CHOICES … CONSEQUENCES
How much do my teenagers hate it when I use this expression? But pretty much since middle school, it’s been a family mantra. The beauty of living in a democracy is that we almost always have choices. The challenge is also in the choices – because I want them to understand and be responsible for their decisions and the direction their life takes.
We talk a lot about how sometimes the choices are bad and worse: study hard for a test instead of going out with friends versus playing hookie and getting a bad mark. Some choices are good and great! For example, choose University A, or defer for a year and go travelling. Occassionally there are some right versus wrong decisions to make—this is usually where the consequences are severe with a wrong choice.
As we’ve been chatting with real estate investors over the summer, I am realizing how similar we are to young people. It’s not always clear what we should do next. And there are a number of factors that are waaay beyond our control (interest rates anyone?!). But most of us still have choices.
For example, a property that used to have $500 per month cashflow, might now need to be supported with a cash influx of $200/month (depending on your reserve fund). We can choose to sell: luckily in many areas of Alberta we can still come out with some profit or break even. We can choose to feed the property the extra cash it needs (maybe even after a chat with our accountant regarding tax benefits?). We could explore an Agreement for Sale, or inject even more cash for renovations to bring the rent up (if the community supports it). Sometimes there is even a way to explore a re-finance, then use that extra money in a reserve fund for the property (so it “kind of” feeds itself). I bet some of you have already decided that Option A, B, C or D wouldn’t work for your situation, but maybe another option could? What if you sold 1 property, so you could keep 4 homes AND sleep comfortably at night with a healthy cash reserve?
What’s my real point? Yes, the game changed. Rather dramatically. All those proforma’s that we carefully put together with a “healthy cashflow buffer” are a little blown out of the water. But it isn’t time to panic. Even better if we can remove all of the emotion out of it.
Is each property in a good area? Does it have potential to appreciate? Do we have great tenants paying 90% of our expenses already? Could we put some sweat equity into finishing a basement? Look at all those choices!
Now I’m not going all unicorns and rainbows here. Some decisions will involve more work: for example, letting go of property management and doing it ourselves. What else could be changed with the property to decrease expenses? And some decisions will require more stress/time: anyone renewed or refinanced lately? The underwriters seem to have more power than whatever deity you believe in!
Even with all the changes, unpredictable and unprecedented events in Canada and globally, we still have choices. The Big Bad Wolves out there are challenging us to become better real estate investors, better business people.
I also tell my teens that “different” doesn’t necessarily mean “bad.” Maybe our exit strategy was to get out in 3 years, and maybe we will need to re-work the numbers to make it 10 years.
It’s ridiculously old-fashioned but a pro’s and con’s list for each possible decision for each property works very well. The key here is to try to take as much emotion out of our investment choices as possible. Each option will have consequences, some now, some later. But we create our future; we have both the right and the responsibility to make our best choices with the information we have today. Real estate investing is not an easy game in 2023, but our Financial Future is depending on our choices. #nevergiveup
