Now both the Fed and Bank of America are reversing their forecast for a new recession. What does it mean for real estate investors? What if they are wrong?

Which Way Is The Economy Headed?

In spite of projecting a $50B loss just a few weeks ago, Bank of America has now joined the Federal Reserve’s messaging that we no longer need to worry about a looming recession.

Recent GDP data suggests that the economy is growing well again. Though other data compilers suggest business tenants are falling delinquent at high rates, and foreclosures are rising again.

Some may say that this disparity is due to misleading averages. With a small percentage of people and companies making outsized profits, and the majority seeing their finances contract.

Of course, while fundamentals are the reality we have to build with, as we’ve experienced in the past, sentiment alone can drive or crash economies and individual market sectors.

What New Optimism Means For The Real Estate Market

New optimism in the economy, especially driven by the Fed and major banks is likely to lead to more interest rate hikes, as well as an easing of lending. With more private capital flowing as well.

In the current environment, this would also mean fueling inflation. As well as the potential for more hiring and salvaging jobs that may have been in question a few weeks ago.

This would support more confidence in buying and leasing both residential and commercial real estate. In turn, driving up prices even further.

What Happens If The Experts Are Wrong?

Of course, those top headline news stories are not always something you can rely on. No one gets it right 100% of the time. Especially when it comes to pinpointing turns in economic and market cycles.

If this rebound does not appear, then we could see even more layoffs, loan defaults, and bankruptcies.

Perhaps what is most important as an investor is to remember that every segment of the market, and every location is on its own timing in the cycle. It’s about finding the gaps, and bringing together the distressed opportunities and motivated sellers, with motivated buyers who see the value in paying more. Focus on this, and the fluctuating forecasts don’t have to impact you and your income or wealth. Decide to control your own destiny.

AI is trending. It could also create a new downward trend in the economy, and double digit unemployment in just a matter of months.

What does this mean for real estate investors, and where the deals are at?

Change Is Coming Faster Than You Think

When the economy fell off a cliff, seemingly overnight in 2008, business owners and investors thought that they still had 6 or 12 months before a crash. Then it was too late.

With lagging economic data, technology speeding up change to its fastest pace ever, and the Fed with its foot to the floor on the gas pedal to try and increase unemployment and cool the economy, many will wake up tomorrow and find their world has already been disrupted.

Double Digit Unemployment

Even the most vocal advocates of AI and automation technology have also voiced their fears that their success will also create massive unemployment around the globe. Which in turn could create immense poverty.

It’s already happening.

Some AI may be helpful. Unfortunately, it lacks a lot of intelligence in favor of a lot more artificial help. Almost every business seems to be trying to implement it. Yet, without understanding how it is already killing their own businesses.

Virtually all stores are now installing self checkouts, and are putting workers out of work. The frustration this is causing for consumers will likely push them to just a few delivery services.

Big companies like Upwork have replaced human customer service with AI chatbots, which are killing their relationships with their biggest revenue producers and most loyal, long time customers.

According to the Bureau of Labor Statistics, there are almost 3M people working in customer service in the US alone. That represents nearly 10% of the population. Close to 20% of the working population.

Then with many companies blindly turning to AI for content creation, without thinking about how counterproductive it is, and how junk and repetitive content is killing their companies, there’s another 18M freelance jobs at risk on Upwork alone.

More unemployment will be created as even jobs not directly replaced by AI will go away as these companies fail, due to implementing it too early.

It’s easy to see how this could potentially snowball to high double digit unemployment in no time at all.

Discounted Real Estate Buying Opportunities

Mass unemployment and business failures would also mean a tremendous amount of financial distress, credit defaults, and discounted property buying opportunities. Both in the residential and commercial space.

Few many want to hold real estate in a declining market. Though there will be plenty of end buyers who do. This makes for the perfect environment for wholesaling real estate as a strategy.

You can flip to luxury buyers needing asset protection, foreign buyer with economies hit harder than the US, and those investors operating and switching to truly affordable rentals, including Section 8 owners.

Win the space with intelligent human service and differentiate your business with it. You can implement AI later, in the next wave when the kinks are worked out, and there is clarity on the consequences, as well as potential benefits.

Why is buying a property in a condominium or homeowners association such a bad idea?

Condos, townhomes, and single family homes in associations can seem cheaper than their comparable counterparts that are not subject to associations. There is a good reason for that. They are at least riskier investments at best. They can also be financial traps that really wreck your plans, portfolio, flow, and cash flow.

This is just one of the nuances of investing in real estate which many don’t understand is an issue until they’ve made the expensive mistake, and have gone through the immense pain associated with it.

If you are tempted to invest in these properties anyway, here are five things you need to be prepared for.

Financing Challenges

Many loan programs require condos and HOA projects to be specifically approved in order to qualify for financing. Which includes evaluating the association’s make up of owners and investor ratios, how much the association has in financial reserves, and any legal issues they are involved in.

This means your pool of end buyers can be far smaller than on a similar single family residence in the same area. So, it can take longer to sell as well.

Deed Restrictions

Condo associations have especially become more of a nuisance with a wide variety of creative deed restrictions on units in their communities.

They can make up just about any rule they want, and apply it to governing your unit.

That includes restricting how many years you must own it before you can rent it out, minimum and maximum lease periods, and even how soon you can resell your property.

If you can’t rent it out or resell it for a year, that is a problem for most buyers. At a minimum it puts a serious hole in your returns, and means you are bleeding negative cash flow through that period.

Approval Of Buyers & Tenants

You don’t just get to decide who you can sell or rent your property to either. Even if they are paying all cash, and have perfect credit.

Virtually all associations retain the right to approve tenants and buyers. Sometimes this is a multiple step process, with various master and sub-associations involved.

Those handling these approvals are rarely motivated to move quickly. Their criteria can be very murky and often seems ambiguous.

This again slows you down, and shrinks your end buyer pool.

Constant Headaches

From rogue members, to greedy lawyers, and corrupt board members manipulating budgets and rules for their own personal interests, associations can be non-stop headaches.

If you don’t show up to meetings and vote, then who knows what they will do in your absence. If you do, you can still be drowned out in the vote.

Special Assessments

This is one of the biggest risks of associations. They may apply special assessments to units at any time. This can be to fix urgent damage, such as after a storm. Or it could just be for improvements a few board members want everyone to pay for, for their own personal benefit.

These can be thousands and tens of thousands of dollars. Which becomes a debt on your unit. If you don’t pay it, your new buyer must agree to take on this additional debt at closing. Meaning it is a lot more expensive for them, or you’ll have to discount your asking price.

If You Do…

Of course, you can make money buying and selling these properties. If you do, make sure you read through all of the rules and know them. Read through the financials of the association, have a good lawyer on retainer, and price in this extra risk to your purchase offers, and financial projections.

Whether you believe we are just experiencing a handful of poorly managed banks failing, or the beginning of an epic new economic slump in which 1,000 or more banks will fall, there is no question that there are financial challenges out there.

Most won’t make it through these times. So, how can you embrace the great leadership traits that helped others through previous crises, and may be just what you need to grow through it. Then come out the other side as a market leader?

Stay Objective, Not Emotional

Billions of dollars are being spent to tug on your emotions and to create fear. It’s what keeps the media industry alive. As well as the bulk of the wealth in market manipulators’ accounts.

Stay objective. Think forward. Do adapt, but don’t make knee jerk reactions that will sabotage your career and venture.

See Opportunities Not Problems

Even as a newer business owner or independent professional you’ve probably figured out that your role is pretty much just championing an endless barrage of challenges.

There will be plenty of challenges ahead. Do have a healthy respect for the threats they can bring. Though choose to see them as opportunities to innovate and be creative with solutions.

Maintaining this pragmatic optimism will make all the difference in your short and long term success.

Know Your Cycles & Real Data

It’s sad to see so many investors, property owners, and businesses becoming victims of misinformation.

If you know your business and market cycles, then what’s happening now, and what will happen next is very predictable. Meaning that you can plan and march through it successfully.

However, you also must really know the numbers in your market, and your historical data. Be very, very cautious about trusting stats in media headlines, or averages proclaimed by most media pundits.

Even data from sources like NAR can be revised years later.

If you don’t have access to real data, and a pulse on the street, consult others who do.

Surround Yourself With The Best People You Can

The most successful and experienced entrepreneurs and CEOs will tell you that it is all about the people.

The best team will always win. You can hack decades of knowledge and experience and avoid all the mistakes by leveraging better talent too.

This applies to your department heads, regular employees, advisors, and strategic business partners.

Don’t just recruit and hire them either. Share the vision, and then get out of the way so they can do their best work.

Serve Don’t Take

The best leaders are servant leaders. They are not just trying to take and extract value or drive people by force. They have a mindset of being there to serve others.

That includes serving your team and partners, in enabling them to thrive in their positions.

As well as asking how you can serve more customers, better, and provide more value to them.

Understand Your Number One Job As A Business Leader

Your number one job is really to ensure that your venture does not run out of financial fuel. Find new sources of financial leverage, and working capital to keep the machine moving.

Whether it is keeping up with living expenses, building a retirement fund, or creating your legacy, financial needs seem to be scaling fast.

The great news is that for those wholesaling and flipping houses, deals are also growing, with more motivated sellers, and record high prices.

Growing Financial Needs

Real inflation is now like a runaway train hurtling at full speed, with no sign of slowing down. People won’t stop spending, causing prices of groceries and other daily and monthly expenses to continually escalate and spiral up. $10 for a carton of eggs, or your car insurance going up 30% with no warning is just the tip of the iceberg.

At the same time Fidelity has warned retirement savings balances dropped by around 25% last year. Morgan Stanley predicts the S&P 500 could come down by another 25% plus in the next few months. Factoring in real inflation, those with IRAs or 401ks invested in stocks could see the real value of their retirement savings down almost 80% by the end of this year.

Meanwhile a new poll shows that most believe they need at least $3M to $5M to retire. While Vanguard reports the median retirement account balance they manage is less than $28,000.

That’s a big gap, and it’s growing.

There’s no question that real estate, and especially quick flips or wholesale deals can be exactly what is needed to supersize income, and regain, and grow your nest egg quickly.

Home Sales Are Down, But Records Are Being Set

Bloomberg reports that existing home sales have now fallen for 12 months in a row. Yet, some markets are still seeing organic appreciation of 30% plus year over year.

Luxury Palm Beach homes have recently been flipped for 86% returns, totalling tens of millions of dollars. A trailer in the Hamptons recently sold for almost $4M.

There are huge profits to be found, if you get out there and do the deals.

Making It Work

It’s true that giant financial institutions, banks, and corporations are struggling. They are slashing workers and closing offices. Even Walmart, which should be a top performer in this phase of the market is reporting it is down for the second year in a row, and is cutting its financial outlook.

Of course, many of these companies, including Upwork and Walmart are those that have been self-sabotaging by burning their best and most loyal customers, and stripping away customer service over the past year.

If you give bad deals, and treat people poorly, they are going to shop somewhere else.

So, as the number of motivated sellers increase, and there are great opportunities for fast flips, stand out with great, human service, and price your deals competitively, and you should have no problem exceeding your financial goals this year.

The vast majority of Americans now fear an impending economic shift for the worse. How is the average person responding with their finances? What are experienced investors doing differently right now?

A New Recession Seems Inevitable

Between rising interest rates, gas prices, shifts in federal monetary policy, sinking stocks, and declining GDP in the first three months of 2022 most believe a new recession is imminent. There is a good chance we are already in one, but the data to show it hasn't been released yet.

According to recent surveys, 81% of American adults fear a recession this year. In fact, more than half already report that they are under financial stress already.

Even more pressing than the loss of their savings and incomes, close to half of those surveyed in the Momentive Poll say their thoughts are consumed by rising prices all of the time. Only 1% do not seem to be thinking about it.

According to respondents, the bulk of financial stress is coming from:

Gas prices

Housing costs

Food costs

Medical costs

How People Are Reacting

According to the data, consumers are already frantically responding to this financial stress by:

Cutting back on dining out

Cutting back on driving

Canceling monthly subscriptions

Canceling vacations

As we saw by the $54B overnight loss for Netflix investors, it is already having a big impact.

Investors

Many individuals are already crying out in desperation over the outlook for their stock accounts and 401ks.

More experienced investors who have been through these times before are adjusting by getting out of stocks, diversifying, choosing more liquid investments, choosing real estate wholesaling over flipping or rentals.

They are looking for assets that will benefit from these changes, investing short term to grow their money faster than inflation, and putting money back in the bank to seize upcoming opportunities in the recession. They are not holding devaluing cash, but know cash will be king when sellers turn desperate.

REI Businesses

Real estate investment businesses led by experienced managers that have been through it before are preparing by building out their infrastructure so they can scale, building databases of sellers, investing in follow up marketing, and readying to buy a lot at discounts.

Summary

The fact that so many fear an imminent recession, and are reacting with their dollars already is likely to bring it about. The financial stress is already mounting, and will directly impact savings and investments. The experienced know exactly how the cycle plays out, and are getting ahead of it, and positioning to benefit and thrive through it.

 

This is one of the best times for wholesaling property that we’ve ever seen. Just make sure you aren’t falling into these mistakes that many wholesalers are making out there right now.

Buying Flooded Property

Disasters like hurricanes and floods can yield some great inventory and discount opportunities. Yet, for the many real estate wholesalers who are now working remotely online, it is important to know what you are getting.

You can’t expect to buy a flooded out, underwater property and sell it for the same amount as local comps which are high and dry. This is a big issue right now with record amounts of storms and rainfall.

If you do find you’ve bought a property like this, then you are probably going to have to at least seriously discount it below other comps to move it.

Properties With Non-Performing Tenants

There are end buyers who may be willing to take on these properties. Yet, expect that number to be far fewer than there were two years ago.

Now there is really no telling when they will ever be able to get that occupant out, and what their real financial bleed and costs will be until that happens.

Again, this is something that needs to be priced into your offers.

Accepting Cashier’s Checks

Payments have changed a lot in the past few years. Now some can not only pay for properties with credit cards, but PayPal or bitcoin transfers. Still, some old school investors are relying on some antiquated payment methods like cashier’s checks. They used to be considered guaranteed funds. They are not any longer. They don’t have any more value than personal checks. Do not sign over any property until you have cleared funds in your account.

Pricing In Costs For The End Buyer

Not only may your offers and asking prices fluctuate with the market, but they should also take into account inflation and property specific costs.

End buyers, especially landlords and rehabbers have to price these line items into their offers and what they are willing to pay.

Recently there has been massive inflation in installing utilities, new construction, labor, and building materials for rehabs.

If it is costing them 30% more today, then if you don’t price that in you may be sitting on that deal for too long.

Property Values

Property values seem to have been soaring. Yet, there is a massive difference between actual sold and recorded transfers and asking prices. Don’t rely on rumors or listing prices. Overpriced properties may still have been sitting on the market for two years or more. Look at recently closed comps.

Not Maximizing Financial Leverage

It is a fantastic time to scale your real estate wholesaling business. Yet, many are feeling uncertainty about the future. Maximizing your leverage with transactional funding will dramatically reduce your risks, while greatly elevating your capabilities to do more deals.

 

 

Creative new moves are being made to block house flippers. What do you need to know? How can you keep your business thriving?

No Love For House Flippers & Wholesalers

Despite having single handedly pulled the US and probably the world out of the financial crisis, real estate wholesalers and house flippers aren’t getting much love.

In spite of the animosity and blame shifting, investors engaged in 2008 when no one else would. They took on the risk and put in the sweat to drag the country out of the hole. They saved people from even worse financial situations. They revitalized communities and saved home values for neighborhoods.

Now they are once again being blamed for rising property prices, high property taxes and gentrification.

Some states and cities are passing rules to try and prevent wholesaling and house flipping. Like Ohio and Illinois. Now Brooklyn, NY has its own plan to keep them out.

Cease & Desist

Brooklyn residents are pushing for Cease and Desist zones and the creation of a Do Not Call style registry which would make it illegal for house flippers to even try to contact them to buy their homes. The financial and legal penalties for ignoring the law could be steep.

What can you do to keep your business going now?

Move Fast, Make LOTS Of Offers

New York actually has many new real estate related laws on the verge of making things dramatically more difficult for investors. If you want to acquire, wholesale or flip in NYC, now is the time to make your move.

Go big. You can be cranking out many offers a day. Do it now, while you still can.

Inbound Marketing

When you can’t make outbound offers to buy homes, be there to take inbound leads.

Show up online when they search for help. Educate them on how you can help, and how they need to take action fast. Make it crazy easy to get an offer. There is really no reason home sellers shouldn’t be able to get true instant offers right online in seconds.

Be sure you are setting up a dominating presence now before the competition.

Personal Connections

Spam is the real problem. Irresponsible real estate flippers have just over done it. They sabotaged themselves with no respect for homeowners. Now it is biting them back.

If you can’t target them with Facebook ads, direct mail, email or text messages and phone calls any more, it is high time you got out from behind your screens and started making more personal connections. This is your chance to really help people without all the spam.