Preparing for a market downturn

Preparing for a market downturn

Preparing for a market downturn

 

I was part of a webinar this morning where the topic was what someone should do in a market downturn like what we’re getting ready to experience. Actually, I’d say we’re already in the downturn. We just haven’t seen how it will manifest itself in the real estate world yet.

 

Preparing for a market downturn

During the call, we first talked about things we’re doing differently in our business to prepare. Cutting costs was at the top of the list. And it’s something you should be doing both personally and on a business level. Look over your expenses and see if there are any subscriptions you aren’t using and cancel them. Look at where you are spending marketing dollars and eliminate the low-producing things. As a matter of fact, do that with all your expenses.

 

Next, we talked about how you should be proactive in talking to your tenants. We listed out all of our tenants and their professions. This allowed us to identify people who may be getting hurt in the near future and also allowed us to gauge what kind of changes we could see in our rent collection should things get bad.

 

Then, we contacted all of our tenants, either via video chat or phone calls, to let them know we wanted to check on them to see how they were doing with all of the coronavirus stuff. This was big. We found out that most people were doing fine, were healthy and still working. Others had just gotten their tax refund and were going to use that to bridge the gap in their work hours until normality was restored.

 

But tenants were not the only ones we contacted. We also called our private money lenders to check in on them. This was good too. I had some lenders who were expecting borrower calls asking for modifications, delayed payments and the like. When they realized I was just calling to check on them, not only could you hear the relief, but also how it made them feel valued. I believe this went a long way towards solidifying our relationships.

 

Preparing for a market downturn

 

In the webinar we also talked about what we’re seeing in the market. Rentalwise, not much has changed. There are still people looking for a place to live, and there is not a lot of rental property to be had.

 

Our flips, on the other hand, are different. During the winter, we had people low balling us on houses trying to get a deal. In the last two weeks, we’ve seen multiple offers come in where we’ve had to go highest and best. We’ve accepted contract prices of over list price with low closing costs and received full price backup offers.

 

That tells me that buyers are realizing they need to get serious and buy now before interest rates go up. Instead of fishing for a deal on house prices, they understand that the “deal” to be had is the low interest rate. And with supply being low, they realize they need be serious with their offers and get them closed before the interest rates change.

 

Finally, we talked about what you should do if you have never gone through a downturn before.

 

The biggest thing you should do is sit down with a “grey hair” (an older been there done that investor) who’s been through multiple down turns and ask them what you should do. They will be a wealth of knowledge and could become a potential financial ally once the recession hits. They can guide you through the best deal structures, answer questions and even partner with you on deals.

 

Preparing for a market downturn

Speaking of deal structures, you are going to want to dust off any creative deal structuring manuals you have and dive back into them. The reason for this is because the strategies you’ve been using to acquire property for the last few years probably just became obsolete.

 

Personally, I’ve been listening to my Jack Miller recordings every chance I can get. He was an amazing deal structurer and had one of the best seminars around on how to use options in real estate. David Tilney’s course on master leasing would be a good strategy to brush up on too. Those two resources, plus knowing how to do subject-to deals correctly will be important going forward into this downturn. (For a good resource for education on these subjects and more, visit cashflowdepot.com. )

 

Joe and Ashley English buy houses and mobile homes in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com or call Joe at 678-986-6813.

 

Follow our blog and share this:

Add a Comment

Your email address will not be published. Required fields are marked *