Planning For The Next Property Recession
At some point there will be some variation of a property recession. There are 2 factors to consider….clearly one is leverage & LTV and the other is reserves. What we have seen in our property journey since 1994 has that property been highly regional & in a full blown recession don’t count on refi’s failure to refi loans that became due was one of the catalyst to the melt down.
More so, all asset class’s got hammered.. some worse than others of course. Don’t think for a minute that rentals are immune.. you have landlords competing for tenants start moving in with family. Another key point is not so much leverage as it is reserves.
Reserves are key and planning for an issue if you are stuck at a refinance cycle and are not able to get funding (the stronger your reserves and lower your LTV the more likely you are to get the loan.) We were much smaller last time, and everything was paid off at that point (we have since grown and used debt) but we keep 70% or lower LTV AT purchase so after reposition we are 50-60% LTV and they cash flow very well. More so we keep 6 months worth of rents as reserves. You don’t want to work for years only to have it wiped out. I am not being the bearer of sad news. Rather have seen 3 cycles and they can be devastating….However these are the best times to buy….hold….cash flow and then at the end of the next up cycle cash out.
What else we have seen is ….Ironically for all of us property investors, competition for deals might even increase. You might also find people who get downsized from Corporate America will start looking for side hustles to make money. Based on the number of new book titles published on Amazon after the Financial Crisis of 2008, fix-and-flip was a common theme. Rehabbers can expect more competition.
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