Commercial Real Estate Investing From A-Z Step by Step Guide to Ride This Recession and What Asset Classes Could Thrive? Russell Gray Explains (Part 2)
We continue our conversation with Russell Gray, the co-host of The Real Estate Guys Radio Show, he is a financial strategist with a background in financial services dating back to 1986.
You can read this entire interview here: https://montecarlorei.com/how-can-investors-prepare-to-ride-this-recession-and-what-asset-classes-could-thrive/
How can investors prepare to ride this recession since we are in the early stages, and hopefully there's still some preparation that they can do?
There's a thing in business called a SWOT analysis where you do a strengths, weakness, opportunities and threats assessment on whatever you're doing. If I would have done that, in 2008, I would have recognized some of the vulnerabilities that ultimately took me down. So I think that's the first thing you have to do, you have to just look at your portfolio, you have to say, What if interest rates went up? What if rents went down? What if vacancies went up? What if this local market economy changes?
You just have to begin to go through and ask yourself, what are some of the things you're hearing, what are some of the possible or probable outcomes of what's going on and how will my portfolio respond to that.
And then begin to take corrective action, you're probably going to realize that you've got some things in your portfolio that are marginal, they're not really that strong. You might want to think about getting rid of those. That's what my buddy Kenny McElroy did. Coming into this, he just began to look at his portfolio and say, I'm going take everything that isn't top performing, super strong, great market, great tenant, great management, great property condition, anything that isn't top tier. They're all good, but I'm going to take the bottom few, and I'm going to get rid of them. I'm going to get liquid because I think the market is going to turn and I think there's going to be opportunity. And that's number two, get liquid now. Getting liquid can be selling things and sitting on some cash. It could be borrowing. Well, the borrowing is good if you still have equity and you still have good credit, documentable income and there are loans available for the types of properties that you have. And you can lock those rates and payments in long term. Now is a great time to do that. I think you might be a little bit late to the party. But if you can do it, I would definitely be doing it. Some people say, Why would you want to increase debt in the middle of all of this that's going on? Don't look at it as increasing debt, look at it as increasing liquidity, because the equity is probably going to end up disappearing for a period of time.
As prices fall, your debt is not going to fall, your equity gets eaten up. So if you can liquidate that equity and protect it from the market that serves you in a couple of different ways, when in a downturn, when things are tight and things go wrong, it's always good to have some cash.
Number two is if credit markets fall apart, which I think is a likely outcome and that doesn't mean they're going to be gone forever, but it'll be like it was in 2008, where things get tight. We're already starting to see some of that. Then being liquid gives you a competitive advantage. The debt coming out of the marketplace is going to cause prices to drop because not as many people can compete because they can't get funding. But if you have cash, then you can take advantage of those lower prices. And when funding comes back, then that puts air back in the pricing and equity happens. And you end up with a boost of equity. You can't have that boost if you aren't able to buy when air is out of the market, and then ride it up.
Russell Gray
https://realestateguysradio.com/
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