How are you preparing your investment company for a correction?

9 Replies

I've recently been stress testing my company and I'm curious if others are doing this?

For me it's been as simple as simulating a correction and removing, for instance, flip income, as well as reducing gross rents.  Then I take a look at where my companies financials would stand TODAY.  This is helping us plan for and future correction/recession.

Is anyone else doing this?

What are you doing to improve your stance if a correction were to occur?

Originally posted by @John Horner :

I've recently been stress testing my company and I'm curious if others are doing this?

For me it's been as simple as simulating a correction and removing, for instance, flip income, as well as reducing gross rents.  Then I take a look at where my companies financials would stand TODAY.  This is helping us plan for and future correction/recession.

Is anyone else doing this?

What are you doing to improve your stance if a correction were to occur?

 Hi John, I'm constantly assessing the economy, real estate, and other events and how I approach the market. For me, I keep my debt load low (by buying using Subject To instead of using banks), I make sure each of my properties cash flow above average ($500 or more positive cash flow per month) and that they will still be a good choice if the rents drop (which I think for the foreseeable future they will continue going up). 

I watch unfunded liabilities and unfunded pension plans because the two obvious solutions politicians will choose are 1. raising taxes or 2. declaring bankruptcy. If property taxes go up significantly, like King Co. WA has just done (Seattle) or a city or a state declare bankruptcy (like Stockton, CA or maybe Illinois), then any investments in any of those areas lose value and may become a liability instead of an asset.

I don't Fix & Flip anymore because it is both the riskiest and highest taxed of the real estate investment options. I strictly buy "off market" using Subject To, Wraps, and Owner Financing and then sell using Lease Options for cash flow. Most people are too consumed with today's profits to even imagine that the market can swiftly change. I've been at this for nearly 25 years and if you look at the charts, we are probably due for a correction.

@John Horner I am a buy and hold guy with rentals in prime locations (Washington DC area). Having been to see some pretty well known economists speak most believe 2020 will be the start of some unpleasantries. We still have 2 years. I am preparing my business by looking at other avenues.8 am not sitting around waiting for it. I have alternative investment strategies and am setting myself up for when it comes to take advantage of it

I get these weekly for my Oregon Markets and in Charleston my realtor send me updates.

https://altos.re/r/85542a0

for now I only have 4 more houses out of 23 to sell since the first of the year on my new builds in this city and profits are record highs.. so all is well for now.

Charleston the job market there is SO strong as I don't see it having  big change anytime soon.

the only one's that are hurting a little are landlords.. as there was a rush to buy and hold and not enough new construction being built we keep making new highs with our new homes. and nothing last more than 30 days..  ( Charleston Market specific)

Now I have two big Oregon projects on the books my bankers think like @Chris Seveney we are and they are fine financing for the next 2 build years.. then who knows but we still have not recovered from the last recession we still have a shortage of about 20 thousand new builds that can be absorbed.. so no slow down and you see the market report indicates that and the 3 big Amazon sites that are bringing about 6k workers don't go into service until late fall.. and the 23 homes I am building is 2 miles from there I did not sell one to anyone from Amazon.. sold one on sunday so some one moving in from Vegas.. so still 100 people a day move into the Portland metro and about 50 a day into Charleston those are my two main new build markets.

all of my turn key markets are also having record years the appetite for cash flow rentals has never been higher and with financing finally loosened up to where its not like pulling teeth to get a loan its just roared back with no end in site.. at least for my guys and gals.

And of course our note business is just steaming ahead at record pace as well as investors at the mom and pop level have learned what turnkey note investing is all about.

Originally posted by @Mike M. :
Originally posted by @John Horner:

I've recently been stress testing my company and I'm curious if others are doing this?

For me it's been as simple as simulating a correction and removing, for instance, flip income, as well as reducing gross rents.  Then I take a look at where my companies financials would stand TODAY.  This is helping us plan for and future correction/recession.

Is anyone else doing this?

What are you doing to improve your stance if a correction were to occur?

 Hi John, I'm constantly assessing the economy, real estate, and other events and how I approach the market. For me, I keep my debt load low (by buying using Subject To instead of using banks), I make sure each of my properties cash flow above average ($500 or more positive cash flow per month) and that they will still be a good choice if the rents drop (which I think for the foreseeable future they will continue going up). 

I watch unfunded liabilities and unfunded pension plans because the two obvious solutions politicians will choose are 1. raising taxes or 2. declaring bankruptcy. If property taxes go up significantly, like King Co. WA has just done (Seattle) or a city or a state declare bankruptcy (like Stockton, CA or maybe Illinois), then any investments in any of those areas lose value and may become a liability instead of an asset.

I don't Fix & Flip anymore because it is both the riskiest and highest taxed of the real estate investment options. I strictly buy "off market" using Subject To, Wraps, and Owner Financing and then sell using Lease Options for cash flow. Most people are too consumed with today's profits to even imagine that the market can swiftly change. I've been at this for nearly 25 years and if you look at the charts, we are probably due for a correction.

 This is good I like it, and an interesting strategy as well!

Originally posted by @Jay Hinrichs :

I get these weekly for my Oregon Markets and in Charleston my realtor send me updates.

https://altos.re/r/85542a0

for now I only have 4 more houses out of 23 to sell since the first of the year on my new builds in this city and profits are record highs.. so all is well for now.

Charleston the job market there is SO strong as I don't see it having  big change anytime soon.

the only one's that are hurting a little are landlords.. as there was a rush to buy and hold and not enough new construction being built we keep making new highs with our new homes. and nothing last more than 30 days..  ( Charleston Market specific)

Now I have two big Oregon projects on the books my bankers think like @Chris Seveney we are and they are fine financing for the next 2 build years.. then who knows but we still have not recovered from the last recession we still have a shortage of about 20 thousand new builds that can be absorbed.. so no slow down and you see the market report indicates that and the 3 big Amazon sites that are bringing about 6k workers don't go into service until late fall.. and the 23 homes I am building is 2 miles from there I did not sell one to anyone from Amazon.. sold one on sunday so some one moving in from Vegas.. so still 100 people a day move into the Portland metro and about 50 a day into Charleston those are my two main new build markets.

all of my turn key markets are also having record years the appetite for cash flow rentals has never been higher and with financing finally loosened up to where its not like pulling teeth to get a loan its just roared back with no end in site.. at least for my guys and gals.

And of course our note business is just steaming ahead at record pace as well as investors at the mom and pop level have learned what turnkey note investing is all about.

 I like your optimism!  I think a lot of markets like you mentioned are going to be protected from the next correction due to multiple industries all producing jobs.  Columbus, Ohio being one of them!

Originally posted by @Chris Seveney :

John Horner I am a buy and hold guy with rentals in prime locations (Washington DC area). Having been to see some pretty well known economists speak most believe 2020 will be the start of some unpleasantries. We still have 2 years. I am preparing my business by looking at other avenues.8 am not sitting around waiting for it. I have alternative investment strategies and am setting myself up for when it comes to take advantage of it

 We are doing the same Chris, preparing for what is to come but also trying to take full advantage of where the market is today!

Originally posted by @John Horner :
Originally posted by @Jay Hinrichs:

I get these weekly for my Oregon Markets and in Charleston my realtor send me updates.

https://altos.re/r/85542a0

for now I only have 4 more houses out of 23 to sell since the first of the year on my new builds in this city and profits are record highs.. so all is well for now.

Charleston the job market there is SO strong as I don't see it having  big change anytime soon.

the only one's that are hurting a little are landlords.. as there was a rush to buy and hold and not enough new construction being built we keep making new highs with our new homes. and nothing last more than 30 days..  ( Charleston Market specific)

Now I have two big Oregon projects on the books my bankers think like @Chris Seveney we are and they are fine financing for the next 2 build years.. then who knows but we still have not recovered from the last recession we still have a shortage of about 20 thousand new builds that can be absorbed.. so no slow down and you see the market report indicates that and the 3 big Amazon sites that are bringing about 6k workers don't go into service until late fall.. and the 23 homes I am building is 2 miles from there I did not sell one to anyone from Amazon.. sold one on sunday so some one moving in from Vegas.. so still 100 people a day move into the Portland metro and about 50 a day into Charleston those are my two main new build markets.

all of my turn key markets are also having record years the appetite for cash flow rentals has never been higher and with financing finally loosened up to where its not like pulling teeth to get a loan its just roared back with no end in site.. at least for my guys and gals.

And of course our note business is just steaming ahead at record pace as well as investors at the mom and pop level have learned what turnkey note investing is all about.

 I like your optimism!  I think a lot of markets like you mentioned are going to be protected from the next correction due to multiple industries all producing jobs.  Columbus, Ohio being one of them!

John, other than we know historically markets correct.. what are you seeing on the near horizon that would make a drastic market change in your area.. to me Ohio is finally digging out of being one of the hardest hit states in the country economically..  are you thinking people and jobs are fleeing ?? is that why you think there is a correction

or do you think that just interest rates will cause some kind of massive correction.. whats your thoughts. ? 

Originally posted by @Jay Hinrichs :
Originally posted by @John Horner:
Originally posted by @Jay Hinrichs:

I get these weekly for my Oregon Markets and in Charleston my realtor send me updates.

https://altos.re/r/85542a0

for now I only have 4 more houses out of 23 to sell since the first of the year on my new builds in this city and profits are record highs.. so all is well for now.

Charleston the job market there is SO strong as I don't see it having  big change anytime soon.

the only one's that are hurting a little are landlords.. as there was a rush to buy and hold and not enough new construction being built we keep making new highs with our new homes. and nothing last more than 30 days..  ( Charleston Market specific)

Now I have two big Oregon projects on the books my bankers think like @Chris Seveney we are and they are fine financing for the next 2 build years.. then who knows but we still have not recovered from the last recession we still have a shortage of about 20 thousand new builds that can be absorbed.. so no slow down and you see the market report indicates that and the 3 big Amazon sites that are bringing about 6k workers don't go into service until late fall.. and the 23 homes I am building is 2 miles from there I did not sell one to anyone from Amazon.. sold one on sunday so some one moving in from Vegas.. so still 100 people a day move into the Portland metro and about 50 a day into Charleston those are my two main new build markets.

all of my turn key markets are also having record years the appetite for cash flow rentals has never been higher and with financing finally loosened up to where its not like pulling teeth to get a loan its just roared back with no end in site.. at least for my guys and gals.

And of course our note business is just steaming ahead at record pace as well as investors at the mom and pop level have learned what turnkey note investing is all about.

 I like your optimism!  I think a lot of markets like you mentioned are going to be protected from the next correction due to multiple industries all producing jobs.  Columbus, Ohio being one of them!

John, other than we know historically markets correct.. what are you seeing on the near horizon that would make a drastic market change in your area.. to me Ohio is finally digging out of being one of the hardest hit states in the country economically..  are you thinking people and jobs are fleeing ?? is that why you think there is a correction

or do you think that just interest rates will cause some kind of massive correction.. whats your thoughts. ? 

Good question Jay, honestly I don't know what would cause the correction.  I am not smart enough to be an economist, I just know that based on history we are overdue for one.  It's easy hindsight to say that it's obvious what caused the last one, but the majority of people, including investors, didn't see it coming at all.  I just want to be prepared and make sure my company is not to reliant on a hot market to make our profit.  I think of lot of investors are secretly looking forward to it so we can pick up deals dirt cheap at the bottom, I am no different.  However, I want to make sure my company can still run for the 1, 2, 3 years it takes to get to the bottom, and have enough cash to hold until it gets to the top.

Originally posted by @John Horner :
Originally posted by @Jay Hinrichs:
Originally posted by @John Horner:
Originally posted by @Jay Hinrichs:

I get these weekly for my Oregon Markets and in Charleston my realtor send me updates.

https://altos.re/r/85542a0

for now I only have 4 more houses out of 23 to sell since the first of the year on my new builds in this city and profits are record highs.. so all is well for now.

Charleston the job market there is SO strong as I don't see it having  big change anytime soon.

the only one's that are hurting a little are landlords.. as there was a rush to buy and hold and not enough new construction being built we keep making new highs with our new homes. and nothing last more than 30 days..  ( Charleston Market specific)

Now I have two big Oregon projects on the books my bankers think like @Chris Seveney we are and they are fine financing for the next 2 build years.. then who knows but we still have not recovered from the last recession we still have a shortage of about 20 thousand new builds that can be absorbed.. so no slow down and you see the market report indicates that and the 3 big Amazon sites that are bringing about 6k workers don't go into service until late fall.. and the 23 homes I am building is 2 miles from there I did not sell one to anyone from Amazon.. sold one on sunday so some one moving in from Vegas.. so still 100 people a day move into the Portland metro and about 50 a day into Charleston those are my two main new build markets.

all of my turn key markets are also having record years the appetite for cash flow rentals has never been higher and with financing finally loosened up to where its not like pulling teeth to get a loan its just roared back with no end in site.. at least for my guys and gals.

And of course our note business is just steaming ahead at record pace as well as investors at the mom and pop level have learned what turnkey note investing is all about.

 I like your optimism!  I think a lot of markets like you mentioned are going to be protected from the next correction due to multiple industries all producing jobs.  Columbus, Ohio being one of them!

John, other than we know historically markets correct.. what are you seeing on the near horizon that would make a drastic market change in your area.. to me Ohio is finally digging out of being one of the hardest hit states in the country economically..  are you thinking people and jobs are fleeing ?? is that why you think there is a correction

or do you think that just interest rates will cause some kind of massive correction.. whats your thoughts. ? 

Good question Jay, honestly I don't know what would cause the correction.  I am not smart enough to be an economist, I just know that based on history we are overdue for one.  It's easy hindsight to say that it's obvious what caused the last one, but the majority of people, including investors, didn't see it coming at all.  I just want to be prepared and make sure my company is not to reliant on a hot market to make our profit.  I think of lot of investors are secretly looking forward to it so we can pick up deals dirt cheap at the bottom, I am no different.  However, I want to make sure my company can still run for the 1, 2, 3 years it takes to get to the bottom, and have enough cash to hold until it gets to the top.

 Gothca  I have lived and been working in real estate through 3 mid level corrections and one Massive that we all went through 08 to 2011.. and each was for a different reason.. and as such  the next will be something we probably have not thought about or what have you..

although in reality as I look at my business and how business has been transacted the last 10 years.

so much inventory was bought with cash ( smart people LOL) and lenders finally figured out 100% liar loans were not to bright either ( finally got it cost them trillions but they finally got it)

So the only ones I think that are really in any kind of peril in a drop is this new crop of investor who does max leverage and refi to you die and is too aggressive in building a portfolio over short span and does not really have the expeirnce or never lived or worked through a correction and does not have proper reserves to weather a correction.

others will be just fine.. so many more investors ( other than the BP got to have max leverage or your an idiot crowd) are in fine shape and so I don't see a big crash coming but no question we correct we slow down..

you will always have the community were the major employer fled leaving things not so rosy or the base closing or on the flip side areas like Charleston SC that's just steaming ahead billions upon Billions of dollar flowing in for new jobs and factorys  IE Boeing  Volvo  BMW  Mercedes etc etc. but you rarely hear investors on BP talk about that market because it does not cash flow ( minimum down max leverage) like other mid west markets..

so we will see.. But I like what I have been doing in Ohio.. treated me well.. but hard to go in reverse there when we are still paying far less than replacement value for as is assets.

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