When I was 8, I became a Boy Scout, and the Boy Scouts Motto was, “Always Be Prepared.” I’ve always taken this motto to heart. Anyone who knows me knows there are very few times I don’t have all my bases covered, particularly when it comes to real estate investing.
The financial and real estate markets have already shown severe volatility. The swings seem to be getting larger by the day. Rates can move ¾ of a point in a few days up or down. Markets can move 5-10% up or down in a week. When you factor in some of the Crypto moves, from the failure and eminent bankruptcy of FTX, a Crypto Exchange, it’s a trying time to invest.
Amazon announced they are laying off 13,000 employees. This news is on the heels of massive lay-offs from Twitter and Facebook. The Amazon news might be very telling. The fact that Amazon is heading into their busiest time of the year, between Thanksgiving and Christmas, and they are laying off this many people means they either massively over-hired or they are thinking the holidays and 1st and 2nd Quarter Sales aren’t looking promising.
And to top it all off, Donald Trump announced he is running for President in 2024. So whether you’re a Democrat or a Republican, Pro or Anti-Trump, one thing is for sure; the following two years will have a lot of political turmoil ahead. This political uncertainty will likely lead to more extensive and volatile swings. So, if you are in real estate investing, what do we do from here?
It’s back to basics.
Now is the time to dust off those tried and true investment rules to ensure you survive and prosper in an uncertain future.
- Cash and Cash Flow are King: Now is a great time to take on debt while rates are still low and free up some cash. Not for real estate investing, but to park on the sidelines for a rainy day. When you need cash, it’s tough to find. So don’t put yourself in that position. Pass on that average deal. Borrowing funds in the short term may hurt your profit margin, but in the long term, it will allow you to prosper. You can earn 3% in a money market today, and it never gets old looking at money sitting in the bank.
- Stay away from Dead Money: Our eyes are always bigger than our stomachs. We all hate passing on deals. But if the deal requires terms that slow our turn down, maybe it’s not a good deal for us right now. We always want our money turning over. If we buy a house and have to give the seller 60 days occupancy, we better ensure we get that house at a great price because time is our enemy in this market. A lot can happen in 60 days, and none of it might be good. So make sure your money is moving and not dead.
- Don’t Try to Force it: Now is not the time to stretch into a deal. I can’t think of any instance that I was forced to make it work that turned out the way I wanted. Stick to your guns. Have a formula. If the deal doesn’t work, pass on it. Circle back in 60 days with the seller and see if they have changed their mind. In volatile markets, nimble is good. Being stuck in a bad deal isn’t. There will be a time in the future to load up, but now it’s that time.
If you keep these principles in mind over the next 12-18 months, I’m sure you will make more money, prosper and weather the big swells ahead.
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