Real estate investing can be quite a ride. Each week we get a different outlook on the economy. For a long time, the thought was we were heading into a recession. Recently that’s changed to we might have a soft landing and no recession. Today, I heard we might see deflation, which we haven’t seen in many decades. No one knows what’s going to happen in 6 to 12 months. But by looking at commonsense data, we can hedge our bets to ensure we keep our financial exposure within reason when it comes to real estate investing. One thing is for sure. Nothing goes up or down forever.
The fact is that rates will continue to rise in the short term. This is the Fed’s only tool to slow the economy and inflation. Bank regulations will continue to tighten, making lending more challenging. As banks’ credit ratings get downgraded, regulators will be forced to increase banking reserves and decrease their leverage positions. This is the main issue that will tighten the ability to borrow money for everyone. I’ve already spoken to some bankers who are turning away new customers who have excellent credit and equity for the simple reason they don’t have a prior relationship with the bank. The adage in banking is a bank will only lend you money when you no longer need it. If we think the next 12 to 18 months may be choppy, how can we use this information to capitalize on our investments? As investors, we need to be able to make money in any market.
- Take on an equity partner: Banks regularly do this to reduce risk and reserve capital. Having extra money in the bank is always a good thing. You might pass on a slight profit in the short term. But you’ll build a great relationship with someone and give yourself the flexibility to take on new opportunities due to the extra capital you have on the sidelines.
- Be relentlessly fast: Every day, you are sitting on a flip that hasn’t hit the market, or a rental property you are fixing that isn’t ready to rent or refinance costs you money. You pay taxes, insurance, utilities, grass cutting in the summer, snow removal in the winter, and tying up your capital. Work relentlessly on how to shorten this downtime by a day or two. Focus on taking your rehab projects from 60 days to 50. That extra ten days is money in your pocket. It might allow you to do an additional deal this year. It’s not fun or sexy, but it’s a great way to protect your investment and make you more money. The days of being slow and the market bailing you out are over.
- Do the extra things: As the frenzy of 2021 and 2022 subside, do the unexpected little things that buyers and renters will appreciate, such as upgraded fixtures or thoughtful landscaping. These small things will help you sell your property faster or get a better-quality tenant. The days of the splash and dash rehab are fading fast. Buyers are becoming increasingly picky and will pay for top-quality properties rather than junk.
There are plenty of opportunities ahead for real estate investing. Ensure you are able to act on them when they present themselves. That’s hard to do when you don’t have the capital or are bogged down on several projects. Remember, this is an asset-rich, cash-poor business. Start taking the steps today to ensure your financial health is ready for whatever comes next.
If you need help with an asset-based loan, please reach out to us at 248.729.1898 or fill out our pre-approval form.