Wealth is created during times of crisis, down markets, or recessions. Now I’m not saying we’re necessarily in a full-blown recession here. But we are in a correction.
We are seeing significant stresses on the broader economy, on the housing market, and the economy across the world. However, a lot of the implications and the full-blown effects and results of what this pandemic does economically to our markets has yet to be seen. What we can do is be really intelligent and strategic about how we’re seizing and identifying opportunities and then taking action to create passive income, build some wealth, create more freedom and expand our holdings, and expand the positions that we have in an intelligent and safe way.
So I want to talk today about a few strategies on how to do that. Now, these apply to any time when you’re looking to build passive income and create wealth and freedom in your life through real estate investing, but particularly so now, and I’m going to tailor some of my thoughts and comments on how to really do it in a distressed environment or a distressed market like the one that we’re starting to enter into a right now given the crisis.
So here are a couple of key strategies that I employed personally to build my real estate portfolio and really take a sophisticated approach to real estate investing.
Identify opportunities of distress
One is identifying opportunities of distress and opportunities where you can create a unique and creative deal that’s advantageous to you and your goals. So by that I mean the personal circumstances, market forces, and other things that produce opportunities of distress. Meaning a current owner of a commercial property might be unable to meet all their obligations, their debt payments, the operating expenses, and might otherwise have a higher motivation to sell at a lower price. These are opportunities of distress for real estate investors to take advantage of to get a lower cost basis and to get into a property with a lower valuation.
Identify these on the public market and on the private market by, again, being intelligent in how you’re doing your research and having a conversation with brokers, owners, investors, and other people in your network.
Take advantage of creative financing solutions
In the capital markets and credit markets, things have constricted and we’ve actually seen rates go up because of perceived new and enhanced risk in the marketplace. Again, fully not understood and quantified yet by what the impact coronavirus will really have on the real estate and the broader market.
However, we’ve also seen more of a willingness by government-backed lending agencies and programs such as with the SBA’s 504 program as well as their 7B program on loans that are backed by the government and partnered with local banks, we’re seeing an increased appetite, again, because they want to get money into the system. They want to support investors and entrepreneurs and they want to help get deals done because what does that do? It increases liquidity and helps stimulate the overall market.
So as an example of this, I was able to get a hospitality loan approved in three days at the national headquarters of the SBA with no questions asked. That’s pretty bizarre and unlikely. I think part of it was they thought that I was crazy enough to buy a hotel right now. However, my investment thesis and my belief in this property and its business plan and in the future, and in the market and our ability to recover from this, really hasn’t changed my calculus and my valuation on the property or my outlook for the future.
So, as a result, I’m able to now get a lower rate, government backing, and a fast deal execution based on approval from the SBA on that program.
There are many opportunities, you have to research them, you have to get out there. You could work with a mortgage broker. Research what programs you qualify for, government-backed programs with the SBA, as well as, other creative financing solutions to get more attractive financing and lower cost of debt, which again enhances your returns on the overall investment.
Diversify your investments
And then really another strategy is, you know, focus on diversity. Diversity of market, diversity of property type so that you have different levels of exposure as you start to build your personal portfolio of real estate investments.
Meaning if you were fully concentrated on, let’s say, commercial office properties in Houston, you’d be in trouble right now because of what’s happening in that market. Not only with the energy market tanking with oil globally really getting into some of the lowest levels ever, but new ways of working and people conceiving how they need a new space.
Companies downsizing and coworking space solutions continuing to grow. It’s probably not the best place to be as an owner and landlord of large, open floorplan commercial office spaces. So diversify your holdings from different property types and diversify your geographic or locational footprint to lower risk and to increase exposures for returns in different and meaningful ways.
That’s what we’ve done. That’s what we continue to do on our multifamily business as we’re now looking to invest and acquire more apartment complexes in Florida, in the Orlando markets, Jacksonville, North Florida. And looking at other states and in really the Southeast is the concentration the Southeastern States of the U.S. for one main reason: You always want to get ahead of growth.
You want to precede the trend and if you can do that, you can really get a nice wind behind your sails, if you will, to help continue to propel and drive real estate-related returns. Because as more and more people move to the South, as we see these population growth numbers really increase while a lot of the Northeastern States and cities are losing population, we want to be in front of that. We want to be building and investing in residential apartments and complexes where these people will be moving to and need to live because as the population grows, as households grow, as household income grows, so too do real estate investments if you’re in the right places at the right time.
So identify opportunities of distress, employ creative financing solutions, and diversify your portfolio from a property type standpoint and a geographic one to really build passive income, to create wealth, and build freedom, especially in times of crisis like right now during the coronavirus.
Stay safe. Stay focused. Stay positive during this because we’re starting to turn the corner and we will continue to do that, but we have to stay focused on the future.
And if you have any other questions, please reach out. We have a lot of free resources here on our website. Check out our Sophisticated Investor Mastermind where we help equip, train, and inspire real estate investors to really take their income, their wealth, and their entire game to new levels.