How to prepare for a recession as an investor
I don’t have a crystal ball nor am I an economist. Investors have been talking about the sky falling again for a few years. We all know at some point that the music has to stop (or at the very least slow down). The yield curve has inverted, gold is up, copper is down, and more. I’m focusing on stacking cash, looking at my local market closely, and reconsidering my exit strategies.
As an investor, what should you do?
You have to start to pivot now. What works in a booming economy will not work in a slow down or a recession. You can’t exactly start new development deals, refinance a Brrrr, or wholesale to a flipper if banks aren’t lending and flippers aren’t flipping.
I fully believe that the way to profit through a recession is to buy the best deals you can find and focus on wholetaling or wholesaling to those who do.
The name of the game in economic uncertainty is to mitigate your risk and get in/out quickly.
In every economy, people are moving, getting new jobs, retiring, relocating, etc.
What should you not do?
I’m not a huge fan of buying turn-key properties, to begin with. However, I believe it is increasingly unwise to buy properties with no equity/juice in them with where we are in the economic cycle. As I mentioned on a podcast, “I’m looking for Steak, not Beef Jerky.”
DCA is a term for stock investing in which you buy a few stocks at a specific interval regardless of pricing. The thought is that your portfolio as a whole will average out. It is believed to reduce the risk of investing.
I do the same thing with houses. I focus on getting extremely good deals in the market based off of the market. I’m not buying because the IRR looks good or hoping for appreciation. I’m buying at seventy-five cents on the dollar all in or better based on actual comps and currently listed inventory. It also HAS to CASHFLOW.
As the economy shifts so will my target number
Today I’m targeting 75% – repairs – holding costs (or anticipated profit). Tomorrow, I may very well be making offers at 65% – repairs – profits.
If you’re buying rentals the important thing is going to be cashflow.
If you’re buying flips I would look for properties that don’t need $100,000 remodels.
I’m not losing sleep
First, I don’t know anyone who has added any value to their life by worrying about things they can’t control.
Second, I am confident in my ability to find off-market deals. The target for what a “deal” is may end up shifting but the systems are the same.
Learning how to go direct to seller is one of the smartest things you can do as an investor. I don’t care if you only want to buy one rental a year or if you want to wholesale 100 houses a year. Waiting on wholesalers, realtors, foreclosures, or referrals to bring you deals is going to waste A LOT of your time and life. Not to mention, you’re going to be rationing beef jerky when your family could be eating steak.
PS: In an upcoming article I’m going to share with you why I chose to wholetale my last wholesale deal. This is how I’m pivoting in realtime.