The year was 2007, and I was 27 years old. It was also the year I got married, bought the most real estate deals of my life (33), and learned a lot of painful lessons about real estate investing.
I feel very fortunate to have financially survived that period after making some rookie mistakes. But my business partner and I also did some things right that helped us to persevere.
Ultimately, our decisions both before and during the depths of the 2008-2009 recession led us to financial independence only a few years later. You can read my entire story along with many others in my BiggerPockets book Retire Early With Real Estate!
But in this article, I want to arm you with 7 lessons that helped me the most in the recession of 2008-2009. If you apply these lessons, you can gain confidence and hope to survive and even thrive in 2020 during a challenging time.
Lesson #1: Cash Is ALWAYS King
In late January 2020, some of the smartest investors like hedge fund legend Ray Dalio were saying “cash is trash.”
And this seemed logical as real estate and stock markets continued their record and lengthy sprint up. Why hold cash with returns well below the rate of inflation when other investments produced much larger returns?
Isn’t it amazing how 2 months can flip that logic on its head?!
Guess what? Cash is still (and always will be) king.
Fortunately, this lesson sunk in with me before the 2008 recession. My business partner and I lived frugally and saved most of the money we earned from flipping houses during our short 5-year career.
And guess what? We needed it! And in 2020, you need cash, too!
As I write this, many tenants can’t pay their rent after losing their jobs due to the Coronavirus pandemic. You should absolutely be proactive with your tenants like Brandon Turner advocated recently with his five-step plan.
But the clear, painful bottom-line is that you need cash to survive financially. Even if you can’t collect all your rent for a period of time, your bills still need to be paid. And beyond survival, you’ll also want cash for investment opportunities as we come out of this crisis.
So to close this and every one of the 7 lessons, I’ll give you an action item as a takeaway.
Action Item: Calculate your overhead/expenses for 6 months (or 12 is even better), both personally and in real estate investing. Do you have that much in cash?
If not, close the gap however you can, including refinancing, tapping lines of credit, or selling something. Borrowing or selling during a downturn isn’t ideal, but the cash at hand may be worth the downsides in order to help you survive.
Lesson #2: Attack Problems (Don’t Hide)
In what seems like a former life, I was a three-year starter as a middle linebacker on the Clemson University football team (Go, Tigers!).
For those who don’t know football, my job was to run around and tackle anyone with the ball. But my constant battle was with 350-pound giants called offensive lineman. Their job was to block, blind-side, and knock me down at every turn.
So, guess what my first strategy was? Keep my head on a swivel!
Like a wild animal watching for lions, I was constantly aware of threats from all sides. And if I did see one of those huge guys trying to get his hands on me, I just quickly went around him if possible.
But avoiding trouble wasn’t always possible. Sometimes it quickly became clear that I was in for a battle. In that case, I didn’t run or hide. I attacked him head-on with as much energy as possible.
Often the lineman didn’t expect such a direct attack, and I was able to use their momentary surprise to then push them off and go around.
In a time of economic crisis, you are like a linebacker. And the challenges and problems are those gigantic offensive linemen.
Keep your head on a swivel. Watch for challenges early, and use your smarts and quickness to avoid them.
But if a problem is unavoidable (like a tenant not paying), don’t hide from it. Attack the problem (but not the person, of course. Be nice!!). Talk to the people involved. Surprise them with understanding and creativity. Let them know you’re in this together.
Action Item: What problems are you facing right now? How can you face it head on to solve it more quickly or to minimize the damage?
Lesson #3: Hustle
“Every morning in Africa, a gazelle wakes up. It knows it must run faster than the fastest lion, or it will be killed. Every morning, a lion wakes up. It knows it must outrun the slowest gazelle, or it will starve to death. It doesn’t matter whether you’re a lion or gazelle. When the sun comes up, you’d better be running.“
In the animal kingdom, it doesn’t matter whether you’re a lion, gazelle, ant, or eagle when the sun comes up, it’s time to hustle!
I found the same thing to be true as an entrepreneur and real estate investor during the 2008 and 2009 recession. Hustle both helped me to solve problems and to hunt down new opportunities.
There are certainly times in life to relax and take it easy. For example, my wife, two kids, and I took a 17-month mini-retirement to Ecuador in 2017-2018. Siestas and slow family time were exactly what this overachieving entrepreneur needed!
But right now during a time of financial crisis, hustle is needed. Lots of people are stunned, panicking, and frozen reading the news all day. You can get ahead by working harder.
Even if you’re stuck at home, hustle could mean learning a new skill, finally organizing your paperwork, writing thank you notes, and catching up on your bookkeeping.
It is possible to hustle your way out of a personal financial crisis!
Action Item: As long as your health and family circumstances allow it, what is one thing you can begin hustling more on today?
Lesson #4: Trusting Relationships Are More Valuable Than Gold
Late in 2007, the storm clouds of financial turmoil were brewing. But as a young, enthusiastic investor I had my head down and focused on doing more deals.
One particular deal was a small multifamily property at a bankruptcy auction. I found myself bidding against another investor, and I’m sad to say I lost my cool.
In the end, I was the winner of this property, but I had bid beyond my original set price. It was NOT one of my prouder moments as an investor.
The added problem was that we already had other properties in the pipeline at various stages of flips and rentals. And we needed almost $200,000 to purchase and another $100,000 to rehab these 12 units.
Fortunately, we had a solid relationship with a local commercial banker and with a local private lender. Together, they loaned us enough money to buy, remodel, and stabilize this property – even as other banks and lenders were pulling back credit.
First of all, I’ll always be grateful to these individuals. They trusted me and my business partner enough to take a chance and stick with us when times were tough. And fortunately, we followed through by always paying them on time and eventually paying them off when we sold the property.
But the bigger lesson for me was the incredible value of trusting relationships in business.
You could learn every technique and strategy on the entire BiggerPockets site, but without trusting relationships with people, none of it would matter.
Trust is the glue that holds together partnerships, contracts, landlord-tenant relationships, and even our national money supply!
And when you cultivate trusting relationships, you can cash in on them when you most need them – like right now during challenging times.
Action Item: Who do you trust in your real estate investing business? Who trusts you? How can you work together to get through tough times?
Lesson #5: Be Humble & Learn From Your Mistakes
“A great man [or woman] is always willing to be little.”
—Ralph Waldo Emerson
When I played college football, I remember a coach telling me that successful coaches got too much credit when things went well and too much blame when things went badly.
So with that reality in mind, a level-headed approach was to take neither praise nor criticism too seriously.
The same applies to real estate investing.
You might have felt like a genius during the last five to 10 years when most real estate investors were successful. No doubt you did some things well, but it takes humility to admit that some of your success was outside of your control. You rode a wave up.
At the same time, you might face some small or large failure either now and in the future. You don’t have to be happy about it, but don’t criticize yourself too much.
Instead, be humble enough to simply learn from your mistakes.
My business partner and I decided early in our career to turn each of our inevitable mistakes into a seminar. Small mistakes were cheap seminars. Big mistakes were expensive seminars. And we’ve had plenty of both!
But the key was not to repeat a seminar we had already taken (because that’s boring AND a waste of money)!
Action Item: What mistakes have you made recently? How can you learn from them?
Lesson #6: Be Creative, Innovative, & Flexible
When times are good, you don’t have to change much. Why mess up a good thing?
But when times are hard, you have to be creative, innovative, and flexible. It’s part of the reason so many top companies get their start during a recession.
In 2008, my business partner and I found ourselves with a lot of houses that we could not sell at retail prices. So, we got creative by owner financing many of the houses to our tenants.
Then we got even more creative by using government programs, like the $8,000 first-time homebuyer credit to help our customers come up with down payment funds. That cash helped us survive financially for one year.
In those cases and more, we had to quickly adapt our strategy and innovate how we invested. In 2020, you’ll need to do the same.
How exactly? Keep reading BiggerPockets. The news is changing daily. Laws are changing. Opportunities may be right around the corner.
All I know is that those of us who come up with creative strategies, apply them quickly, and remain flexible will increase our odds of getting through the crisis successfully.
Action Item: What do you need to change given the current real estate market? What new opportunities do you see that might lead to better results this year?
Lesson #7: Step Forward With Hope
“To choose hope is to step firmly forward into the howling wind, baring one’s chest to the elements, knowing that, in time, the storm will pass.”
—Desmond Tutu, The Book of Joy
Do you know the origin of the word prosperity? It actually doesn’t have anything to do with fancy cars, mansions, or stuff.
Prosperity comes from two Latin words—“pro” meaning “according to” and “spere” meaning “hope.” So, you could say prosperity means stepping forward hopefully!
And those single, hopeful steps are what we all need to do right now. Those steps are how you can build prosperity even when (or especially when) times are tough.
Yes, it will be hard. There will be “howling wind” and the cold of the “elements.”
And yes, being hopeful makes you vulnerable. What happens if you still fail?
But in the end, this storm will pass. And someday you’ll look back on this time and remember not the specific wins or losses – but how you responded when things were tough.
Action Item: What hopeful steps can you take today that your future self will be proud of?
I hope you found my 7 lessons from the 2008-2009 recession helpful.
There are many new and unique challenges in 2020 that we haven’t seen before. But this will always be the case. There will always be new twists and turns during every economic downturn.
But the core lessons and the attitudes that worked before will also work for you in 2020. And BiggerPockets is a great place to continue learning and getting the support you need as new challenges arise.
Best of luck for not only financially surviving but also thriving in 2020 and beyond!
What are the biggest challenges you see coming in 2020 for real estate investors? What plans are you making to face them?
Share in the comment section below.