Forbes Real Estate Council is an invitation-only community for executives in the real estate industry. Do I qualify?

Ryan Pineda is the CEO of Homerun Offer.

Source: Council Post: How To Prepare For The Recession As A Real Estate Investor

Lets talk about a potential recession, what might happen, and how you can best prepare – enjoy! Add me on Instagram: GPStephan – Avocado Toast Merch: https://bit.ly/2DhFyo3 GET $50 OFF FOR A LIMITED TIME WITH COUPON CODE: THANKYOU50 The Real Estate Agent Academy: Learn how to start and grow your career as a Real Estate Agent to a Six-Figure Income, how to best build your network of clients, expand into luxury markets, and the exact steps I’ve used to grow my business from $0 to over $125 million in sales: https://goo.gl/UFpi4c Join the private Real Estate Facebook Group: https://www.facebook.com/groups/there… So first, lets talk about what’s influencing the market and what factors we should be made aware of: The first is rising interest rates: This means that the cost of borrowing money is expected to INCREASE over the next few years. When borrowing gets more expensive, you either need to RAISE prices to keep the profit margins the same – which means things get more expensive to you as the customer. Second, we’ve begun seeing the warning signs of the INVERTED YEILD CURVE – which, according to just about every article out there, the inverted yield curve has historically been associated with a high likelihood of upcoming recession. Third, we have the tariffs and the uncertainty surrounding what may or may not happen. And when it comes to investments, the ONE thing all investors dislike is UNCERTAINTY. When people are UNCERTAIN, they don’t invest, they hold cash…and that causes stock prices to fall. And fourth…we’re seeing a slow down in nearly all markets. Here’s what I think is going to happen… First, I’ve noticed QUITE a lot of what I call “gamblers fallacy.” This is the expectation that the market will drop, JUST because we’ve been in the longest bull market in HISTORY and that means it’s “overdue” and more likely to happen. Second, I believe that a lot of our “Recession Talk” is already SOMEWHAT factored into the price. Think of all the people NOT investing right now because they want to wait for lower prices…that is, in itself, self fulfilling and lowering prices. And third…no one, including myself, knows whats going to happen. No ONE. And fourth, you have so many false news articles designed to APPEAR like credible new sources so they get pumped through Facebook and Blogs for the sole purpose of manipulating you into buying their products. Well here’s the reality: First, NO ONE can predict when a recession will happen. We’ve been seeing these articles since 2013 from people who claim the recession is coming any month now. It’s never ending. You’ll read about this one expert predicting something, then another expert predicting something else, and they keep repeating themselves until eventually, one of them is right. Then they use that credibility of being right ONCE to propel them into the next opportunity. Second, it’s important you PREPARE for a recession in ways you can CONTROL: First, you CAN control whether or not you keep a 3-6 month fund in the event you lose your job or something unexpected comes up. This is absolutely ESSENTIAL for you to do. Second, you CAN control whether or not to have too many outstanding debts that might need to be paid down. If you’re over leveraged, or if you have high interest debt, it’s in your best interest to pay those off to free up cashflow in the event of a downturn. Third, you CAN control how much you spend…if you’re spending is too high, it’s important to cut those back so that you can save more money to invest. And when you DO invest, invest long term. Ideally, these are investments you should plan to keep 10-20 years. For me, I see lower prices as an opportunity. And to alleviate some of these concerns, you don’t need to just drop ALL of your money in the market at once…buy a small amount each and every month. This way, if the price goes down..you’re buying in cheaper and cheaper over time. If it goes up, you’re buying in little bit little…and anytime when it comes to investing, slow and steady wins the race. This isn’t about making an immediate 10% profit in a month…this is about investing for your future in a slow, stable way where you don’t feel stressed whether the market goes up or down. For business or one-on-one real estate investing/real estate agent consulting inquiries, you can reach me at GrahamStephanBusiness@gmail.com My ENTIRE Camera and Recording Equipment: https://www.amazon.com/shop/grahamste… Favorite Credit Cards: Chase Ink 80k Bonus Point Offer – https://www.referyourchasecard.com/21… American Express Platinum – http://refer.amex.us/GRAHASOxHd?XLINK…

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