How to build an Airbnb business: Will you be safe when recession hits
Should you wait to get in to real estate until the economy goes through its next cycle? Will the economy go into recession? What will happen? Who will get hurt the most? How do we protect ourselves from a downturn? Let’s discuss:
- Doom and gloom — is this for real?
- Why some people won’t be affected and others will
- Oversupply? Who will be the MOST affected?
- How do you become recession proof? Is that possible?
- How your returns may go UP in a down economy
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Welcome to short-term rental riches will discuss investing in real estate with a specific focus on short term rentals quick actionable items to wire. Scale your portfolio I’m your host Tim Hubbard.
The ship is sinking folks. This is an easy to talk about. But the impending doom and gloom of the US economy is here everyone’s been talking about it so pack your bags. Make sure you have enough canned food hopefully storm shelter some bottled water hi I know if the last you at least 7 years. And I’m I’m kidding I’m kidding but in all seriousness we do hear a lot about the coming recession we are after all in one of the biggest expansions. The biggest expansion the US has ever experienced and so we have to prepare ourselves and we. Have to be ready if something like that happens but as a real estate investor.
Are we going to be affected which type of investors are going to be affected and how can we protect ourselves so that’s we’re gonna talk about today is what happens if we go into recession so welcome back again to the short term rental riches podcast happier here again and let’s get right into it well first off if a recession happens. Everyone still has to live somewhere right they don’t leave their houses because recession happens unless they can’t afford them now it’s very unlikely that we’ll have any sort of mortgage meltdown like we did you know in 2007 2008 because lenders are not lending like they used to. But we have different things happening in the economy we borrowed an insane amount of money and a lot of that has been put into big companies that employ lots thousands of people if you look at the stock market you see a company that it’s selling their shares for 300 times earnings. That’s pretty crazy to think about that people are investing in a company and buying a share.
A soft 300 times that companies actual earnings that’s kind of crazy with that said I I’m not an economist I’m not gonna pretend to know all of the things that are going to affect our economy and the reasons why I could go into a crash but I have been hearing this for years from a lot of people that are much smarter than I am and what I can gather is that things just aren’t sustainable we are in the the biggest expansion history and all things that go up. Must come down right at some point now as a real estate investor. I think we’re in a pretty good spot as long as we’ve purchased the right properties because if you’re buying a property with a 30 year loan for example which is readily available in the U. S. at amazing interest rates and the economy crashes let’s say that property loses 25 percent of its value and it takes 10 years for the economy to recover. Well if you bought that property right in the beginning and it was making money it was cash flowing each month your payment it isn’t going to change because you have a 30 year loan.
So you just gotta ride it out right unless you sell the property for a loss then you’re not gonna have a lost you just gonna be cash flowing so that’s a very reassuring thing as long as you get that good property up front and the cool part about that too is remember you’re not actually even paying for that property right your tenants paying for that then giving you a little more on top so is long as you bought property there was good from day one and you have fixed financing your payments are going to change you should be in good shape nothing’s could even be better than that you know what happens when a Connie crashes a lot of disposable income goes away in the middle class cannot afford luxurious items in vacations and things that they could when everything was was booming so when that discretionary income leaves people also leave a expensive apartments or you know maybe expensive homes places at the reading that they can’t quite afford anymore and they go to more affordable housing which if you are investing in and this is what I recommend this is what I do I’m not buying a class properties are not buying the best properties in an area I’m buying B. class properties they’re still good they’re still in good areas. And they will do better in a recession because a lot of those people that are spent in a huge percentage of their income on those really nice apartments and housing they’re probably gonna go to the B. class or even the C. class properties and so you might even see your income go up in that situation. So if you’re buying right from the beginning I think you’re gonna be okay.
Now what area. Of invest senior which type of MS scene might get hit really hard and recession. This is always a tough one because they’re also the ones that could make the most money you know there’s always that risk reward scenario but I would say those are new builders new construction for multiple reasons one is that especially in today’s age. It takes a long time to get approved to build the property you know can be a couple years even some places longer just depending on the legislation and that’s different everywhere in you may miss the cycle and if you’re in a very cyclical market like California or New York you know or Boston or Seattle or you know some of these places where there’s housing shortages you might miss the curve and be stuck with properties that people can afford and why would they not be able to afford them it’s because all those new builders are going to be building a class properties you don’t build a new property that C. class that’s not good you know what you build it up to today’s standards and it costs more and so if the recession happens of the economy crashes. People are not going to want to spend top dollar on those a class properties. And you’ll still as a builder be invested in it the same amount the fact that it’s recession isn’t gonna change your initial investment and that and also if you’re in a market that’s booming a lot of times new construction just cost more in general because of the fact that the economy is booming contractors and supplies are are in a shortage so you could find yourself in a difficult spot there I remember when I was working as a broker and we track to these things how many new build apartment buildings were coming on the market how many were being sold and I remember counting on one hand and Sacramento in this and in the downtown area the amount a new apartment buildings were going up now if you take that and compare that to today the last time I was there just recently actually you know within a month there’s not a corner in that city that’s not blown up and tons of new construction happening everywhere and that’s not to say that you can’t get good returns from that it’s just the difficult thing with new construction is the permitting process and a lot of times those things can miss the curve.
What else should we do to prepare ourselves there’s no harm in preparing for recession you’re going to be no worse off having a backup plan a plan B. or some extra savings if you have some property right now and you’re in an area that’s seen a lot of appreciation and you have a lot of equity in that property. I would take it out take it out to the point to where your tenants are still covering your mortgage payment and would be covering that new mortgage payment because of the cost of me goes down and you lose 25 percent or even 50 percent you know some of these very cyclical markets that’s possible would you rather that the bank has that money now are you have no access to it if you take it out before something goes down especially with today’s interest rates at you know 45 percent interest. That money is going to be nice on a rainy day or if you can wait it out to the bottom the recession when properties are cheaper then you’ve got some fun sitting on the sideline to pick up some good deals so what else will make you feel comfortable about a possible recession coming and that’s where your property is at and the types of employment that are surrounding your property like I mentioned a lot of disposable income stops being spent when there’s a recession so nice restaurants and nice vacations and this is more the middle class is going to stop spinning this rich people just spend their money how they want because it doesn’t really affect them anymore and they’ll they probably will not change too much but if you’re in an area that is surrounded by employment industry that is let’s just say more recession proof things like medical. Doesn’t matter for the recession people still need health care so if you can get properties in these areas you’re gonna be better off to you’ll probably see less of a hit now if we switch is second to vacation rentals and short term rentals.
The chances are traveling will get cut across the board across the board if there’s a recession companies are sending employees on travel you know on trips and things like that they will try to cut down if they can that probably won’t get cut as much as just a straight out vacation so you know I had enough of why in Spain and all about those will probably get cut more so if your short term rental is it an exclusive vacation rental place might be a little more challenging for you so again if I’m not an economist but I have built my own opinion about how I see things going forward not necessarily you know and months from now or a year from now or even a few years from now who knows you know you don’t know but the thing is if you’re waiting to get into real estate for things to crash you could be waiting for a long time you know I’ve been hearing the same messages for years like I said from people are much smarter than I am fed up much better data but I’ve made boatloads of money during those years you know buying good properties that makes sense just ahead just wait forever if you find a property that makes sense go ahead and jump on it and remember that if it’s in a B. class area C. class here even you might even see rents increase if there is a recession if you’re looking specifically for short term rental you may want to think twice about going into an area that’s 0 percent.
Catered towards vacations and people coming on vacation because that’s probably going to be affected a little bit more and you will want to look for places that have more stable employment and that’s going to be things like medical and government things that are. Are not going to go away really there at their necessities so don’t let the doom and gloom ski area if you find a good property jump on it if you have properties already with tons of equity in them think about maybe taken some of that off the table at amazingly low interest rates right now before you don’t have the chance to take that off the table I just make sure you’re not alpine Ferraris and you know blown in on things that they don’t really make sense where the longest expansion we’ve ever had the US history. It’s likely that that that may change but who knows when there’s so many variables that affected but don’t let that intimidate you jump into the market when you find a good property see on the other end.
Want to get on the fast track to financial freedom through short term rentals what all searching the properties you. You want to make sure that you acquired the right. I want to give you my. Yes that there is no charge to my gift to you for being one of our subscribers the rest methods.com that’s R. E. S. T.. methods.com.
