Recession Guide to Investing in Real Estate

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What's up guys, it's James here. And in today's video, we're gonna be talking about how to make money in any real estate market. So I'm going to talk about specifically how to make money even when the market is going down values of properties are going down if interest rates are going up, this has been a really hot topic lately, people want to know how to make money during a recession. And for anyone that has been following investing or been investing themselves for long enough, you know that the real wealth and the real riches are made during bad economic times, because that's when everything goes on sale. And that's where fortunes are made. Just like Warren Buffett says, you want to be greedy when others are fearful and fearful when others are greedy? Well, right now, the majority of people are fearful. And so this is our opportunity to be really greedy, and make a massive amount of wealth in the process. So if you want to learn how to do that, make sure to stick around for the rest of this video. Now, also, if you guys are interested in learning all of my tools and strategies for how to successfully invest in short term rental properties in Airbnb, which SPOILER ALERT are a really, really great strategy for this kind of economic time that we're in right now, then I highly recommend you check out the link in the description down below, check out that free training that we put together on exactly step by step how to manage to make massive cash flow and fantastic return on your investment by investing in short term rental properties. So again, check that out link in the description down below. And while you're here, while we've got a second, while we're already off the main topic, go ahead and hit that like button, hit that subscribe button, it really helps you tremendously with growing the channel and with keeping you up to date on all of our latest video. So without further ado, let's start talking about how you can make money in any market. And that is through cash flow. So the one thing to remember is that no matter what the market is doing, no matter what is going on with the value of your property. The other way that real estate makes money aside from the value of the property going up and down is through cashflow. So there's essentially two ways that you can make money in real estate really, there's a third, but it kind of just pulls into the whole main thing of appreciation, which is your mortgage paid down. So the two main ways that you make money in real estate are from the value of the property, right, that's number one. And so there's kind of two subcategories of how you make money from the actual value of the property. Number one is by paying down the principal on your mortgage, but the bigger one is by is by the appreciation of the property mean the property value going up. And so the value of the property going up is really paramount, it's really, it's really critical in order for you to even get value from your principal payment on the mortgage. Because if you pay down all the principal and your mortgage, but the property value drops and drops and drops, well then you don't actually have equity in that property. So if you want to make money, when you go to sell the property, you don't want to be negative money, then what you need is for the property to be worth more than what you bought it for, or at the very least be worth as much as what you bought it. So that is appreciation. And there's market appreciation, you can force appreciation by doing things like renovating the property. And you can also build more equity in the property by paying down the principal on the mortgage. But that all has to do, it's all in the world of the actual value of the property. So that's one way and that, unfortunately, is largely outside of our control, right? There's nothing that we can do to make the property worth more outside of renovating it right and forcing some appreciation there. But if it's already renovated, it's not like we can then just go and renovate more, right? There's only so much we can do there. And ultimately, even if we do that the market can still come down. So you think, you know, think back to 2008, a lot of people that were flipping houses, lost their shirts and had declare bankruptcy, because even though they're forcing a bunch of appreciation through the rentos, they weren't doing so enough to counteract the drop in market values just based on external factors in the economy. And so right now, property values, we're seeing them decline in a lot of areas. And that's not there's nothing we can really do as individuals to influence that to change that. And so, ultimately, that's very dependent on the market. So it's not a really safe way or controllable way to make money in real estate. Now the second way that you can make money in real estate is through cashflow. At the end of the day, you've got this asset, there's real estate that is going to be able to generate cash flow. Now ultimately what kind of real estate you have is going to determine how much cash flow you can generate. So let's say for example, you have a vacant plot of land, well, you might be able to generate some cash flow, for example, if you rent that or lease that out to farmers to use as farmland or maybe use as a campground something like that driven options to make money, but you're going to be pretty limited, you can't really make a whole lot of cash flow from a vacant plot of land. However, if you have a property on that land, now you can rent it out, right? And so that's how you can make cash flow. Now obviously they're carrying costs for your mortgage, your taxes, insurance, your operating costs, your utilities, that sort of thing. But as long as you can bring in more each month than what you're paying out, then you're going to have positive cash flows. If you bring in less you're And I'm negative cash flows. And so obviously not all properties are created equal, and not all properties are going to have the same potential to generate cash flow as others. If you look at this spectrum of long term rentals, some long term rentals bring in net negative cash flows. Like in the city of Toronto, for example, most people buy those properties at really, really elevated values are way way overvalued properties. And the cashflow is only enough to make up poor portion of the mortgage pan back and then you still got your taxes, your insurance, your utilities, all kinds of different stuff. So a lot of landlords, a lot of property owners, real estate investors in Toronto are speculating on appreciation. They're hoping that that first form is how they make money, and they're not making cashflow. So if the market doesn't cooperate, they're left high and dry. They're not making money in the second way. Whereas if you buy in other markets, you can buy long term rentals that do cashflow positive. And so that way, if the property value fluctuates, and goes down in the short term, you don't have to worry about it. Because it doesn't cost you anything to hold on to the property until the markets come back up. You actually make money by doing that. And you're making money, you're still making money with the second form, which is cashflow. Now, especially in a tough economic time where the property values are going down, you really want to make sure you have strong cash flow on your property for two reasons. Number one, it means that you're still going to be able to make a profit even when the economy is doing its thing and the property values are dropping. But number two, it means you're never going to be put in a position where you are forced to sell the property, the worst place you can be is where your property is now dropped to below what you bought it for and value. And it costs you so much money to hold on to the property or month to pay your mortgage, your utilities, your insurance, all that sort of stuff that you can no longer afford to do so and therefore are forced to sell. If you end up in that situation, you're gonna be forced to sell a property that's been losing you money, and you're gonna have to sell it at a loss. So that's going to lose you more money. And that's how a lot of people end up having to declare bankruptcies because they just can't afford to carry these properties. And they have to sell them and they have to do it at a loss. Now with interest rates going up. If you are in a variable rate mortgage, it's also important that you have a whole bunch of surplus cash flow, because hey, what if mortgage rates go up? What if interest rates on mortgages go up even further, and you're right on the cusp right at breakeven right now, well, then a mortgage rates increase, then suddenly, you are cashflow negative, and you're in that former dangerous position to be in. So you really want to either be in a fixed rate mortgage, or if you are in a variable rate, you want to make sure you have ample cash flow, ample positive cash flow, to be able to more than cover your interest on your mortgage, even if rates go up, you know, several more percentage points. And so the best way to do that is to have a really high cash flowing piece of property. Now, high cash flow does not mean that you don't still make money the first way through the appreciation of the property, it just means you have an extra huge margin for error, you've got this big safety net there. And it also means that you're earning a whole bunch of money that you wouldn't otherwise be earning just through cash flow through profit every single month. Now this is money that you can spend in real time, you can use it to pay your expenses, you can use it to go buy groceries, you can use it to scale and buy another property, whereas the appreciation on your property, you can't access it until the market cooperates. And you can pull some of that equity out either through a refinance or a HELOC or, or through selling the property. And so cash flow is fantastic, because number one, it's just another way of making a profit from real estate, making a return on your investment. Number two is that it gives you real money that you can spend number three is that it gives you this safety net, where now you're just going to protect yourself in a bad economy. And so the best way that I found to do that with real estate is through short term rentals, right short term rentals cashflow anywhere from three to 10 times as much as a typical long term rental would. And so you're giving yourself this huge, huge margin fair, I literally have properties that in one single year, they make enough money after expenses to cover that mortgage for the entire year, and the next two subsequent years. So with just one year of that property offering, I can pay all my expenses and pay the mortgage for three years. That means that if the economy totally tanked, and I leave my property sitting completely vacant, not making a single dollar more after that first year, I can still hold on to it for two more years after that first year without bringing a single drop of income as I wait for the market to come back up. And that's an insane situation. Obviously, I would never actually do that. The worst case scenario, worst case scenario is I would just transition it to a long term rental and a lot of the properties I buy even as long term rentals, they would cashflow neutral. Now maybe if interest rates keep climbing and I rent a variable rate mortgage, then I wouldn't make enough with a long term rental in there to cover the costs. But I have three years worth of runway still even that's if the property sits completely vacant. Right? And so if the property has some money coming in, I probably have more like four or five, six years of run way from just one single year of performance, right. And every single other year, it just keeps on building up that war chest that I have to keep holding on to this property. Now the reality is as well is that even in this economic time that we're in my short term rentals are still absolutely crushing it. I've got a property that again last year brought in $150,000, in gross bookings. And that $500,000 property generated me 70,000 $80,000 worth of profit after paying my mortgage, after paying my expenses, everything I was left with 70 to $80,000 of the profit in one year. Now, this year, that number is going to drop down to about $120,000. Because the market has contracted a bit because it went crazy during COVID, it was a really great area that did really, really well during COVID. And so now that we're kind of coming out of the storm, that it has contracted a bit, and so I'm only going to profit about $50,000. Because by the way, when my operate when my revenue goes down, so to some my operating expenses, like cleaning fees, that sort of thing. And so now only you're going to be profiting about $50,000 in this year on that property. only think about that. That's one property that now this year in a bad economy is going to profit $50,000 in this one year after paying for the mortgage, the taxes, utilities, insurance, the cleaning costs, the operating costs, the supplies, everything after it's all said and done. And that's pretty incredible to consider that that property is going to do that well in its second year in a bad economy, right. And so you've got this massive amount of cash flow, meaning that I have never even thought for one second that I would have to sell that property. In fact, we have bank accounts that are fully stocked enough to be able to weather any storm that the economy throws at us unless the entire global economy comes crashing down, in which case, it will not matter to me, if I hold on to this real estate or not. Unless there's some apocalypse, that happens, we're just never going to be forced to sell this property, not give this a massive amount of flexibility, just hold on to it until the market comes back up and then keep holding it because making so much money. But then whenever we decide that we want to sell the property, we can just go ahead and sell it when the market is in our favor. So again, if you want to learn more about the exact strategies they use to find this property to purchase it to get up and running and profitable and managed in just a couple hours a week, then I highly recommend you check out the free training, it's linked in the description down below. That's going to walk you through everything step by step show you how to invest successfully in short term rental properties. And you're also going to be given a free analysis spreadsheet that you can use to analyze all your deals. Again, that's gonna be given to you completely FREE when you sign up for the training that's linked in the description down below. So I highly recommend doing that. And while you're still here, make sure that you like just hit that like button if you got value from this video, make sure you hit it helps you out tremendously with growing the channel and also make sure you hit that subscribe button I know a bunch you guys that watch these videos are not yet subscribed to the channel and I promise you you will not regret it hit it. It's completely free. We post two new videos every single week helping you to make money and succeed with short term rentals and Airbnbs. So I highly recommend you hit that subscribe button to stay up to date with those two new videos every single week. With that all being said, I hope you have a fantastic rest of your day and I'll see you in the next video.