"Weathering the storm" in Alaska (or anywhere for that matter)?

[Scott Sewell]

Hello again to all of the BP nation,
An Alaskan investor here looking for your input and advise.
To bring you up to speed on our situation here, Alaska is very much a “one horse” economy: OIL. Now we also have tourism, the U.S. government/military, and State government (which gets at least 90% of its funding from OIL). So with the recent downturn in oil prices, the oil companies are laying off, and the State is looking at unprecedented deficits, in the 50% of last years budget ballpark. All of us (here) know we are in for a downturn if not an outright recession. How long it will last, and how severe it will get is anyone’s guess.
As to our personal situation, my wife and I are what I would call “journeyman” investors. We’re not newby’s, but we’re not “master” investors by any measure. We have 17 multi-family units in 4 properties that we’ve self managed for going on ten years now and are happy with what we’ve been able to achieve (don’t get that wrong, we love this business and still want to expand, BTW, many thanks to @Brian Burke for the recent thread on 2016 markets, Great Stuff!). The majority of our property is about 75% leveraged, but we do generate and keep reserves for each property, as well as paying utilities ahead and having some small lines of credit for emergencies, and of course our net cash flow (for now).
So My question is this:
What would be your Strategy for “Hunkering down”, or “Weathering the storm” if you knew it was coming? Of course the obvious answer is sell, and it is a good time for that, but what if you couldn’t, or didn’t want to? What else would you do?

[Ralph R.]

Hey @Scott Sewell

I am an investor in Bethel AK.  My properties are all out of state.  When the areas I am investing in turned sour a couple years ago I didn't sell any properties, I bought more.  The rents in my area never really fell much, but they never went up either. Interest rates did fall though.  I was upside down on one property in particular.  I refinanced that loan, witch lowered my payments.  This not only increased cash flow but made the payment easier to swallow when that house was empty.  I had no alternative, being upside down made selling the property a non option.  I held on and weathered the storm.  I then used lower pricing to increase my portfolio.  If your buy and hold, you gotta remember you don't loose till you sell. 

 The trouble in AK is different than it was in the lower 48.  we are talking about a recession over the whole economy not just a real estate bubble bursting.  I work for the state, and as we both know they are in deep DOO DO. I am just an airport maintenance person but  I predict a big number of state funded projects that may not get funding.  This will lower the construction /Davis Bacon jobs in the state.  I think many state jobs will not be refilled as people retire, or leave.  The slope has already laid off a bunch of people.  In addition much of the money from the fishing industry leaves the state, never to be seen in AK again.  I believe also a factor is that the State (as well as most Alaskans) is used to spending money like they had an endless supply.  I believe its going to take a while for Alaska's government and population to learn "basic economics".  Might be some opportunity here. if you want to expand your portfolio.   

 In the bush the big employers are the Feds.  the Hospital here is totally funded with federal money.  ALL supplys come to Bethal  by a thing called Bypass mail.  This keeps the air freighters out here afloat.  These things may or may not help us in the bush, as they are federal not state supported.

If I were in your shoes in Anchorage or somewhere depending heavily on the slope, or construction workers for renters, I would try to asses how low of a rent base my properties could support, and look at WHO my tenants are. Then make a decision to sell now or try to ride the storm.  If the people renting from you are not in the costruction trades or oil trades you may be ok.  Most of my tenants are the people who work at Wal-Mart, or 7-11 or retired. IE- $500-$900 a month rent in the lower 48.  In my opinion these people tend to take a financial hit a little better.  The gas station still needs clerks, Wal-Mart still needs clerks, fred myers will  still need help ETC. ETC.  I target this class because they appear to me to be more resilient in times of financial hardship.  I don't always get the big profits, but its a bit safer during an economic downturn.  This caliber of tenant also seems to be more stable.  of 7 doors I have had 2 vacancys in the last 3 years. 3 vacancys in the last 7 years.  one renter moved for severe health problems, one cos I raised the rent too much. (I should have known better)  both filled quickly.  I evicted the 3rd renter, for not paying rent.

please be aware this is just my take on wats coming for Alaska in the near future.  I am just an old guy that likes to look down the road a ways. 

Hope this helps!!

RR