I’m here to report that we are in a recession. Today I’m going to tell you what to do when a recession hits. First off, stay calm. We’ll talk about what a recession means, how we got here, and what to do when it comes to investing in real estate.
I’ve been investing in real estate for over nine years. I own 180 units of residential real estate. I also own two larger storage complexes and I’m in the process of building my dream home. I try to understand everything I can about:
- The Economy
- Interest Rates
- The Housing Market
- Everything else under the sun
I do whatever I can to stay informed so that I can make educated decisions when it comes to my personal investments. Today I’m going to tell you what I think is currently happening and what I plan on doing next. I want to protect the assets I have and continue to acquire new assets as it makes sense. In order to do this, I want you to understand a couple key point and I want to share a story with you.
This year I bought a boat for the first time ever. I’ve never owned a boat or even driven a boat with a motor. It was so exciting to purchase the boat, hook it onto my truck and take it out. The first day I took it out with an instructor to show me how to properly bring the boat in and trailer the boat. There was a little bit of wind but I was pretty confident. I’ve owned multiple cars and feel like I’m a good driver.
I hopped into the driver’s seat and he coached me through what I needed to do. I brought it in to try and trailer the boat. What’s interesting about the boat is that you turn it but there’s not a very quick response, which is frustrating with how much the boat costs. I expected it to do what I told it! You can turn the wheel all the way over and it still takes a couple seconds before it starts to respond, especially at low speeds. So you crank the wheel and the delayed response time causes you to overcrank the wheel, and I got into a constant back and forth trying to correct and overcorrect each turn of the wheel. I ended up completely sideways, smashed into the dock, and it cost quite a bit of money to fix. My point is, it takes a long time for the boat to respond, but when it responds it REALLY responds. Then you try to correct and it doesn’t correct until it REALLY corrects.
That’s the situation that we are currently in. We are on a massive boat that takes even longer to respond. We’re talking months or maybe even years. It would be a gross overstatement to say the president is the only one running the boat. We’ve also got Jerome Powell, chairman of the Fed, trying to steer the boat and keep us on track. With all of these moving parts, there is a lot that goes into our economy. I believe some part of every government official does want to do what’s best for our society. There’s a cynical side of me that also believes they are self motivated but we won’t get into that.
What we do need to talk about is the fact that our government has spent a ton of money. Things were going good, so we spent a lot more money, and then even more money. During that process we also had the Fed handing out money for nothing. I loved it; the low interest rates were incredible. However I think everyone forgot that we were on a boat and we were steering too far into what felt like the right direction and now we’re going sideways. Now everybody on the boat is trying to overcorrect, with government spending, interest rate hikes, a myriad of things.
When I was driving my boat, it was hard enough to know what we were doing with just one person steering. But we’ve got many different factors at play with the economy, all of them steering and then taking a while to see the result. Then it also takes a while to correct, and that’s where our economy’s boat is at.
Interest rates have been hiked like crazy. People think the housing interest rates follow perfectly these interest rates that we’re talking about, but that’s not technically true. There are lots of different things at play. While these interest rates were pumped, we also started a recession because GDP was down for two consecutive months. Joe Biden and everybody around him is saying that we are not in a recession to the point where everyone is confused on the definition of recession. Wikipedia even locked the listing for recession so nobody can change it, because nobody knows what’s going on!
If I had to bet I’d say we’re in a recession or heading toward one. Maybe not, because they keep changing the Wikipedia page. Here’s the crazy thing. We had this .75% interest rate hike by Mr. Powell. But we also reported two months of negative GDP growth. While this happened, interest rates on homes actually fell. They fell from 5.54% down to 5.22% to 5.13%. This is an absurd and insane drop, especially considering that the Fed just hiked rates. On top of this, we had yet another month saying that inflation is going crazy. This interest rate hike was just us cranking the wheel back the other way to try and hedge inflation.
Now that you have my layman’s term understanding of what’s going on, you’re probably more confused than when we started, just like I am. But I’m about to help you understand what this means and what you should do next. Here are the things that I know to be true that you should hold onto with every fiber of your being:
- Rents are not going down. Even if they do, it’s not going to be drastic, because there is still a substantial need for housing. With interest rates they may go up and down slightly, but they’re not going to go down much. I think we’ll see interest rates on homes continue to go up. There might be little periods where you can capitalize on lower interest rates, so make sure you do just that as you’re purchasing properties. You can use the fear and urgency caused by rising interest rates to find incredible deals on cash flowing assets in this type of market.
- Cash flow is king. I’ve been saying this for years. Now that we’re in a recession, there are lots of people saying my ship is going to sink. No, we know the market was always going to fluctuate like this. I had the wind at the back of my sails for many years as I purchased real estate and it shot up in value.
I knew it wouldn’t last for long. That’s why I always purchased property based on the cash flow, locking in good interest rates, and holding to those numbers. Even when I saw a deal that might go up in value by a lot, if it didn’t have the cash flow that I wanted, I didn’t buy it, because I always knew something like this was going to happen.
I’m in a great place with the properties I currently own. I’ve got locked in interest rates for long periods of time. I have properties that have gone up in value, and if they go down in value, I don’t care because they have already gone up, and they are cash flowing like crazy. I don’t think rents will correct, I think they will follow inflation, which is going to continue.
So what should you do when we are in a recession? Should we still buy real estate? Yes! Many people ask this as if they should just buy what’s on the MLS at the listed price. If you do that, the answer is no. But that’s always been no. In order for you to buy in this market, just like any market, you need to make sure that the numbers work. You need to know how to:
- Make the numbers work
- Do due diligence
- Understand the rents in your area
- Understand how interest rates play on purchasing that property
- Figure out the purchase price you need
- Figure out how expenses come into play
If you’re confused by any of that or all of that but want to start investing in real estate, I am here to help. You can get a lot of help from my articles, my Youtube Channel, and my real estate investing course. It’s an incredible course that shows you step by step how to analyze a property and purchase it so that you can have a cash flowing asset. If you’ve got money that you need to place or if you’re trying to get into investing and real estate, I promise you that course is the best. It gives you the step by step process. We just added monthly calls so that if you have questions for your situation or your area, we’ve got a private Discord and monthly calls so you can come to me with those questions.
- There will always be good deals. If you know what you’re doing and where to look, you can always find deals. Not only that, but you need to prepare for the worst with
- Fixed Interest Rates
- Cash Flow
If you’ve prepared, and set aside money like I’ve been saying for literally years, purchased properties properly like I’ve been telling you, you’ll be ok. If you’re at the front end of this journey, you don’t need to wait for conditions to improve. The recession is here, and interest rates went through the roof and prices went through the roof. At the start of a recession, it’s not the best time to get deals on the MLS.
You can still find good deals by using that fear and urgency to find off market deals. I don’t think we’ll see good deals on the MLS for another six months to a year, if at all. You have to be willing to capitalize on recession opportunities when everyone else is nervous about what is coming next. This game can be hard, but it’s not hard if you’re always buying and you’re always buying properly. I’ve been saying this for years. The deals aren’t going to get easier to find. The way that we’ve been finding them is going to change but I promise they’ll be there.
Here is the last piece of advice I have for you. Right now everyone feels like the boat is going sideways and no one feels like the captain knows how much we need to correct or overcorrect. We just know that there are opportunities that some will capitalize on and some will miss. If you can keep a level head, you can make sure you’re not the one jumping off the ship. Make sure that you’re not the one panicking and slamming on the brakes or throwing the boat in reverse.
Don’t panic, look for signs about what’s going to happen next, keep a level and BUY PROPERTIES that have proper returns. I haven’t owned real estate through a recession or downturn. I’ve just had the wind at my back and I’m going through this with you. I’ll share everything I can about what I’m seeing, what I’m doing. I’m probably going to make some mistakes along the way, but the only person that’s going to lose is the guy that slams into reverse and sits on the sidelines. That guy is never going to learn and is never going to put money in the right place.