Is owning rental real estate
in a down economy a good move?
You bet it is.
That's today's video.
Let's dive in.
Hey, there.
I'm Clayton Morris, the
founder of Morris Invest.
I'm a longtime real
estate investor.
And I want to dive into a
question that comes up often,
or ignorant people that write
about this on my Facebook page.
When I talk about real estate
investing and people say,
well, yeah, but when the
next economic collapses,
you're going to be in trouble.
Actually, no, you won't.
If you're smart,
rental real estate
is fantastic in a down economy.
And it's fantastic
in a good economy.
But there are four
key areas that you
need to know about
in order to maximize
your rental real estate return.
First of all, let's just
talk in broad strokes.
And we'll dive into the
four specifics in a moment.
Think about a down
economy for a moment.
OK?
If you're in San Francisco, New
York, or Miami, or someplace
like that where those people
who rent and pay $3,500
a month for an apartment, those
are the people that typically
end up losing their jobs.
Or they're the
mid-level managers
or so forth who get knocked down
and end up losing their jobs.
Those are A
neighborhoods, properties
that I never invest in, right?
But in middle America,
in the great blue collar
hardworking cities where
you rent to postal employees
and nurses and
long-haul truckers
and service industry folks.
Those people tend to have
jobs that do not get lost.
This is the case when you look
at the 2009 economic collapse.
Those of us who owned
hundreds of rental properties
in that economy did
not see one dip, not
one dip in our rental income.
Cash flow.
Cash flow is king
in a down economy.
People can't get mortgages,
so they need to rent.
Why shouldn't you be the
landlord they went from?
OK?
So just in broad
strokes, I want you
to sort of pivot your
paradigm and thinking
about rental real estate
in a down economy.
People need to live somewhere.
They need to eat.
Right?
Why shouldn't they
be renting from you?
So the areas where you'll
see a lot of job loss
are the A neighborhoods.
Those are the more
affluent neighborhoods.
That's the area you're
going to see jobs being cut.
Those are the areas
where people are going
to have higher vacancy rates.
They're going to start leaving
those big high rise Manhattan
apartments.
And rental prices
are going to plummet.
That does not happen though
in Midwestern markets.
You may see a drop in
value, but you're not going
to see a drop in your rent.
That is the case.
So with that in mind,
let's dive into four areas
that you can really protect
yourself in a down economy
if you are buying
rental real estate.
Number 1, finance only
with long-term loans.
It's really important.
The thing that killed people,
of course, back in 2008 and 2009
is that they had those
five year balloon mortgage
notes that were coming due.
And suddenly they
were out of a job.
They couldn't pay this mortgage
in full, or try to refinance.
The economy was collapsing.
Get a 30 year mortgage.
If you need to get
financing on a property
that you're going
to rent out, make
sure you get
long-term financing.
That way, even in
a down economy,
even if the property
value plummets,
you're still able to
cover that mortgage note.
And in a few short years,
when it turns back up again,
you're still golden.
No big deal.
So get long-term,
amortized mortgages.
That will help you out.
Number 2 on the list, only
swing at those big fat deals.
That's what I love.
So the properties that
I do at Morris Invest,
we want people to have equity
when they close on a property,
and have a high return
on investment, high ROI.
We have another video here that
explains-- just click on it.
It's in the description
below on how to figure out
return on investment and ROI.
And I walk you through why
that number, the ROI number,
is the most important thing to
look for in rental real estate.
But go after the deals that
you know or a good deal.
Those are the deals
you should be buying,
not the ones where there's
a really thin margin.
Because that means thin margins,
bigger margin for error.
So Number 2, go for those big
juicy deals that can bring you
a high ROI.
And Number 3 on the
list, positive cash flow.
I'm all about cash flow.
Cash flow is king.
You know, that is the beauty
of owning rental real estate.
People want to talk about having
the value of their property
plummet a little bit
during a down economy, OK.
So if the properties I own
dropped 10%, 15% in value,
I don't care.
You know why?
Because I'm holding
these properties
for the rest of my life.
And they are cash flowing.
$700, $800 a month from a
tenant living on the property.
I don't plan to sell it.
So I want that
positive cash flow.
That is king in a down economy.
So yeah, the value may plummet.
Maybe I bought it for $40,000.
And it's worth $50,000
and then in a down economy
it drops to $50,000--
or drops to $45,000
and maybe drops to $42,000, but
I still bought it for $40,000.
Or maybe, it even
drops to $35,000
and I bought it for $40,000.
OK.
Big deal.
The cash flow is still there.
The tenant is not moving out.
Where you buy properties
is very important.
So that's why it's very
important to educate yourself
on the markets which have
long-term, blue collar
tenants in great economies
that don't really
get hit by the economic
strife that you
would experience in some
of those bigger A class
neighborhoods.
And number 4, you want to
reduce the amount of leverage.
So look, the bottom
line is you don't
want to have a property where
you-- we got into trouble,
right, with 100% financing.
That means you have
no skin in the game.
You have no equity
in the game at all.
You do not want to finance
properties at 90%, 80%.
Try to have some money
down in that property.
Try to be in it for 30%
down, 35% down, 40% down.
The more leverage you have in a
property, the better off you're
going to be long term.
But again we're holding these
properties for a long time.
So we're creating a
positive cash flow.
So we don't necessarily care
about the leverage position
in the equity position.
But it is nice if you want to
refinance the property later
and pull more money
out of that property.
So be very aware that you do
not want to be fully leveraged.
That's what got us into this
problem in the first place
back in 2007, 2008, and 2009.
I'm Clayton Morris.
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to end with this.
Go out there.
And take action to become
real estate investor.
Analysis can lead to paralysis.
We'll see you back here
next time, everyone.
