It’s not a question of if a reces- sion is coming. It’s a question of when and to what degree. Whether you agree with me that a downturn is likely by the end of 2020 or you believe that the window is wid- er (12-24 months), the real question for smart real estate investors is: “What do I do to prepare?” We’ve all heard investors talking about what they wish they had done during the last downturn. I have heard so many people say things like, “I should have bought every- thing!” or “If only I had the capital then that I have now.” Of course, in reality, just “buying everything” was only the starting point. Once the investors who ac- quired properties in the wake of the housing crash, they had to maintain them. They had to generate returns. If they failed, they lost the proper- ties in what, for many markets, was the second wave of the crash. Detroit, Michigan, is a prime example. You probably remember headlines about investors buying properties for literally one dollar. Then, a couple years later, you may recall that Detroit was still floun- dering, and a lot of those proper- ties were so neglected that the city had to demolish hundreds of them. Did the investors who “bought ev- erything” but couldn’t afford to main- tain that investment ultimately score a big win? Absolutely not. In fact, many of them lost their shirts just like the original homeowners did. DON’T FORGET THE “HOLD” IN BUY-AND-HOLD It is vitally important to not just acquire properties if you want to be prepared for a recession, but also to have the capital to maintain those properties. In the event of a recession, you need to have invest- ments that will cashflow in a down
do to make recession-resistant real estate investments in those markets. You must factor in two things when identifying what type of property you want to buy in this scenario: 1. Will the price give me wiggle room if “Plan A” gets delayed? 2. Is the property going to at- tract a resident or tenant in a down market? The key to accessing “wiggle room” properties is to simply acquire those properties below retail. Examples of ways that have historically been well-suited to acquiring properties at low pric- es include foreclosure auctions, buying off-market, and, of course investing in property tax liens and property tax deed certificates. Property tax debt is one of the best ways to acquire property at deep discounts at any time, regard- less of the market cycle. As long as you carefully evaluate the proper- ties in question before you bid and understand the auction system in your market, you will be able to identify and acquire properties that you can hold for the long-term that permit that “wiggle room” and be attractive in the event that the local population has to downsize. Will the property attract a resi- dent or tenant in a down market? Contrary to what you might expect, Class A, high-end commer- cial buildings and top-tier, luxury residential real estate typically do not do well in a down market. While both of these types of properties can be acquired using tax lien and tax deed investing techniques, they are not predominantly the prop- erties that smart investors buy as insulation against a downturn. Instead, look for properties that will attract tenants and residents
when budgets get tight. Class A properties are the first to experi- ence rising vacancies when things get rocky economically. That is when you want a large portfolio of solid, attractive, B- and C-Class properties ready to welcome down- sizing residents. PREPARATION VS. PANIC The important thing for real estate investors at present is to get prepared . This means you need to be strategizing, solidifying your access to capital, and evaluating multiple exit plans for investments that will not serve you during an economic downturn. Now is not the time for panic. Now is the time for preparation. Your portfolio and your legacy will show the fruits of this for a lifetime. • Charles Sells began his career investing in tax liens at the age of 23. Like many of us, he was enticed by the simplicity and profitability often conveyed in pop- ular coaching programs and weekend workshops. However, experience taught him that success required more than a simple snap of the fingers. So, at 26, Charles kicked the pitchmen to the curb and started his own business, helping investors discov- er realistic profits investing in distressed real estate. The model was simple: use his growing knowl- edge, integrity and tenacity to help others grow alongside him, in experience and in profits. One investor at a time, Charles has built a reputable business helping individuals invest passively in everything from tax liens to the ever-so-popular fix-and-flip. Fast-forward 20 years and The PIP Group has transacted hundreds of millions of dollars in distressed real estate investments on behalf of nearly 1,000 investors worldwide. Charles and his team at The PIP Group have taken the stress out of investing in distressed real estate, by enabling investors to have their individual investments re- main in their name and their control, retaining 100% ownership, with Charles and The PIP Group team at the helm to make certain those investments remain profitable.
will cash-flow during a downturn and/or allow me some wiggle room to buy and hold them in a long-term portfolio play? The answer is simple. It is the same strategy I have been imple- menting for two full real estate cycles so far and that I plan to continue to leverage up to, during, and long after the conclusion of the next economic downturn. I’m going to acquire real es- tate using property tax liens and property tax deed certificates while targeting markets where I know the population will likely opt to downgrade their living spaces long before they opt to leave. I want a secondary market in decent proximity to a 24- or 18-hour city in a region where the cost of liv- ing is relatively affordable compared to regions with similar employers.
States with this type of market include:
market or that you can afford to hold and maintain until the market starts to recover. After the last housing crash, many of those Detroit investors probably thought they would rent the properties they purchased to people who lost their homes during the mortgage meltdown. However, a lot of those people did not need to rent a home in Detroit anymore be- cause they left the city completely. Between the 2000 U.S. Census and the 2010 U.S. Census, the city lost a full quarter of its population! That meant a lot of empty homes no mat- ter how cheaply you bought them. If you were going to hold onto those properties until they recovered, you had to hold a serious reserve of cap- ital to sustain your budget while you waited for the recovery. How do I identify properties that
• Texas because it hosts a lot of the same type of tech and engineer- ing companies that used to make their homes in California, but the cost of living is much lower. • States in the Southeast like Georgia and South Carolina and in the Midwest like Illinois . Em- ployers in the major metro areas of these states are unlikely to “jump ship” for another location if the economy corrects. Further- more, these states’ populations will likely grow as more em- ployers move their operations to business-friendly markets.
Now that we have some markets in mind, let’s talk about what we can
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