Real Estate Deal Analysis & Advice

When the Next Recession Hits, You’ll Be Happy You Did THIS Beforehand

Expertise: Personal Development, Mortgages & Creative Financing, Real Estate Deal Analysis & Advice
41 Articles Written
Nervous businessman peeking over desk

When will the next recession take place, and how badly will it affect the real estate world?

Want more articles like this?

Create an account today to get BiggerPocket's best blog articles delivered to your inbox

Sign up for free

Look, if anyone knew this, they’d be on the beach (or wherever else they chose) for good—so don’t let anyone kid you with their predictions or statistics.

man showing his empty pockets and red line drawn indicating up and down market

When Will the Next Recession Occur?

Literally every radio show or podcast I’m a guest on, they want to know: “What’s the market going to do? When’s the next recession?”

There is no “market.”

There are numerous different markets around the country, all in different phases, at different times, in different areas.

In 2008, I lived through the feeling of what it’s like to do the wrong kinds of deals, sign personally on loans, and fall victim to all the other mistakes for several years leading up to that time. This is especially important for those of you to consider who started post-2008.

I don’t know when, how, or why the next recession is coming—no one does. But I do know this.

There are ways to soften the blow when it happens. I’ve adjusted by buying on terms to avoid making those same mistakes. In my opinion, using terms-only strategies to buy and sell is one of the best places to hang out, operate, and perfect your skills in any market, anywhere.

Pencil eraser correcting a mistake on paper

The Silver Lining of a Market Downturn

When the market slows even a touch, we’ll have an easier time buying—like 2012, ’13, and even into ’14.

Is that a bad thing? No! It’s fantastic.

We have to engage with more people now to get a deal and fish in different ponds, so to speak, but it’s all about the numbers. As long as you know yours (or borrow ours at first), you know how many sellers you’ll be communicating with to secure a deal. As the market slows and you’re buying properly, you’ll buy many more properties and speak with less people to do so.

I’m not going to say I completely look forward to the slowdown in this or any market our associates are operating in, but in many ways, I do. I know how hard they’re working now to put deals together, and I see firsthand in our family team how hard we all work.

So, will we welcome needing to have less seller conversations to secure a deal, experiencing sellers calling and chasing us instead of vice versa, and doing some great long-term deals that will set us up for another decade?

We sure will. And you should, too!

My advice? STOP worrying about the recession. Instead, practice and hone your skills to get deals that are owner financing, lease purchase, or subject to.

And if you choose to go the route of the former two, do so with long terms so you’re not concerned about cycles. I guarantee that you’ll feel like an anchor is no longer weighing you down and financial success is within reach.

rusty anchor on a light sand beach at sunset

Conclusion

Let’s recap: say no to personally signing on loans and say yes to creating long terms and contracts that are set up to protect you. That’s a bit different from signing on loans and using unproven methods or conventional methods. Those, I promise, will keep you up at night when the next recession hits.

Should you have five to 10 rehabs going when the market slows? It certainly wouldn’t be my choice.

Should you be a Realtor when the market slows? I’d rather throw up on my shoes.

Should you be trying to spin wholesale deals at $5,000 to $10,000 each, with your only checks coming when you do another deal? A deal without any future paydays?

You may as well go be a Realtor!

Why not create three paydays (see past posts here on BiggerPockets) for every deal so you can work as hard as you’d like, take time off as you’d like—all while knowing the paydays continue.

I could keep going. But the point is buy on terms, and you’ll set yourself up for a great experience.

Are you convinced the next recession is right around the corner? Why or why not? What will you do and/or are you doing to prepare?

Drop me a line in the comment section below!

 

Chris Prefontaine is the best-selling author of Real Estate On Your Terms. A real estate investor with over 27 years experience in the field, Chris is the founder of Smart Real Estate Coach and host of the Smart Real Estate Coach Podcast. He lives in Newport, Rhode Island with his wife Kim and their family. Chris is a big advocate of constant education. He and his family mentor, coach, consult, and actually partner with students around the country, teaching them to do exactly what their company does. Between their existing associates nationwide and their own deals, Chris and his family are still acquiring 5-10 properties every month and control between $20 to $30 million dollars worth of real estate deals, all done on terms without using their own cash, credit, or signing for loans.

    Caren E. from Baldwin, Maryland
    Replied about 2 months ago
    What does it mean to “ buy on terms?” Why is this a protective strategy? Thanks Caren
    Chris Prefontaine Specialist from Middletown, RI
    Replied about 2 months ago
    Hi Caren -thanks for following/reading. For us “terms” means lease purchase, owner financing, subject to purchasing with nice long terms (time frames). We do have a free webinar on the site that may help point you in the right direction as well.
    Tarsha Cote from Augusta, ME
    Replied about 2 months ago
    I was wondering the same thing!
    Caren E. from Baldwin, Maryland
    Replied about 2 months ago
    What does it mean to “ buy on terms?” Why is this a protective strategy? Thanks Caren
    Ashley Pimsner Rental Property Investor from Saint Charles, IL
    Replied about 2 months ago
    Love your content Pre, how would next recession effect payday 3 where you mark up sales price to tenant buyer and property doesn’t appraise out? I am sure you could restructure deal to meet appraisal. Wondering if you had a deal appraise for less than what you paid seller?
    Chris Prefontaine Specialist from Middletown, RI
    Replied about 2 months ago
    Love your content Pre, how would next recession effect payday 3 where you mark up sales price to tenant buyer and property doesn’t appraise out?- The buyers’ side is not contingent upon an appraisal so you would extend their term or they may opt to leave if a bad crash and you could rent or redo rent to own – many options and many ways to pivot. I am sure you could restructure deal to meet appraisal. – You could do that as well if not that much – your call. Wondering if you had a deal appraise for less than what you paid seller? – Sure we get that in every kind of transaction. Some we’ve paid for new appraisal, some we’ve adjusted, etc. but usually we’re buying at a price that allows us to be at or close to market in most scenarios.
    Chris Prefontaine Specialist from Middletown, RI
    Replied about 2 months ago
    Love your content Pre, how would next recession effect payday 3 where you mark up sales price to tenant buyer and property doesn’t appraise out?- The buyers’ side is not contingent upon an appraisal so you would extend their term or they may opt to leave if a bad crash and you could rent or redo rent to own – many options and many ways to pivot. I am sure you could restructure deal to meet appraisal. – You could do that as well if not that much – your call. Wondering if you had a deal appraise for less than what you paid seller? – Sure we get that in every kind of transaction. Some we’ve paid for new appraisal, some we’ve adjusted, etc. but usually we’re buying at a price that allows us to be at or close to market in most scenarios.
    Ben Gonzalez Flipper/Rehabber
    Replied about 2 months ago
    Chris, you mentioned the buyers side isn’t contingent on an appraisal. Wouldn’t an appraisal be done when they’re ready to get their own financing and cash you out? I think this is what Ashley was referring to.
    Chris Prefontaine Specialist from Middletown, RI
    Replied about 2 months ago
    Love your content Pre, how would next recession effect payday 3 where you mark up sales price to tenant buyer and property doesn’t appraise out?- The buyers’ side is not contingent upon an appraisal so you would extend their term or they may opt to leave if a bad crash and you could rent or redo rent to own – many options and many ways to pivot. I am sure you could restructure deal to meet appraisal. – You could do that as well if not that much – your call. Wondering if you had a deal appraise for less than what you paid seller? – Sure we get that in every kind of transaction. Some we’ve paid for new appraisal, some we’ve adjusted, etc. but usually we’re buying at a price that allows us to be at or close to market in most scenarios.
    Brent Crosby Rental Property Investor from Farmington, UT
    Replied about 2 months ago
    Also looking for clarification of ‘buying on terms’ thanks!
    Mehmud S Karim Rental Property Investor from Sugar Land, TX
    Replied about 2 months ago
    @ CHRIS PREFONTAINE – kindly explain for the readers what you men by “buying on terms” please ?
    Chris Prefontaine Specialist from Middletown, RI
    Replied about 2 months ago
    For us “terms” means lease purchase, owner financing, subject to purchasing with nice long terms (time frames). We do have a free webinar on the site that may help point you in the right direction as well.
    Robert Pemp
    Replied about 2 months ago
    Yes, I am pretty sure we are looking at a recession sooner, if not, later. The global economy is cooling, housing market is already way overpriced and zooming higher every month here. Our market is gaining in value 5-15K a month. We make a great living that is recession proof and am guessing we are probably in the top 20% for this area. I wouldn’t want to buy, nor could I buy the house I’d want, at the current market values. It’s going to have to correct itself, or the only ones able to afford it will be out of state money. With that in mind we are seriously looking at getting prepped for a downturn. Getting educated, completely debt free, setting up a HELOC now (just in case), stashing cash away etc. After the last downturn and by 2011 you couldn’t swing a dead cat without hitting a for sale sign here. Am interested in buying on terms when this happens again and will be reading more on it now. Thanks for the advice!
    Chris Prefontaine Specialist from Middletown, RI
    Replied about 2 months ago
    Hi Robert – good thoughts. If you or I knew any of that for certain we’d be on an island somewhere probably that we owned because we were ultra wealthy from being able to predict! 🙂 All kidding aside, appreciate the comments. You can buy now on long long terms, owner financing, principle only payments with the option of extending the terms even longer. Being able to buy in any market, and knowing how to structure that and the exit properly will keep you cash flowing. Instead of using your own HELOC you can use the 3 Paydays we’ve designed for most property exits. Just this week one of our Associates put together Three (3) deals and aside form Payday #1 and future #3, they added a NET cash flow monthly of $3000 to their bank account. Hope that helps.
    Chris Prefontaine Specialist from Middletown, RI
    Replied about 2 months ago
    Hi Robert – good thoughts. If you or I knew any of that for certain we’d be on an island somewhere probably that we owned because we were ultra wealthy from being able to predict! 🙂 All kidding aside, appreciate the comments. You can buy now on long long terms, owner financing, principle only payments with the option of extending the terms even longer. Being able to buy in any market, and knowing how to structure that and the exit properly will keep you cash flowing. Instead of using your own HELOC you can use the 3 Paydays we’ve designed for most property exits. Just this week one of our Associates put together Three (3) deals and aside form Payday #1 and future #3, they added a NET cash flow monthly of $3000 to their bank account. Hope that helps.
    Ben Gonzalez Flipper/Rehabber
    Replied about 2 months ago
    @CHRIS PREFONTAIN, you mentioned the buyers side isn’t contingent on an appraisal. Wouldn’t an appraisal be done when they’re ready to get their own financing and cash you out? I think this is what Ashley was referring to.
    Chris Prefontaine Specialist from Middletown, RI
    Replied about 2 months ago
    It sure would, yes but the deal is not contingent upon that appraisal so options are: appraisal is fine (most cases), appraisal is slightly lower and you negotiate it out if you choose to and simultaneously negotiate with the seller again, appraisal is way low and you either get another “opinion”/appraisal or the buyer comes in with more cash or the buyer walks or the buyer rents for the time being. If they walk, you keep and rent, keep and install new tenant / buyer, renegotiate with seller, give the home back to the seller. I could keep going Ben but there are so many ways to pivot in a deal to stay alive and profitable. Certainly too many to list in an article here. Hope that helps. Reply Report comment
    Chris Prefontaine Specialist from Middletown, RI
    Replied about 2 months ago
    It sure would, yes but the deal is not contingent upon that appraisal so options are: appraisal is fine (most cases), appraisal is slightly lower and you negotiate it out if you choose to and simultaneously negotiate with the seller again, appraisal is way low and you either get another “opinion”/appraisal or the buyer comes in with more cash or the buyer walks or the buyer rents for the time being. If they walk, you keep and rent, keep and install new tenant / buyer, renegotiate with seller, give the home back to the seller. I could keep going Ben but there are so many ways to pivot in a deal to stay alive and profitable. Certainly too many to list in an article here. Hope that helps.
    Ben Gonzalez Flipper/Rehabber
    Replied about 2 months ago
    @Chris thank you so much for the follow up. That does help explain a lot! Enjoying reading through your content!
    Ben Gonzalez Flipper/Rehabber
    Replied about 2 months ago
    @CHRIS PREFONTAIN, you mentioned the buyers side isn’t contingent on an appraisal. Wouldn’t an appraisal be done when they’re ready to get their own financing and cash you out? I think this is what Ashley was referring to.
    Kip Howell
    Replied about 2 months ago
    Good information.Do you have a link to the free webinar you’ve mentioned several times in Comments section of this post?