Recessions can be scary. But they don’t mean you should “sit this one out”.
The “wait and see” strategy guarantees you might miss out on amazing deals!

Here are FIVE Keys to winning in a recession

  1. Pick the BEST Markets 

How do you do that? Look for GROWING markets. Population growth is key!

We also want multiple economic drivers. We want markets where many  employers are moving and there is diverse job growth!

Another important thing we look for is diversity of employers. The last thing you want is one factory employing most of a city, then it shuts down, and the tenants all move out of your apartments.

Dallas, a market we heavily invest in, has diverse employers like Toyota, McKesson, Abbott, Lockheed Martin. These are all huge companies in different spaces, different industries.

 

  1. Debt Selection 

When purchasing during a time with economic turmoil, it’s important to choose the right loan. There is no “one size fits all”. But if the interest rates are fluctuating, consider the importance of either a fixed rate debt and taking less leverage (Loan to Value  of 65%).

Don’t assume there isn’t risk with a fixed rate debt, there is. For example, if you have fixed rate debt and then interest rates drop,  that could equate to hundreds of thousands of dollars in debt payments that you’ve left on the table!

 

  1. Conservative Underwriting

Underwriting is the financial analysis and plan for the business. It’s when the sponsors are trying to predict rent growth and net income over the life of the project. It’s important to use conservative numbers and not “generous” ones. It’s important to estimate tax growth projections appropriately and understand that expenses go up.

All of those factors need to be baked into the financial plan

 

  1. Cash Reserves

When investing during times of uncertainty, make sure that you have “just in case” funds. Experiences sponsors will plan for cash reserves in order to be able to financially address the unexpected.

 

  1. Strong GP team- Strong operators

During uncertain times, you can see people’s true colors and their values do matter. You want your sponsorship team committed to the project and ready to do anything for the project, even fall on a sword for the project.

You also want a team that has experience with different market downturns and cycles. You want operators who can think strategically and can address problems head on.

Believe it not, this isn’t as common as you might think it is!

BONUS:   Be on the lookout for Great opportunities!

Real Estate is ON SALE!

 

Properties are trading at significantly lower prices than they were months ago…on sale!

But of course, this isn’t the new norm either. Just like in stores, sales do end. You want to be ready to look at properties and keep analyzing, especially in times of uncertainty….because that’s when you find great deals!