Investment Success in Good & Bad Times: A Recession-Proof Investing Plan That’s Never Failed Me

Investment Success in Good & Bad Times: A Recession-Proof Investing Plan That’s Never Failed Me

5 min read
Joseph Asamoah

Joe Asamoah, MBA, Ph.D., is a leading property investment strategist. He owns an impressive real estate portfolio of over 30 single-family homes in the Washington Metropolitan area—one of the highest-priced markets in the United States.

Experience
A 30+ year industry veteran, Dr. Joe’s commitment to investing in people and properties is central to his approach toward buying and renovating neglected homes in prime locations. The majority of his properties are rented to tenants with government housing vouchers. These low-income families would otherwise be unable to live in affluent areas where Dr. Joe champions preserving neighborhood diversity.

As an involved community entrepreneur, Dr. Joe spends ample time working with new, intermediate, and seasoned investors. In this capacity, he has made significant strides toward educating diverse groups on building sustainable wealth through real estate and landlording.

In 2018, Dr. Joe formed the Legacy Investment Network, a free, community membership platform. It is composed of thousands of investors and industry professionals who have access to Dr. Joe’s expertise, relevant topics, and real estate opportunities. Through his Joint Venture (JV) Program, Dr. Joe gives participants an opportunity to learn his systems and methods as they “look over his shoulders” while he completes BRRRR projects in real-time. Dr. Joe has taught over 500 students his unique investing system—designed to build wealth by leveraging the power of cash flow and appreciation.

Dr. Joe lives in Maryland with his wife and their two children.

Press
Dr. Joe actively shares vital market advice and trend analyses on his weekly “Wealth Wednesday” Facebook and Instagram livestream events and his bi-weekly BiggerPockets livestreams. Dr. Joe had the honor of being featured on the cover of the April 2020 inaugural BiggerPockets Wealth magazine issue. He is a sought-after presenter and has been featured on numerous radio programs, speaking forums, and in major media outlets like the Washington Business Journal.

He’s been featured on podcasts such as the BiggerPockets Real Estate Podcast #356 and the Real Estate Rookie Podcast #3, and has contributed several articles to the BiggerPockets Blog.

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In these uncertain times, many real estate investors may feel a sense of paralysis and doom where their real estate portfolio is concerned. I understand. I have been here before. In fact, I’ve been through four economic downturns in my real estate career, and I am here to tell you first and foremost: for better or worse, we will get through these challenges. (Hopefully for better rather than for worse.)

It is understandable to have a period of abject panic and for your mind to race a bit at everything that is going on. But when you’re done with that (please be done with that), I would urge you to put your game face on and consider some new strategies and ways to pivot with the changes coming in the markets.

One strategy I employ that has proven to be fairly recession-resistant is my “Tier 1” model for Section 8 housing.

What do I mean by that?

I mean rolling out the red carpet for the crème de la crème of Section 8 voucher holders. Believe it or not, in times of crisis and uncertainty, voucher holders are actually one of the most reliable, stable tenants to have, so I am here to tell you that you should take very good care of them.

Finding Holy Grail Tenants

Any seasoned buy and hold investor/landlord will tell you without a doubt that the biggest profit killer is turnover and vacancy. In my market, every lost tenant can cost me upwards of $5,000-$8,000 in cleaning, repairs, vacancy, time, and lost income. (FYI, I’m in a high-priced market where single-family rents range from $3,500-$5,000 per month.)

I want to avoid that at all costs by finding long-term tenants who would never dream of leaving. That is the only way, in the long run, that I generate positive cash flow and stay in business. I regularly and consistently get 10 to 15-year tenants.

In fact, I have one tenant who has been with me for 23 years—on a 15-year mortgage. Do that math!

Tenants like these are the Holy Grail, and I am here to help you find them.

First of all, please put aside your preconceived notions about Section 8 tenants. Sure, there are some difficult ones out there (just like there are difficult market renters). However, please know that many voucher holders are just like you and me. They want to raise their kids in a safe area. They want to live in a nice home. They know a slumlord when they see one.

They deserve to be treated with dignity and respect. They are human beings and can be amazing if you know how to screen tenants properly and nurture your relationship with them. They bring a lot of advantages and stability with them that you can capitalize on if you do it right.

Ribbon cutting smiling child

There is huge demand and long waitlists, usually, for Section 8 vouchers and housing—in good times and bad. Many landlords overlook these tenants, to their own detriment, but it creates an enormous opportunity for me and my student investors if a certain formula is followed, which I will give a free primer on now.

I follow the BRRRR strategy with my rentals—buy, renovate, rent, refinance, repeat.

Related: Rookie Podcast 03: Coronavirus Crash? Dos and Don’ts from Recession Veterans Joe Asamoah and Steve Rozenberg

Investing in Real Estate: The BRRRR Strategy

Buy

I am looking for properties that I can add value to through my high-quality renovations. The biggest value-add I can do is to add bedrooms, which increases the Section 8 rent I am eligible for. In my area, a Section 8 voucher for three bedrooms ranges from $2,500-$3,500 per month, which is usually cash-flow negative.

Four bedrooms range from $3,200-$4,500 per month, which is typically a break-even point. However, if I can turn a three-bedroom into five bedrooms, I can rent it for $3,800-$5,000 and be cash-flow positive. And because there are hardly any five-bedroom houses available to Section 8 voucher holders, demand for my product is huge—meaning I can be picky.

I’ll get to that below.

Typically, the best place to add bedrooms is in basements. So I teach my students to look for a three-bedroom home with a suitable basement or similar floor plan flexibility in a nice area for a good price that can be renovated into five bedrooms. If a prospective house doesn’t meet these criteria, then I’m not interested in buying it.

Renovate

My renovations are HGTV quality. I do hardwood floors, granite countertops, and stainless steel appliances. I wouldn’t mind living in any of my properties, and I make sure they can compete with any of the changing competition out there—even if I suddenly have to compete with flippers as unwitting landlords, which I have had to do!

Rent

I always advertise “Section 8 welcome.” At eight pages long, my rental application is daunting. In it, I let the applicant know I will be pulling credit, I will be talking to their previous landlord(s), and I will be going to their current home to see how they live.

No one else does this, but I do. How they live now will be how my house will look in three months. Why would I not?

Is it intrusive and extra thorough? Of course! But for the quality of my product, I have no shortage of applicants who don’t mind at all. I am offering them a once-in-a-lifetime opportunity and a living situation that may be a dream come true. For this reason, I can be as picky as I want.

The truth is your real asset is your tenant. That is where the money is coming from, and you should bear this in mind when choosing them.

The next part is nurturing the relationship and taking care of them so that they would never dream of moving. My tenants become part of my family, and they feel it. I send flowers to all my tenants on Mother’s Day. I send Christmas presents, and I give a $50 gift certificate for kids who can show me a report card with all As.

Ribbon cutting happy child

I also own a timeshare that allows guests, so for good measure, all my tenants get a free vacation there, three days and two nights free of charge every year. All of this costs me maybe $150 per tenant per year. But if you roll out the red carpet for your Section 8 tenants in this way, they will take care of you in four ways:

  1. They will pay you rent, without fail
  2. They will take care of your investment and show “pride of rentership”
  3. They will be pleasant to deal with
  4. They will stay a long time

Keep in mind that if they lose their job, the Department of Housing and Urban Development (HUD) will make up the difference in rent. Their portion is based on their income, so while your total rent might be $4,000, their portion might only be $500. If they can’t pay that, they tell HUD, and the HUD portion goes up. This is a degree of stability a non-voucher holder simply cannot guarantee you.

Related: How to Reduce Vacancy During an Economic Downturn

Final Thoughts

Are you seeing the benefit yet?

Honestly, I don’t know why more landlords aren’t adopting this strategy. But if you’ve read this far and you see how this could work for you, I would encourage you to put some mental energy into considering it.

So, stop panicking and pivot!

BRRRR Before & After Photos

Living Room

JA livingroom

Kitchen

JA kitchen

Dining Room

JA diningroom

Bedroom

JA bedroom1

Bathroom

JA bathroom

Basement

JA basement

Downstairs Bedroom

JA basementbedroom

Exterior Rear

JA rear

What strategies are you putting in place to make it through the economic downturn?

Let us know in the comments below!