16 Apr Building Your Recession Resistant Muscles – The Five Tips
No real estate portfolio will be completely unaffected by a major downturn. But you can make it as recession resistant as possible.
Whenever there’s a crisis, you don’t have to wait long to hear all kinds of predictions about a supposedly impending recession. You’ll find people saying that it might be triggered by the bubble burst, the terrorist threat, or the pandemic.
Now, I’m not saying that there’s going to be a recession in the near future (or not). After all, no one knows what’s going to happen tomorrow with 100% certainty.
And there isn’t one single market, right? There are all the different states and all the different real estate markets in each state.
In other words, there’s no way of being absolutely sure about what will happen to the real estate markets that concern you.
But that doesn’t mean you should just throw up your hands and leave things to fate. Instead, you should always be proactive and preemptive. And one of the best ways for you to preempt and survive that downturn is to strengthen your recession-resistant muscles.
How?
The five tips I’ll discuss in this article will help.
If you can strengthen those recession-resistant muscles, you can resist and withstand the down cycle…
Even it eventually takes you completely by surprise.
The Five Tips to Strengthen Your Recession Resistant Muscles
Tip #1 – Work with Experienced Mentors
It’s much easier to become recession resistant when you have the guidance of mentors. Particularly those who have experienced one before and got to make their real estate business thrive despite that. Even better if they have been around long enough to experience multiple cycles.
That said, you should ideally seek out such mentors or coaches in your particular niche. They’re the ones who will be best equipped to show you how to spend and save your money before, during, and after a recession.
After all, how can a mentor teach you what to do to thrive in a down cycle when they haven’t experienced a down cycle themselves?
Tip #2 – Don’t Take on Personal Bank Loans During a Recession
If there’s one thing that crushes the finances of millions of people during a recession, it’s this:
Signing on any personal bank loans or private loans from investors.
Why?
When you take out a personal loan, you are basically putting you and your family’s assets at risk. This is because personal loans are typically recourse loans. That means that your lender can seize additional properties and assets – above and beyond the value of your collateral – when you default on it.
Now, you might think it’s a worthy and noble sacrifice to take out a loan in your name to save your real estate business during a crisis. But as so many people have shown us throughout history, it’s not.
So, don’t do it.
Tip #3 – Set Up Lines of Credit When You Don’t Need Them
Banks generally don’t want to lend you money when you desperately need it.
That’s why you don’t want to wait to set up your line of credit until all your credit cards are maxed out or all your other lines have been exhausted.
Remember, you’re much likelier to be in that precarious position once a recession hits.
So, make sure to set up additional credit lines when you don’t need them. And if that time is now, then set them up after you’re done reading this.
Keep in mind that you need two tiers of credit. You need separate lines of personal and business credit. And when it comes to personal credit lines, take note of the previous tip.
Tip #4 – Take on Long-Term Owner Financing Deals
The idea here is to buy everything on terms that stretch out into the future – the longer the better.
And if possible, you can renegotiate and extend the terms on older deals. For example, you can convert a 4 to 5-year deal to 10 to 15 years or longer.
But what’s the logic behind this?
It’s a way for you to reduce your mortgage payments each month and free up cash when times are hard.
You also reduce your risk of defaulting on your property. Everything’s good as long as the monthly rent paid by your tenants can cover your monthly payments.
Of course, this strategy depends on having the right tenants under your wing.
The fact is that during a recession, there’s often a higher risk of non-payments and evictions. And evicting a tenant is often a long, painful, and expensive process. It can cost you up to $10,000 in court and legal fees.
The best way to protect yourself from evictions and bad tenants is to screen your tenants carefully. Make sure you have a foolproof and efficient way of doing this from the get-go.
While a credit score is important, it’s often not enough. Your screening process should also look into the potential tenant’s criminal background and history of eviction.
With this, you can lower the risk of encountering payment problems involving your tenant. It will then lessen the chances of negatively impacting your ability to pay your mortgage no matter how long the deal.
Tip #5 – Scale Your Real Estate Business Past the Million-Dollar Threshold
Now, I don’t want to demotivate anyone with a real estate investment portfolio that’s not there yet.
But the simple truth is that it’s often easier for investors with stronger foundations and deeper pockets to weather the storm. It’s also easier to get additional credit, funding, and financial support when you have wider networks and deeper connections.
Don’t look at the goal of passing the million-dollar threshold as a daunting, insurmountable task.
Just keep doing what you have to do…
But do more of it. In fact, do it faster and better.
If you have to take on more calls, do so.
If you have to send more emails, send them.
Because once you scale your real estate portfolio past that million and multimillion-dollar mark, guess what?
Your recession-resistant muscles will be much bigger and stronger.
Failing to Plan = Planning to Fail
The truth is that I could go on and on here because there are many ways to strengthen and develop your recession-resistant muscles.
But you can think of this article as an important starting point. That’s why I implore you to review these five tips carefully and take action on every single one of them.
If you get all of them down, you’ll definitely be in a better position to withstand a bearish market.
Not only that, you’ll emerge in a relatively advantageous position once the market improves.
Are you interested in learning more about how to make your business as recession-resistant as possible?
Sign up for the Wicked Smart Academy today.
It’s part of what we teach in the Smart Real Estate Coach Academy. And it's designed to teach you everything you need to be a successful real estate investor – in the best and worst of times.