If we are not in a recession now, we will be soon. Most experts believe this, so for our purposes, let’s assume it is happening, so we are ready to take advantage. Obviously with a softening market comes fantastic opportunities. More millionaires are made in bad times than good times because of the investment bargains that can be found. Here are 6 strategies you can implement to take advantage of the current market conditions.
1. Fix and Flip
Fix and Flip – Because a fix and flip is a short-term investment it could be a good strategy in a softening market. The idea of buying and selling in a short amount of time will limit your exposure to declining values. Market risk, for the most part, is removed from this strategy. Also, as the recession sets in, we should see an increase in inventory which will create a larger spread between wholesale prices and retail prices. This will make it easier to locate opportunities as a fix and flipper. Although there is limited market risk with this strategy, that does not mean there is not risk. I would encourage you to approach this strategy with caution and if possible, only purchase easy projects that you can get in and out of fast. You don’t want to ride a market down if you can avoid it.
2. Hold Onto Your Assets
Hold what you have – I think it is smart to hold the assets you have now for a few reasons. One is that we have already started to see the shift to a buyer market in many areas of the county. With interest rates as high as they are, there is less demand for housing. This has started to create a softening in home values which could easily be recaptured when rates start to go back down. Many experts believe we should see some relief in rates near the end of 2023 or 2024. If that is true, it would be smart to rent your investment out for a year and consider selling then. Also, if you own rental property my guess is that you have some pretty attractive financing in place. We went through a fantastic time to refinance properties and assuming you took advantage of that, you probably have a rate in the high 3% or low 4% range. Having rates this low not only lowers you monthly payment making it easier to cash flow, but a much larger chunk of your payment is going to principal reducing your debt at an accelerated pace.
3. Creative Financing Techniques
Creative finance – I absolutely love creative financing techniques. This could include a lease option, a subject to, or other owner financing terms. The reason this is an effective strategy today is because owners have locked in low interest rates. It is much cheaper for you to take over someone else’s loan right now than to go out and get a new loan. I especially love lease options because you are not promising to buy the home, so if the market tanks, you have no risk. It was this strategy that helped me buy a house or two every month while working and going to college. I detailed this buying strategy in my book The 45 Day Investor complete with forms and scripts to use with the seller. If you have any interest in creative financing for single family investing, you can find the book on Amazon at www.45dayinvestor.com
4. Be Ready
Dry powder – This one is obvious but is worth mentioning here. Now is not the time to be anxious or aggressive. It is a time to be patient and wait for opportunities. With that said, you should be ready when an opportunity presents itself. I would consider investing in assets that are liquid where you can get your money out if you find a property to buy. The bank may be the best place to store your cash, but the bank does not pay much interest. Stocks could work but you may need to sell at a loss to get your cash out when needed. As long as you are okay with these downsides, either of those would work for you. If you are looking for a high and consistent return, you may want to consider our public mortgage fund. It is not as liquid as either of the above options but does provide some liquidity and could be a fantastic option to hold some cash. You can learn more with this marketing brochure.
5. Focus On Marketing
Step up the marketing – My business coach loves to tell me that businesses constantly make the mistake of cutting the marketing budget when things become uncertain. He believes that now is not the time to cut back but instead double down. As housing inventory starts to creep up, you want to be the person a motivated seller calls when they need to sell their house. The opportunities will present themselves, but not if you are not looking. There are always much better buying opportunities off market then what you will find in the MLS, so it is probably a good idea to search the MLS AND market for sellers to call you. Here are a few videos to help you with this.
This second one is a little older and is a full one-hour webinar. The information is still as relevant now as it was when I recorded it. Oh, and if you make it over to our channel, please hit subscribe. We would love to build this channel and help more investors like you.
6. Private Lending
Private Lending or note buying – You can limit your risk dramatically in any real estate deal by being a lender on the deal instead of the owner. The lenders get paid back first and if you are the senior lender or the only lender, you alone will be paid back in full first. That is a great position to be in, in a shaky market. There are still a ton of great lending opportunities out there and this will increase as more fix and flip investors become active. You can easily earn returns of 10% to 12% or more depending on how you price your loans and what a borrower is willing to pay. Although it is a fairly safe way to invest in real estate for high returns, it does carry some risk. Because I have seen investors lose money with this strategy, I wrote a few special reports focused on the investor that wants to do some private lending on their own. You can find these reports on our resources page if you scroll to the bottom.
If you are having trouble finding someone to loan to or are getting tripped up with the underwriting or servicing, we may be able to help with that as well. We occasionally have notes to sell. These have been fully approved by us and we continue to service them making them a passive investment. Please reach out if you would like more information on this.
I understand there is some fear in the market as we enter 2023. If you are concerned with what is going on or what may happen be sure to read the report on the resources page 2022 Housing Crash. I go into a ton of detail comparing what we are seeing now to 1990 which is a similar recession with high inflation and high interest rates.