WATCHING DOLLARS
Even in super-polite Canada, these days almost everyone is talking about money. Groceries, gas, rent, interest rates, and the stock market are all fair game as casual conversation. Saving money is suddenly cool again!
But it looks like there will be some pain points as we all adjust to the new borrowing rates. For real estate investors, that means that positive cash flowing properties might now be neutral=breakeven properties. Or worse, if mortgage payments have gone up a lot, but rental income hasn’t kept pace, some properties are needing a cash infusion on a monthly basis.
Before we run away from real estate all together, it’s really important to remember that we have choices.
Some of us choose to have a sleep-at-night fund for each property. In the good times, we simply let cashflow accumulate, rather than paying ourselves or our partners with every penny of extra cashflow. These reserve funds are fabulous for emergencies, or even for planned projects (new furnace, roof or hot water tank as these items age).
Some rental housing providers will have leases coming up for renewal this spring. What is the fair market rent in your area in 2023? Many of us around Alberta have been pleasantly surprised, after many years of almost zero rent increases. Even small improvements like fresh paint, or new carpeting, can result in better rents in our properties NOW, while demand is so strong.
In contrast, some investors will sell properties to limit any financial downside. This choice can work depending on each person’s WHY. For example, would you sell 1 property to save/support 4 properties? What if the equity from that one property could paydown 1 or more mortgages? Could that put one or more properties back into a better cashflow position? Or would it simply help you sleep better at night?
Money stress causes a lot of people to freeze. But making no choice, taking no action, is very dangerous (in our opinion). Our suggestion to our friends in the real estate investing business is to brainstorm all of your options. Include a few “wild cards” like rent-to-own, agreement for sale, and vendor financing (even partial). Then what are the pros and cons for that specific property, and for your specific situation.
Sometimes, the answer becomes obvious: eg keep holding. And other times we need to really dig deep into our top choices to figure out what is best. When we’re emotional, it is often even better to bounce ideas off of a professional (like a mortgage broker), or an expert. Gather all the information you need to make the best possible choice—then decide, before it hits a crisis point.
As good ol’ Albertans, we’ve been through a lengthy recession, and we have already built a lot of resilience. Typically, we don’t ever take an up-market for granted, because we understand the real estate cycle. Yes, this one is different, but I’m pretty sure they said that in 2014/2015 and 2008 and …. Maybe this is an opportunity to break some bad habits? Or grow some better systems?
A slower market offers real estate investors the gift of time. When we use that time to think, plan, and strategize, we might be surprised at the strength of our businesses in a few short years. Even if it takes more work in the short term. We hope each of our colleagues is in a position to be able to choose wisely, and to continue to grow their financial freedom!
