Buying An Airbnb During A Recession
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Is it a good idea to buy real estate during a recession? With inflation everywhere, should you buy real estate right now? Specifically, we look at buying an Airbnb right now.
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Today’s video is packed with education on dealing with the recession.
You can absolutely be out there buying real estate in a bad economy. The best real estate right now is one that matches your criteria.
But in the video, we first have to outline what’s happening. Granted, I’m not an economist, but inflation is just a fact of life. Understanding it is important.
We dive into a quick lesson what exactly is going on out there. And we move to why this matters for real estate.
What makes real estate the best place to put your money during a recession?
I answer that in the video.
Next I outline why future money is less desirable. For example, if you’re considering buying a business for cash flow, watch this video first.
Because of inflation, that future money isn’t worth as much.
Then I share the math on how this relates to real estate.
Next, we go over high interest rates for real estate investing right now. They are still relatively low, if history is any guide. So what makes a deal good or not?
I share my own criteria and why cash flow is king right now. Plus: bonus! I share some back up plans for your investments.
Either way, you’ll leave this video feeling much more confident in the market right now.
PS – Subscribe now! Two new videos every week!
What's up guys? It's James here. And in today's video, I'm going to talk about whether or not it makes sense to invest in short term rentals right now during the recession that we're in. So I get this question a lot lately, you know, James, should I invest in real estate? Should I invest in short term rentals given that inflation is high interest rates are high, we're going into a recessionary period, all that fun stuff. So I really want to address this question and give my thoughts on what makes sense to invest in how it makes sense to build your wealth during a recession, because I really, truly do believe that this is going to be one of the best times of our generation to be investing in building your wealth, you have to do it intelligently, you have to be investing in the right things. And there are certainly some good things to investment and some bad things to invest in. So I want to make sure that you're steering clear of the bad and steering towards the good. Now, before we jump into the video, I just want to remind you to make sure you hit the like button, make sure you hit the subscribe button. If you liked this video, if you liked this channel, make sure you take a quick moment and do those two things. Take your time, take your time. That's out of the way. Now I just want to remind you as well, there's links in description down below for all sorts of amazing free training on how to invest in short term rental properties, how to host your own properties on Airbnb, how to manage other people's properties on Airbnb, all those trainings are completely free and their LinkedIn description down below. So make sure you check those out as well. We're gonna give you some free tools as well to help you get started. So really valuable, those are all linked in description down below. Now, let's jump right into it. And let's talk about what's going on first in the economy. And then let's talk about why it might make sense to invest in certain things and not make sense to invest in certain other things. So, first thing we know that's going on right now is inflation. There's a lot of inflation happening right now. And for I'm going to be talking, talking in this video about some things that you if you're an experienced real estate investor or investor overall, you might already know these things, but it's helpful to get a good reminder. And for anyone else, that's not as experienced, I'm going to kind of break these things down. But not try, I'm going to try not to go into too much painstaking detail about them. There are obviously other channels out there on YouTube that are better at talking about the economy overall than mine. But here's my take is that during an inflationary period, it basically means that your dollar is still worth $1, but it doesn't have as much buying power as $1 used to have. So in other words, if a loaf of bread is arbitrarily worth $2, now it might be worth $3 In the future, because not because a loaf of bread became a more valuable thing. But just because your dollar became a less valuable thing relative to what it's trying to be exchanged for right, it has less purchasing power. And so investing in hard assets that tend to maintain their value would be a good thing to do, right, you'd rather be holding on to the loaf of bread in that scenario, assuming that loaf of bread is never going to mold is never going to get get old is always going to be in demand, you want to hold that loaf of bread instead of holding on to the $2. Because it's when you hold on to the $2, you end up only having enough purchasing power to get two thirds of a loaf of bread wants inflation happens. Whereas if you hold a loaf of bread, you can at anytime exchange that for $3. And if in the future, it becomes worth $4 Because inflation happened again, then again, you can exchange that loaf of bread for $4. Now that's really great. So similarly, that real estate that you might own, if you invest in real estate, it's going to maintain its value, right, it's going to hold its value, it's a hard tangible asset. Ideally, income producing real estate is even better. And that's going to hold its value so that when you go to exchange it in the future, you're gonna get the same even if it just holds its value and doesn't actually appreciate, you might actually get for a property that you bought last year for $500,000. In five years time, you might be able to sell that property for $600,000, let's say not because the property is worth more. And this is obviously an exaggerated and exaggerated example. But not because the property is worth more not because you've done renovations and prove the value or anything like that, just because each dollar has less buying power. So it might take 600,000 instead of 500,000 of those same dollars in order to buy that house. So the house is going to hold its value where the currency the Fiat is not. So that's why people tend to like investing in hard tangible assets that hold their value during an inflationary period. Gold is another example of this. Now, the things that we don't want to be investing in is future cash flows. Because if we're investing in a company, let's say on the stock market for its future cash flows, because that's what companies are valued at. They're valued off of future earnings, right. And so if we're buying a company for its future cash flows, that future cash flow is actually worth less because we know inflation is going to continue and we know that $1.02 years from now is not going to be worth the same as $1 right now. So you want things that are producing cash right now. We don't want things that are going to produce cash in the future. We want things that are going to produce cash right now because the cash right now is worth a lot more has much more buying power than what dollars will in the future because we expect that inflation is going to continue. So summon all up, we want to be investing in hard assets. And we want to have hard assets that ideally produce cash flow right now, what's even better, in my opinion, again, this all depends on your risk tolerance profiles. But from a purely inflationary standpoint, it is good to hold debt on those assets. Because if an asset like a home, if you buy it for $500,000, and you use 100,000, of today's dollars to put a 20% down payment on it, and now you owe 400,000, well, if inflation continues to happen, that 400,000 is actually going to be more like $500,000, but you're still only going to owe 400,000. So your employer may pay you more to keep up with inflation, you may get a raise, you know, overall, you're going to be having more money coming in, you may raise your rates on that property, if you're renting it out on Airbnb, because inflation is going up. So prices are just increasing, right? And so you've got more cash flow coming in, but you still got that same $400,000 the dollars that you owe on the property, that debt doesn't increase with inflation the same way everything else does. So that's why holding debt tends to be good, because you can pay it down with future dollars, not with today's dollars and the future dollars are going to actually have less buying power. So it's gonna be less worthwhile for you to hold on to them, you just, you know, be better off paying off your home that you only have a bit of debt on only out of that $400,000 chunk of debt, let's say. So, that is a case for why real estate and generally speaking, it's widely regarded as being a great asset to invest in during an inflationary period. Now, there's obviously other things going on in the economy. Other than just inflation, we've also got high interest rates. And so what you want to look at is, what is the asset I'm buying, yeah, it makes sense to buy in an inflationary period. But I also want to make sure that I'm buying the for present cash flow, not as much for future cash flow. And because interest rates are higher, I also want to make sure that I'm getting a good deal on the property. So I'm not paying crazy interest on a huge, huge loan. And I also want to make sure that my cash flow is going to be more than enough to pay for that interest and still get me a strong cash on cash return. Right now, today, I personally wouldn't want to be buying a property that doesn't cash flow or cash flows at breakeven, just so that in the future, once that property is paid off, I can have the money from selling the property or from not having to pay off the mortgage on cash flow that because again, that's all future earnings. And that's not worth nearly as much to me as present day earnings, because, again, we're in this inflationary period. So I want to buy property real estate that cash flows right now today, even with the high interest rate. And so that's really challenging to do for pretty well like a whole lot, a lot of properties, that's really hard to do with long term rentals. And I'm gonna say pretty well, all them there still are deals out there for long term rentals that do cash flow, but they're few and far between. And the cashflow tends to be rather insignificant, you're talking about like a couple $100 a month on a multi $100,000 property. So that means that we want to be buying short term rentals, because we want to specifically buy short term rentals that cashflow really strong, and that the actual property we're getting, we're getting a good deal on, we're getting a mortgage on it. And then we're leveraging that protection for inflation. We're hedging ourselves against inflation by holding on to these hard tangible assets that are going to hold their value. We're also leveraging the the inflation in our favor and hedging against it because we're holding debt on an on that asset that we're going to pay down that debt with future dollars. And we're reaping the rewards of current cash flows, right, we're actually getting a property that is going to produce significant current cash flow. So I always recommend looking for properties that are going to produce at least a 15% cash on cash return, if you're investing in short term rentals, I personally wouldn't go any lower than that. And a moderate scenario, I want my worst case scenario and any property to be at breakeven, I never want to hold onto a property that's cash flowing negative, because especially with interest rates going up everything happening, you want to make sure that you're protected, if ever, for any reason, there was a risk that, you know, Hey, your income might dry up. And for me, I look at the same way do I think my income is going to dry up anytime soon? No, I certainly don't. But if that were to happen, and interest rates were to go up and the economy were in a bad spot, I still want to make sure that I can hold on to that property and not be forced to sell it. Because if ever that coincided with you know, if I were negative on a property and not coincided with the value of the property being down from when I purchased it, well now I'm in a tight spot where I'm tasked with either hold on to the property and have it cost money that I can't afford to maintain every single month or sell the property and take a huge loss because the property's value has gone down. That's not a decision you want to be faced with. That's what we call a lose lose. And so you never want to put yourself in that position. The best way to make sure that you don't end up in that position is by having enough cash flow from the property even in a worst case scenario that you more than able to cover the month to month carrying costs of that property. So that's the best way to do it, in my opinion is to buy properties where you can cashflow really, really strong. Again, I'm looking for 15% as a minimum, in a good scenario. Ideally, I want the upside potential to be able to hit 2030 40% cash on cash returns. And then I also want the ability to see okay, if I look back over previous years, if I look at that kind of the worst case scenario, that even in a worst case scenario, it's still going to cashflow at breakeven or better, so I'm never going to be negative on cash flow and the property. When you do renovation work that can also be really strong way to build some equity in the property force appreciation, give you another backup plan because if you buy a fixer upper property, put some rental work into it, that's really strategic, you do the right renovations and you increase the value of it, then at least you have a backup plan where if you ever do need to sell that property, you can do so at a profit because you've built in a bunch of equity into the deal. Also buying properties that will cash flow neutral at the at best are cashflow positive, as long term rentals. That's another good backup plan so that if ever, you do need to switch your strategy up from short term rentals that you can transition over to long term rental. Now I'm seeing a lot of people right now that are actually using short term rentals as a kind of backup plan to get them out of their cashflow negative positions on long term rentals because they were in variable rate mortgages, those interest rates went up now their property is no longer cash flowing. And so they're trying to scramble to find a way to make more cash on the property. And they're looking to short term rentals to do that. Now that can be a good way to do it, that can be a good solution to the problem if you have the right property that also happens to perform well as a short term rental. But I personally would not want to make that mistake again, if I were an investor in long term rentals, and that's the position that I were in, I'd take a real critical look at the investing that I've been doing. Because if you put yourself in a position where things happen, life happened. And now suddenly, that investment no longer makes sense. It's actually losing you money costing you money every month. And if you can't turn to short term rentals, you're going to be upside down the property and be in a bad spot, you're in a very precarious position. Because I would bet that most people didn't think to look into the regulations in their area for short term rentals before they purchased that property. They didn't look at the potential of short term rentals in their area. And before buying that property, you really want to do this stuff before you buy the property, you want to have those backup plans in place. And I see too many people investing in long term rental properties that are really just scraping by breaking even, or they're even cashflow negative. And really, they're just betting they're just betting on the appreciation of the property hoping that one day in the future, they can sell it for more. And that's a really tough way to be investing. It's more like gambling to me. So you want to make sure you have these backup plans in place and want to make sure that the property is going to make sense as an investment. Even if things don't go the way that you anticipate even if things don't go well. You still want to have those backup plans already figured out and know for sure with certainty that they do make a lot of sense. So hope this makes sense. Hope this was helpful to you guys. If it was make sure you hit the like button make sure you subscribe to the channel to stay up to date with the two new videos we
post every single week. Any questions, thoughts, comments, anything you want to share with me just leave them in the comment section down below. And again, if you want to learn how to invest successfully in short term rental properties, even in this economic climate that we're in right now and get some really great cash flowing, short term rentals, make sure you check out the training that free training linked in description down below. It's completely free. We're also going to throw in our analysis spreadsheet completely free so you can actually analyze deals and figure out how to find deals that have a 15% or greater cash on cash return. So again, all that is linked in description down below, hit the like button hit the subscribe button and I'll see you in the next video.