Unemployment is down. The Stock Market is soaring. Everyone is happy.
But should they be?
It’s times like these when that trusty Spidey-sense starts to tingle…play the real estate investment game long enough, and you see the telltale signs of impending mayhem ahead:
- Everyone and their brother suddenly thinks real estate is easy money. (We can tell by the phone calls and referrals we get on this qualitative point. And the calls and referrals are coming hot and heavy right now….)
- Folks who shouldn’t be buying rental properties are buying them up faster than Fidget Spinners. (Always a dead give away when the question gets asked,”How many months of PITI do you have in reserve for when this property goes vacant?” and the buyer has that deer-in-the-headlights-look.)
- Banks easing their lending standards to allow for more marginal buyers. (No income, no doc loans are back. Yes, seriously, they are.)
Yup….it’s beginning to look a lot like the old days. Again.
Please, please take 300 seconds and read this thought-provoking article in yesterday’s WSJ. Then continue reading about how you can prepare for what could be coming:
Here’s a few suggestions on how to prepare:
- Lock down your B/E on each of your units. Dig into the numbers to know precisely what your costs are for each rental unit.
- Consider paying off a loan with excess working capital. The best defense against economic headwinds is to de-leverage. Fancy words for get out of debt. It frees up more cash flow from that unit to help snowball paying down your other debt or absorbing unexpected vacancy expenses.
- Negotiate longer term leases with your tenants at small discounted rates or keep the current rate constant for them on a longer lease. Turnover costs equals expense. Avoid the expense altogether and push it to future years, possibly past the downturn.
- If all your loans are paid off, then stockpile working capital to anticipate fresh inventory coming onto the market. After all, not all investors and landlords are as smart as you, as educated as you, or as forward looking as you. There will be opportunities to buy new units, and likely at a discount, too.
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