Podcast Summary
Real estate as a reliable form of protection during economic uncertainty: Investing in cash flowing real estate provides stability and security during economic uncertainty, emphasizing financial strength, long-term perspective, and market trends.
Cash flowing real estate is a reliable form of protection during economic uncertainty. The current global situation has left many investors questioning whether they should buy or sell. However, the consensus during this BiggerPockets podcast episode is that cash flowing assets will continue to perform well regardless of the economic climate. David Green, Scott Trench, and Jay Scott discussed the importance of investing from a position of financial strength and emphasized the resilience of real estate as an investment class. They also touched upon the significance of having a long-term perspective and staying informed about market trends. Overall, the message was clear: real estate can provide stability and security in times of instability.
Finding Off-Market Real Estate Opportunities with PropStream: Stay informed about economic trends and utilize PropStream to access over 155 million properties nationwide and find motivated sellers for off-market opportunities
As the real estate market becomes more competitive, with rising home prices, interest rates, and decreasing inventory levels, investors should consider looking for off-market opportunities. PropStream, a leading real estate data provider, can help in this regard by offering access to over 155 million properties nationwide using various search filters to find motivated sellers. Additionally, the macroeconomic context discussed in the first hour of the podcast emphasizes the importance of staying informed about economic trends and their impact on real estate investing. Whether you're a seasoned investor like Jay Scott or just starting out, staying informed and utilizing tools like PropStream can help you navigate the current market effectively.
Impact of COVID-19 on Daily Life and Businesses: The COVID-19 pandemic has had a significant impact on daily life and businesses, with drastic measures taken to contain its spread based on potential severity and millions of lives at stake.
The COVID-19 pandemic took many by surprise, despite warnings since January. The rapid spread of the virus and the subsequent shutdowns have had a significant impact on businesses and daily life. Jay from the BiggerPockets Money Show shares his experience of initially underestimating the situation but quickly adapting. He also mentions the challenges of separating fact from media sensationalism. A recent study from Imperial College provides insight into the modeling that led to the drastic measures being taken. The article highlights the potential severity of the situation without containment efforts, including up to 90% of the population being affected and millions of deaths. The article serves as a reminder of the importance of taking the pandemic seriously and the potential consequences of not doing so.
Managing the flow of people and resources during a crisis: Social distancing measures help prevent overwhelming the healthcare system and mitigate economic impact by managing the flow of people and resources
Social distancing measures, like quarantines, are meant to prevent a surge in demand for healthcare resources, such as hospital beds and ventilators, that could overwhelm the system. Using the analogy of a restaurant, having too many customers coming in at once can create a bottleneck, and the same concept applies to the healthcare system. The goal is to spread out the demand over an extended period to ensure that everyone who needs care can receive it. A recent study on NBA players revealed that nearly 10% of them had been infected with the virus, even though they were in relatively isolated situations. This suggests that a significant portion of the population may be unknowingly infected and potentially spreading the virus to more vulnerable individuals. Therefore, social distancing measures are crucial in mitigating the spread of the virus and preventing the healthcare system from being overwhelmed. In terms of the economy, businesses and individuals are facing challenges due to the sudden halt in activity. However, implementing social distancing measures now could help prevent a larger economic crisis down the line by preventing a surge in healthcare demand and ensuring that resources remain available for those who need them most. Overall, the key takeaway is that social distancing measures are essential in managing the flow of people and resources during a crisis to prevent overwhelming the healthcare system and mitigating the economic impact.
Impact of Stock Market on Economy: The stock market's downturn can lead to a recession by altering consumer confidence, disposable income, and business operations, resulting in potential unemployment and negative GDP growth.
The current economic turmoil, as reflected in the stock market, is likely to have a significant impact on the economy, potentially causing a recession. The stock market can influence the economy by changing our perceptions and disposable income, leading to changes in spending. Additionally, businesses are facing challenges with decreased revenue, layoffs, and inventory, which could lead to increased unemployment rates and negative GDP growth. The question remains whether this downturn will be short-lived or prolonged, and whether there will be a quick recovery once the virus situation improves.
Managing economic uncertainty in uncertain times: Focus on managing what we can control, such as effective financial strategies, while adapting to economic changes and staying informed.
The current economic uncertainty due to the virus outbreak has led to high consumer and corporate debt, raising concerns about individuals' ability to make mortgage, car, and credit card payments. This could potentially create a domino effect that pulls the entire economy down. However, it's crucial to focus on what we can control, such as how we manage the cards we've been dealt. Using the analogy of poker, we need to know how to play our hand effectively, including when to bet bigger and when to pull back. The current economic climate presents opportunities for strategic moves, such as seller financing. For BiggerPockets members, concerns include the impact of missed rent payments on their investments and the vulnerability of hourly employees. It's essential to stay informed and adapt to the situation while focusing on the moves we can make to mitigate potential risks.
Navigating Real Estate Investing During a Pandemic: Stay informed, build a strong financial foundation, have reserves, and be prepared for evictions and tenant situations during the pandemic. Experienced investors recommend a recession-proof strategy and flexibility.
The ongoing coronavirus pandemic is causing significant uncertainty in the real estate market, particularly for new and inexperienced investors. Homeowners without substantial assets may be the first to face foreclosures, while real estate investors are also feeling the impact. There is a lot of discussion in the community about how to handle evictions and work with tenants during this time. The situation is rapidly evolving, and it's important for investors to stay informed by checking the BiggerPockets forums and other up-to-date sources. While there is uncertainty about what cards will be dealt next, investors can control their own position by building a strong financial foundation, having reserves, and being careful about their investments. Experienced investors, like Jay, emphasize the importance of having a recession-proof strategy and working with tenants in difficult situations. Ultimately, the key is to stay informed, be flexible, and be prepared for whatever comes next.
BiggerPockets' Conservative Approach to Real Estate Investing: BRRRR strategy can build equity and weather economic downturns when done responsibly. Bring a down payment, have reserves, and ensure cash flow. House hacking can be a conservative way to offset rent costs during a recession.
While there are criticisms against the BRRRR strategy and no money down deals, the community at BiggerPockets advocates for a conservative approach to real estate investing. This includes bringing a down payment, having reserves, and ensuring cash flow. The BRRRR strategy, or Buy-Rehab-Rent-Refinance-Repeat, can be a good way to build equity and weather economic downturns if done responsibly. Additionally, house hacking, or buying a property and living in it to offset rent costs, can be a conservative way to go about living situations during a recession. It's important to remember that every investment strategy carries some level of risk, but being well-capitalized and prepared can help mitigate potential losses.
Government's Economic Tools: Interest Rates and Money Supply: The government's ability to influence the economy through interest rates and money supply is limited when dealing with a pandemic and low interest rates. Careful consideration and innovative solutions are needed.
The government, specifically the Federal Reserve, has the power to influence the economy through various means, including interest rates and the money supply. Lowering interest rates is a common tactic to stimulate economic growth, but when rates are already at 0%, as they currently are, the effectiveness of this tool is limited. The speakers expressed concerns that the government may have acted too soon with these measures, as many consumers are unable to take advantage of low interest rates due to restrictions caused by the ongoing pandemic. The money supply is another tool the government can use to impact the economy, but it's a more complex and less direct method. Overall, the current economic situation presents unique challenges for the Federal Reserve and the government, requiring careful consideration and potentially innovative solutions.
Tools used by the government and Federal Reserve to stimulate economy: The government and Federal Reserve use interest rates and money supply to stimulate economy during downturns. Lower interest rates encourage spending and investment, while increased money supply puts more money into economy for lending. Direct stimulus through legislation provides financial support to businesses and consumers.
The government and the Federal Reserve use various tools to stimulate the economy during economic downturns. Two primary tools are interest rates and the money supply. Lowering interest rates makes borrowing cheaper, encouraging spending and investment. Increasing the money supply, through quantitative easing, puts more money into the economy for banks to lend out. The government also has the ability to provide direct stimulus through legislation, such as bailouts and direct payments to individuals. These measures aim to keep businesses afloat and provide financial support to consumers during economic crises. The current economic situation has led to unprecedented use of these tools, with significant increases in money supply and direct stimulus packages. While some may view these measures as risky or uncertain, they are intended to prevent widespread economic hardship and promote economic recovery.
Economic uncertainty and government response: Government responses to economic uncertainty, like quantitative easing, can lead to inflation and increased prices, but it's important to keep a long-term perspective and remember that the economy will eventually adjust.
We are currently experiencing high levels of economic uncertainty, but it's important to remember that similar situations have occurred in the past, and the government's response, such as quantitative easing, can lead to inflation and increased prices for goods and services. This pattern of injecting large amounts of money into the economy to prevent panic and stimulate growth comes with consequences. While it may feel good in the short term, it can lead to a false sense of security and inflation. It's essential to keep a long-term perspective and recognize that the current situation is not unique, and the economy will eventually adjust. To understand this concept better, one can look at historical data on the US money supply and its relationship to the gold standard.
Governments injecting money during economic downturns: Focus on long-term investments in real estate and build a strong financial foundation during economic instability
During economic downturns, governments may need to inject large amounts of money into the economy to prevent a severe recession. This process, known as quantitative easing, can help stabilize the economy without causing immediate inflation. However, the challenge lies in removing the injected funds before inflation becomes a concern. This was a struggle during the Obama years. Investors, like the speaker, should focus on long-term investments in appreciating and cash-flowing assets, such as real estate, and build a strong financial foundation to weather economic storms. Investing in real estate is essentially a bet on the long-term viability of the country's economic system, capitalism.
Real Estate as a Hedge Against Inflation: Real estate provides value appreciation, fixed mortgage payments, rental income, loan paydown, tax benefits, and a safety net, making it a reliable long-term investment during inflationary periods.
Real estate is a good hedge against inflation because its value tends to keep up with rising prices. This is due to the fact that mortgage payments are usually fixed, allowing landlords to raise rents in line with inflation, while also benefiting from appreciation in property values. Additionally, real estate provides cash flow, loan paydown, and tax benefits, making it a solid long-term investment. Unlike the stock market, real estate also offers a safety net through cash flow and reserves, acting as a "belay" that catches investors during market downturns.
Real Estate's Unique Advantages: Income Generation and Control During Downturns: Real estate's cash flow generation and local control offer protection and flexibility during economic instability. Self-management and DIY projects can boost income and reduce costs.
Real estate investing offers unique advantages that other asset classes don't, particularly in terms of generating income and providing more control during potential market downturns. Real estate's ability to produce cash flow acts as a protective "belay" for investors, allowing them to weather economic instability better than those solely reliant on stocks or other investments. Moreover, local investors can self-manage their properties or even DIY construction projects to further boost cash flow and reduce costs. These defensive measures are essential for most real estate investors, especially those with a few rentals close by. Cash flowing real estate is a reliable investment strategy that works in any economic climate, offering flexibility and protection for investors. Redfin and Quantum Fiber Internet are valuable resources for those looking to buy, sell, or manage their real estate investments, providing tools and services to help navigate the process effectively.
Navigating Economic Downturns with BAM Capital: BAM Capital's executive team has a proven track record of delivering high returns to investors, even during economic downturns. For potential investors, experts advise caution when buying investment properties, suggesting learning and preparation for flipping and creating long contingency periods for rental purchases.
The BAM Capital executive team has demonstrated resilience and success in navigating economic downturns, including the Great Recession, COVID-19, and the current interest rate environment, while consistently delivering high returns to their investors. BAM Capital is a trusted multifamily syndicator with a strong track record, offering investors opportunities for generational wealth building or monthly income through cash flow stability, capital preservation, long-term appreciation, and accelerated tax benefits. However, when it comes to buying investment properties, especially in the current economic climate, experts advise caution. Jay and David, in response to a listener's question, suggested that for those considering flipping, now might be the time to learn and prepare, rather than actively engaging in flips. Regarding buying rentals, they advised creating contracts with long contingency periods and being prepared for potential challenges in the process. Ultimately, it's essential for investors to do their research, consider their unique circumstances, and seek advice from trusted resources before making investment decisions.
Adapting to market uncertainties with flexible contracts: During uncertain times, extend escrow periods, include contingencies, and add addendums to contracts for potential appraisal delays, financing issues, and other market disruptions.
During uncertain times in the real estate market, such as those presented by the COVID-19 pandemic, it's crucial for buyers and sellers to have flexible and well-structured contracts. This includes extended escrow periods, contingencies, and addendums that address potential issues like appraisal delays or inability to secure financing. Newer investors may be more cautious in the current market, while seasoned investors see opportunities for potential deals. It's essential to be aware of the specific market conditions and adapt accordingly. Additionally, considering the potential impact on lending institutions, particularly in the commercial sector, is crucial when making real estate investments.
Backup plans for real estate investments during economic downturns: Maintain reserves, consider alternative uses, focus on c class housing or mobile home parks, and communicate with tenants during economic downturns
During economic downturns, it's crucial for investors to have a backup plan for their real estate investments. This includes having reserves, considering alternative uses for the property, and focusing on more resilient classes of housing like c class or mobile home parks. Additionally, during times of financial hardship, communication and collaboration with tenants can be essential to mitigate potential rent payment issues. Despite the unexpected severity of the current economic situation, historically, c class housing and mobile home parks have shown to be more resilient during recessions.
Maintaining financial stability as a landlord: Landlords should offer flexible payment arrangements for tenants facing hardships and have a solid financial foundation to weather economic downturns.
As a long-term real estate investor, it's important to maintain a financially stable position and have a plan in place for dealing with tenants who are unable to pay rent due to unforeseen circumstances. The current situation with eviction laws and potential government intervention does not excuse tenants from their rent obligations, but landlords do have recourse for unpaid rent and can eventually evict tenants who refuse to pay. For tenants facing hardships, landlords can consider working with them and offering flexible payment arrangements to maintain a good relationship and retain great tenants in the long term. The system is designed to absorb some financial hardships, and it's essential to have a plan in place and not live paycheck to paycheck. The government may step in to help tenants and homeowners during this time, but it's crucial for landlords to be proactive and have a solid financial foundation.
Flexibility and Empathy for Tenants During Financial Hardship: Maintain clear communication, explore government aid programs, create payment plans, prioritize good tenants, and be selective in tenant screening.
During times of financial hardship, it's crucial for landlords to be flexible and empathetic towards their tenants, while also having a well-structured plan in place. This may include exploring government aid programs, creating payment plans, and prioritizing good tenants. It's essential to remember that not all tenants are able to manage their finances effectively, and the real estate market relies on a diverse range of tenants. Landlords should maintain clear communication and work collaboratively to find solutions that benefit both parties. Additionally, it's important to acknowledge the importance of having good tenants during good times and to be selective in the tenant screening process.
Exploring creative financing strategies in a downturn: In a recession, learn creative financing methods like subject to and wraps to invest with limited funds. Stay informed on market shifts and adapt to new opportunities.
In an economic downturn, creative financing strategies like subject to and wraps can provide opportunities for liquid investors to still hustle in real estate. These methods involve taking over mortgage payments or loans from sellers or investors. Now is a good time to educate yourself on these strategies through resources like Brandon's book on investing with no or low money down. Additionally, market power is shifting in various real estate-related markets, and understanding these changes can help investors adapt and take advantage of new opportunities. For those who have lost their jobs and need to earn money, the transition to a new skill or revenue stream may take time, but it's important to stay productive and continue learning during this period.
Adapting and Seeking Opportunities for Growth in Challenging Economic Times: During economic downturns, focus on skills and passions to find opportunities for growth, consider working for equity or helping businesses pivot, and maintain a strong work ethic and positive attitude.
During challenging economic times, it's essential to adapt and seek opportunities for growth. Instead of focusing on the negatives, consider where your skills or passions could be put to better use in a different industry or role. In buyers' markets, there may be opportunities to work for equity or help businesses pivot their models to stay afloat. Even if you're not in the real estate industry, there are ways to support other businesses and earn income. Remember, a strong work ethic and a willingness to hustle can go a long way in helping you succeed, no matter the economy. As the speaker emphasized, those who have gone through difficult experiences often end up making remarkable achievements. So, stay creative, stay positive, and keep looking for ways to contribute and earn.
Staying positive and determined during economic challenges: During tough economic times, maintaining a strong work ethic and positive attitude can help individuals overcome adversity and access opportunities. Stay informed and proactive in managing finances, as market conditions can change rapidly, and access to capital may be available through low interest rates and SBA loans.
During challenging economic times, having a strong work ethic and a positive attitude can help individuals overcome adversity and access opportunities. While the government and economy may have limitations, an individual's determination and willingness to adapt can lead to success. Regarding accessing capital, the current economic situation presents some optimism due to low interest rates and potential funding for SBA loans. However, it's crucial not to delay financial decisions, as market conditions can change rapidly. Additionally, rates are influenced by various factors beyond the federal funds rate, and lenders may adjust their policies. Therefore, it's essential to stay informed and proactive in managing finances.
Lenders Increase Mortgage Rates, Homeowners Should Act Quickly: Homeowners considering refinancing or obtaining a HELOC should act now due to rising mortgage rates. Fannie Mae financing may remain stable, but long-term investors could benefit from adjustable-rate mortgages, considering the current spread between ARM and fixed-rate loans.
With the recent surge in loan applications, lenders are increasing their rates, making it more difficult for buyers to secure favorable deals. This trend is affecting not only new applications but also those in the escrow process. As a result, it's recommended that homeowners considering refinancing or obtaining a Home Equity Line of Credit (HELOC) should act now, as rates may continue to rise or remain stable. Additionally, while Fannie Mae insured financing may not dry up as quickly as other types, it's crucial to act if it aligns with your business strategy. Regarding adjustable-rate mortgages (ARMs), historically, they have been considered risky, but with the current spread differences between ARM and fixed-rate loans, they could offer advantages for long-term investors. However, it's essential to consider the fine print, such as potential caps on rate increases, before making a decision. Overall, being proactive and informed is key in navigating the current mortgage landscape.
Adjustable rate mortgages may not be as risky as believed: While there's a risk of rate increases, potential impact on monthly payments may be mitigated by property value growth and refinancing options. Lower interest rates and fewer points for ARMs are also benefits.
Adjustable rate mortgages (ARMs) may not be as risky as commonly believed. While there is a risk of interest rates increasing, the potential increase may not significantly impact monthly payments, especially if the property value also increases. Over the long term, refinancing becomes an option when equity builds up and return on equity drops. Additionally, lenders often offer lower interest rates and fewer points for ARMs. It's essential to consider the current interest rate environment and potential caps on rate increases before making a decision. Preconceived notions about ARMs being bad should be reconsidered in light of this information.
Questioning assumptions and challenging the status quo: Explore new opportunities and efficiencies by challenging assumptions and adapting to new circumstances, even during uncertain times.
It's essential to question assumptions and challenge the status quo, even if they've been ingrained in us for a long time. For instance, Emily, a new investor, assumed that she couldn't find real estate deals during the pandemic. However, by questioning this assumption and exploring alternative methods, she discovered that she could still make progress in her real estate journey. Similarly, we may have assumptions about our own lives or businesses that limit us. By questioning these assumptions, we can discover new opportunities and efficiencies. Moreover, the speakers emphasized the importance of adaptability and innovation during challenging times. Instead of holding back, they suggested focusing on what can be done remotely and finding creative solutions to overcome obstacles. For example, instead of physically visiting properties, they recommended having sellers create videos or using technology to conduct virtual tours. By staying determined and resourceful, we can continue to move forward, even in uncertain times. In summary, questioning assumptions, challenging the status quo, and staying adaptable and innovative are crucial for success, especially during challenging times.
Preparing for a Recession in Real Estate: Assess your situation, learn, network, and develop plans during uncertain economic times to be prepared for future real estate investments.
This uncertain economic situation presents both challenges and opportunities for new real estate investors. While it may not be the best time for everyone to actively buy deals, it is an excellent time to learn, network, and prepare for the future. Newbies should assess their own situation honestly and only engage with potential sellers if they are seriously interested. On the other hand, those who are waiting can use this time to develop their plans, practice negotiation skills, and learn about different types of real estate investments. As Jay mentioned, recessions are a natural part of the economic cycle, and it's essential to be prepared. The six rules to prepare for a recession, discussed in episode 311, include having a solid emergency fund, focusing on cash flow instead of appreciation, building a diverse portfolio, increasing your knowledge, maintaining a strong network, and staying disciplined. By following these rules and using the current situation to learn and prepare, new investors can be ready to hit the ground running when the market improves.
Preparing for the next economic phase: Build up savings, open credit lines, improve creditworthiness, sell non-essential assets, restructure debt, and cut losses to better weather economic downturns
As we navigate different phases of the economic cycle, it's essential to prepare for the next phase. In early 2019, when we were in an expansion phase, we discussed six key actions to help individuals and businesses prepare for a potential recession. First, hoarding cash is crucial during a recession, so building up savings and using credit lines is advisable. Second, opening credit lines now can provide access to cash during uncertain times. Third, improving creditworthiness is important because lending criteria may become stricter. Fourth, selling non-essential properties or assets that can't sustain a worst-case hit is wise. Fifth, restructuring short-term debt with favorable interest rates is beneficial. Lastly, cutting losses on investments and being prepared to renegotiate private debt are crucial. By taking these steps, individuals and businesses can be better positioned to weather economic downturns.
Preparing for a Potential Market Downturn: Sell early to avoid bigger losses, hoard cash, open credit lines, get rid of non-sustainable properties, restructure debt, and don't forget past market downturns lessons.
It's crucial to get ahead of potential market downturns instead of trying to play catch up. The speaker shared his personal experience of chasing a dropping sale price for months and compared it to eBay's failed attempts to buy PayPal at a lower price. He emphasized the importance of selling even at a small loss to avoid a bigger one later. Additionally, the speaker offered seven tips for preparing for a potential recession, including hoarding cash, opening credit lines, getting rid of non-sustainable properties, and restructuring debt. In closing, each panelist offered one piece of advice for the next steps, such as continuing to build a financial foundation and not forgetting the lessons of past market downturns.
Prepare for the future and maintain a long-term perspective: Maintain a long-term perspective, plan for future economic challenges, and continue putting in effort to build wealth through real estate despite temporary downturns.
No matter how good or bad the current situation may seem, it's important to maintain a long-term perspective and prepare for potential challenges. During good times, plan for the future when things may not be as favorable. During tough times, keep in mind that they are temporary and things will eventually improve. It's crucial to ask wise, prudent questions to understand the root cause of economic fluctuations and whether they are temporary or permanent. Additionally, your work ethic and personal actions cannot be changed by the economy. Therefore, staying focused and continuing to put in effort can help individuals build wealth through real estate despite economic downturns.
External factors impact hand we play but not overall strategy in real estate investing: Focus on personal lead measures and long-term goals for success in real estate investing, despite external circumstances
External factors, such as going to the gym or receiving new information, may change the situation but do not directly impact our actions or goals, which are determined by our internal lead measures. This was emphasized during a discussion on BiggerPockets Radio, where the hosts compared real estate investing to a game of poker, with each new card dealt affecting the hand we play but not our overall strategy. So, regardless of external circumstances, focus on your personal lead measures and long-term goals to ensure success in real estate investing.
