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What have you learned from COVID-19?
- Cash is king. I personally invest in real estate and spend a lot of time with other investors but this lesson would be even more valid for small businesses and even just for individuals. Having an emergency fund is absolutely critical no matter how well things seem to be going. If you are a small business owner or real estate investor you should be working toward 3-6 months in reserve operating expenses for both your endeavors and your household. With short term rentals being prohibited in the state of Florida and overall rent collection down it highlights how important it is to have enough cash to keep your life/investments/business running even if you cannot make any income in the short term.
- Once you have a farm don’t bet the whole thing! To get into real estate investing and later real estate sales I made some big bets on myself and put everything I worked for during my 20’s at risk. The economy was good, I worked my tail off and both bets paid dividends. In the end I am thankful for both choices and where I am today. That said, had I made those choices in 2020 instead of 2015-16 things could have turned out differently. I have been working hard over the last 5 years to build a rental portfolio and sometimes I am frustrated by having to pass on deals because the timing isn’t right or I don’t have the capital. I have seen other investors grow by doing deals that I certainly could have done but they just didn’t fit my criteria or I didn’t have the capital because I was involved in another deal. That’s painful sometimes. Despite temptation, I have not pulled money out of my performing rentals to help me do more deals. I started with the intention of having a certain amount of equity in my portfolio. While I could grow faster if I borrowed on that equity to reinvest, I view that equity as my margin of safety. If the market went down or my tenants don’t pay rent I can handle both much better and with far less risk because I have maintained my margin of safety. With COVID-19 a large reduction in rent collected looked like a real possibility but I maintained peace of mind knowing that my mortgage payments were far less than rents so as long as half of my tenants paid I could continue to pay the bills without drawing from reserves or personal capital. Over leveraging myself to do another deal or a bigger deal may have looked low risk a few months ago but now I am very thankful that I stayed true to my strategy and did not make bets that placed all of my holdings at risk.
- Be careful how much media, social or otherwise, that you consume. In the beginning days of the COVID-19 pandemic I was reading a lot of news and on various social media too much. I was feeling genuine anxiety. After intentionally backing off of the news and filling my head with quality material like goods books, podcasts and conversations, I felt much better. I like the visual Darren Hardy laid out in “The Compound Effect” of a glass of dirty water(your mind with no control over what goes into it, receiving lots of negative news and social media) becoming a glass of clean water if you run a steady flow of clean water(good books, podcasts, classes) into it. We can stay informed and responsible on a fraction of the media we consume. Don’t get pulled into the 24 hour negative news cycle - it’s not helping.
- I hate fixed costs & you should too! I am a bit of a control freak. I don’t admit it often but it’s true. For that reason I have avoided large fixed costs both personally and in my business life. Things like massive car payments, huge house payments, credit card bills, expensive office leases, overhead, payroll, ect… I am thankful for having low overhead in normal times because it gives me more options in my personal and professional life. In addition, I don’t normally need to make bad short term decisions motivated by the need for money to pay next month's bills. The need for control overwhelms my need for the newest or best this or that and I tend to be conservative financially(even while trying to be aggressive in my investments). I love a good splurge just like anyone else but I have never in my life felt more thankful that my splurges tend to be one time things because I rarely view anything(that doesn’t make me money) as being worth the payments due over the long term. Low personal & business overhead = maximum flexibility and security.
- Long term plans don’t need to be scrapped or maybe even changed. That’s why they are long term plans! I was amazed at the amount of people who were selling off stocks because they were in a coronavirus panic. If you don’t need the money today the only thing you are doing by selling when the market tanks is locking in your losses. I watched things closely and reviewed my long term plans but nothing happening today changes my 5, 10 and certainly not my 20 year outlook. If you have been diligent in charting the course don’t abandon the course unless your personal ship has been wrecked. Some people have experienced major loss and disruption due to COVID-19 but many more have not been impacted in a major way financially. Don’t get so excited by something in the short term, that hasn’t wrecked your ship, that you lose sight of where you are headed. Stay the course.
Specifically in and for Real Estate: - Over communicate in times of uncertainty. Whether you are a landlord or a real estate agent, in a crisis it is more important than ever that you keep people informed. It is much easier for people to freak out, make bad decisions or assume the worst when they are left to guess in times like this. Keep the people around you informed about the plan(you do have a plan don’t you?) and communicate more than you usually would to keep things running smoothly.
Those are my personal takeaways from the first 6 weeks of COVID-19's impact on the US. Now I want to know...
What are your lessons learned during the last 6 weeks?
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Real Estate Agent Florida (#BK3359135)
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- https://www.realtormattj.com/
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Great post @Matt Jones ! You make a lot of great points that many of us need to be reminded of. Have made any significant changes to how you invest now due to the pandemic? Personally I have shifted away from picking up flips and have focused more on buying value-add rentals right now. My 2020 goal was to buy 4 rentals and 6 flips, and although to your point about maintaining your long term goals I'm not pursuing flips now, I still plan to pick them up later in the year (if all goes well) but right now I'm closing on 3 rentals. Has your decision making changed at all or are you playing it safe by waiting this out?
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@Martin Lindsay I agree with modifying your near term plans to fit the market we are in. I was just surprised by some people having a knee jerk reaction(I'm selling all my stocks or rentals or whatever ASAP!). My personal 2020 goal was to buy my first vacation rental property so I used the current market to reach out to an out of town investor I know that owns a few on Pensacola Beach thinking he might be more inclined to sell now than he was the last time we talked. He was, and my wife and I put a great townhome under contract in a complex we like and at a price that will allow it to cashflow(or at least break even since we plan to spend a good bit of time down there). My other 2020 goal was to stockpile cash for capital expenditures and to be able to take advantage if the market cooled off in 2021. Even in the face of COVID-19 the market is still surprisingly strong but could soften a little later this year. However, if the nation gets back to work fairly quickly we could have a very strong summer housing market.
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Real Estate Agent Florida (#BK3359135)
- 850-889-0945
- https://www.realtormattj.com/
- [email protected]
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@Matt Jones Totally agree with you thats a great point. I've always read that typically when the economy takes a hit the housing market has a delay before home values start to take a hit too. I'm in the Charlotte NC market which was incredibly hot, however we've already seen some slowing down. Inventory is up, most listings on the MLS are going back on the market or having price decreases. I hope you're right about things bouncing back!
I'm also glad you mentioned vacation rentals, as that was also one of my goals this year was to buy or build a mountain cabin with a partner of mine. Now definitely might be the time to look back into it!
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Great discussion post @Matt Jones ! You validated some great points. My strategy to flip this year has completely derailed due to Covid-19. The strategy that makes since for me would be to wholesale to local investors needs and acquire long term rentals with the available cash. But one thing I don't want to do is overpay for a property that may be at a 30% discount in the upcoming months. Learning to sit and wait to see what the Chicagoland market does could benefit me in the long run.
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Nice post @Matt Jones. I agree with nearly everything you said. I had paid my house off, had no vehicle loans, and no credit ard debt, then last year decided to get a new truck and a new house hehe. Still I was able to afford it as I drove the same truck for 27 years. I had buckled down in 2014 and 2015 because I saw a real recession coming to my state and I was right. I did push the envelope on expanding this last year but still not as much as I could have.
As to what takeaways I have from the last 6 weeks, we are not as smart as we think we are. There is always something new we didn't plan for. Other folks are often no smarter than us, and lady luck can be seductive and cruel as well. Use your head, be aggressive, but be smart. I would probably act the same way again that I did right before the pandemic with the same facts. We can never predict the future. Do your best, stay true to your values, and take care of those you love. Yes and cash reserves make you sleep better at night.
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@Jerry W. I totally agree that we are not usually as smart as we think we are.. in a prolonged growing market like we have had it is so easy to believe we are geniuses rather than to observe the big impact that the strong market around us is having on our success. Of course, that overconfidence can cause some pretty big failures in the wrong deal or when the market turns sour!
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Real Estate Agent Florida (#BK3359135)
- 850-889-0945
- https://www.realtormattj.com/
- [email protected]
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Originally posted by @Matt Jones:
Good post, Matt! I would add a caveat to your last point. Communication is important, but it has to be useful communication. In times of uncertainty, people are looking for a leader that can act as the calm in the storm.
I saw a property manager send out a communication to his Landlords and Tenants a month ago. His message to the owners was that none of the tenants would pay rent, the rental market and economy would collapse, and owners should be prepared for the sky to fall. His message to the Tenants was that they had better pay rent or he would hammer them with every tool in his arsenal. Yes, it was that bad. Some of his tenants started a facebook page, organized, and had several thousand followers attacking him all over the internet, threatening his life and business, and making a mess of his life. It's been a month and he's still feeling the effects! He also lost quite a few Landlords that felt he was ill-prepared to deal with difficult situations.
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@Nathan Gesner Great point! Making sure that your communication is clear and productive is critical in a time like this. My Uncle was in real estate in the 90's and I remember him saying "I can give you good news or bad news but I can't give you no news". Some people in this business tend to avoid delivering bad news and just go quiet, this is the worst time for that. We can deal with and often overcome what we know about but cannot plan for what we are kept in the dark about. For that reason I am making sure to keep people informed and touch base to let them know when things are taking longer to resolve than planned so they don't fear the worst and react poorly.
I have seen a few of those examples of terrible communication and what those people need is not more or less communication, they need a sense of self awareness and some consideration for others!
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Real Estate Agent Florida (#BK3359135)
- 850-889-0945
- https://www.realtormattj.com/
- [email protected]
One of the biggest things I have learned during this current pandemic is that you should start gaining some financial knowledge so that you are not at the mercy of your employer. You should reach a point that you have multiple sources of income and you shouldn't depend on working for someone to be your main source of income.
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@Matt Jones - I need to link up with you to give you my criteria of 15-200 unit apartment complexes.
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@Nile Yacob I could not agree more. That insight is what started me on my RE journey several years back. I'm not saying that no one should work a W2 job, there are certainly some excellent and well paying W2 jobs out there but it's important to realize that being an employee is probably not as stable and secure as people tend to think.
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Real Estate Agent Florida (#BK3359135)
- 850-889-0945
- https://www.realtormattj.com/
- [email protected]
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@Jay Helms For sure. By the way, I saw on FB that you are in RE investing full time now so congrats!
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Real Estate Agent Florida (#BK3359135)
- 850-889-0945
- https://www.realtormattj.com/
- [email protected]
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@Matt Jones Thank you for this post! I really agree with everything you are saying. Especially point 3 about the news. I listed to Darren Daily and one episode he was discussing how the media needs to intentionally be overly sensational to get us addicted to listening. Why? So they can sell us advertising!! Its all a big business of monetizing OUR brains without us even realizing! That really struck me and I have cut down on talk radio and media tremendously bc of that. In today's day and age especially when everything is politicized and a lot of it is outright fake, you will be much happier turning off the media.
Try it and you will see!!
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I've learned that most people are good and compassionate. I've seen genuine acts of kindness around my community. I've seen tenants in tough situations who have pride and want to stick to their obligations.
I've also learned that I don't have enough guns, ammo, and food provisions for the real armageddon. :)
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@Yitzchok Carmen I loved his book The Compound Effect, hearing him talk about media consumption in the book really opened my eyes. I've never been a huge fan of the news but it put words to how I felt about it.
@Paul Shannon That's been the best part of all this, seeing lots of people show compassion and help others. Lol about the real armageddon, same here!
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Real Estate Agent Florida (#BK3359135)
- 850-889-0945
- https://www.realtormattj.com/
- [email protected]
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Good post.
Ive learned that there is very little middle ground with the whole thing. You have the arrogant people who wont wear a mask in public (they don't realize its not for their sake), then you have the people who are over the top with it all.
Yes it is scary, and these are troubling times, but we should try and live life as we normally would. It hasn't affected the way I make money, or go about my day. I make the best of what is given to me and roll with the punches. Life is always changing, we must adapt and continue to strive for growth in any given circumstance.
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That is true @Matt Jones! My W2 quit me do to COVID layoffs, and even though I'm only on year 4 of my 7 year plan, time to take the plunge!!!
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I have learned the importance of an emergency fund, and that what I miss isn't materialistic. I have found that during COVID-19 lockdown, not once have I missed wearing anything I own in my closet; say a certain pair of shoes or handbag, but I miss experiences with my loved ones. Meeting up for a drink after work with a girlfriend, my gym workouts, date night at our favorite spot with my husband, etc.
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I have been reminded once again that most casual landlords who see running rentals as an investment much like a mutual fund or government bonds are simply not built to survive. They would much rather whine about the government's unfairness, about the sanctity of their individual rights, about the words and intentions of matchless Founding Fathers dead two plus centuries, about how many angels can dance on the head of a pin, than do what is prudent when the going is easy and do what is necessary when the wolf comes to the door.
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Great post @Matt Jones. I like your point on sticking to long-term plans. Panic makes people do crazy things sometimes, but if you have a clear long-term plan in place, you can make slight tweaks as needed. Staying level-headed with the natural ups and downs that come with real estate is crucial (especially in times like these), and having a clear purpose and plan is now even more helpful than ever before.
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Compassion is key!
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@Matt Jones - Keep business expenses off of personal credit cards. Keep that credit score over 700, but ideally 750+. Lenders will retract LOC's and tighten down on lending requirements in the blink of an eye. You could have your plan B and plan C exit strategies dissolved in a matter of days if things get bad enough.
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@Matt Jones I just stumbled across this thread...love the original post, very insightful! Hope we catch up again soon
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Here are a couple of things I have learned from Covid 19
1. Have at least two solid sources of income because they government one day could shut down many sectors of the economy and if you have two your odds are better that you will be able to continue with at least one of them.
2. Have money in the bank. This is one thing that I agree with that Dave Ramsey preaches. Have a 6 month emergency fund for your personal finances and for your business finances. This can also be helpful when applying for loans.
3. Have a really good network to both give and receive support. It can be difficult when your not sure what to do or what other people are doing to get through difficulties. Have if a good network can be extremely helpful to weather the storms.
4. Have a great relationship with your bankers. They can give you a heads up on things and they can help you get loans funded when lending gets tightened up.
5. And last, but probably the most important, take time to connect with your family. This will likely be a very memorable time for everyone that will stay with us. Wouldn’t it be great to be able to say, “The whole Covid quarantine thing wasn’t that bad. We got to spend a lot of quality time together without a million responsibilities pulling at us from every direction.”
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@Shiloh Lundahl great post, I love those points!
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Real Estate Agent Florida (#BK3359135)
- 850-889-0945
- https://www.realtormattj.com/
- [email protected]