What to Do (& Not Do) In This Weird Economy

Mike DeHaan: [0:00] What's going on, guys? Welcome to today's collecting keys Friday focus. If this is your first time to the show, my name is Mike DeHaan, and I am the main host of the collecting keys podcast. This show, we dive into everything real estate operator related. And on these Friday episodes, we usually do, like, a little of a deep dive on either a question from a listener or a topic that we have been kinda like thinking about or talking about recently. And this episode today, I kinda wanna talk about just like a wider sort of concept or thought, particularly around the economy, mostly because as of time recording this, it's April 8. So things could change, I guess, for next week, but we are facing a very I wanna say unprecedented, but a very dramatic decline in the stock market and some general economic turmoil. And as business owners, especially if you're, you know, like a real estate business owner where your opportunity and outcomes are kinda dependent on the general economy, it can start to cause some concerns. And so what I wanted to do with this episode was kinda focus on stuff that you should be doing during this time and stuff that you definitely shouldn't be doing so that you can kinda get through, you know, this next little period of time for however long it might be. And so first off, let's start with things that you should be doing.

Mike DeHaan: [1:15] Right? And so whenever there's challenges in, like, the wider economy, as a business owner, it always kinda gets a little bit scary because, you know, you'll have staff members to start to get concerned. They're worried about their jobs. You especially if you have a debt based business, all of a sudden, debt starts to get more expensive. It can be harder to find buyers. If you're wholesaling, you don't really know what revenue is gonna look like. So really what you should be doing right now is doing everything you can to start to be a little bit more defensive with everything. Right? So that can mean really making sure to offload some of your poor performing properties if you're holding things that are not doing as great as you would expect, especially since we see interest rates dropping a little bit here with the ten year reserve taking a dive. It can be a great time to sort of get some some properties off your books, especially single family ones. If you have, like, kind of starter price points in your family rentals starting to sell those, there's still a buyer's appetite for them. You know? They're still affordable for people, and as interest go down, that will only increase. If you own, like, duplexes, things like that, those are those are gonna be harder to sell because investors are be a little more conservative. But sort of delevering yourself away from stuff that might be a future problem or is a current problem is a great thing to kinda do when the economy actually get weird.

Mike DeHaan: [2:28] And if you don't wanna sell them, let's say you like them for the long term, with interest rates coming down, you can also look to refinance them. Right? If you are holding debt that's like, you know, 3% that you got in 2021, that could be hard to justify unless you're able to to pull out some cash cover yourself. But if you bought stuff in '22, '23, or '24, and you're sitting on seven and a half or even eight and a half percent debt, it could make sense to do a cash out refinance right now. You know, see if you can get a a DSCR loan that's down in the sixes, which is doable. We're seeing it a lot with our lending company. And pull some cash out even if you have a early pay a prepayment penalty, that's okay. Just like eat that, roll it into your cash out, and just recover some capital so that you can weather the storm of some of the ups and downs of business. So that's a big thing that you should definitely be doing, just delevering and and getting a little bit more liquid wherever possible. Something else you should be doing as well is starting to look around and see what relationships are going to withstand kind of the turbulence in the market. So when it comes to these kind of time periods, what'll happen? We saw the same thing in 2022, even though the economy didn't necessarily get bad. We did see a turnover of the real estate market. And in 2022, all of a sudden, all of our buyers dried up. And so what everyone was scrambling doing was trying to figure out how to find buyers.

Mike DeHaan: [3:45] Same thing's gonna be happening again now. And so it's a great time to be growing your network and really finding who the strong players are gonna be and focusing on those connections as opposed to trying to find, like, a massive network of people that are kind of maybes. Right? So starting to show that you're a serious player in the space and building those relationships will really go and pay off in in the next little bit here if stuff gets weird. Something else you should be doing is is looking at your systems as a whole, trying to see where you have waste, whether that's waste in marketing, whether that's waste in underperforming staff, whether that's waste in systems that you started building, but never really using. And just be diligent about cutting that. Right? When finance start to get tight, getting rid of staff is unfortunately something that does happen. Ideally, you never wanna have to do that. But if you have people that you kinda have been delaying getting rid of just because you're kinda getting by, now is probably the time to start exploring getting rid of that person. Or, you know, same if you've gotten really far down the track on some kinda new, like, project management software or some kind of, know, like, system or something that you're building out that has, like, a fixed overhead cost. Maybe you have a cold calling company that's really not performing for you or some kind of lead gen company. It's time to get rid of those and just focus on the stuff that you know is working. So if you've listened to the main show, the Tuesday show the past couple weeks, you've probably heard that we're really going into the direct mail stuff. We've been doing that for years, and we've had a bunch of different kinds of marketing going, but direct mail has been like our our core.

Mike DeHaan: [5:14] And so we're heavily focusing on that over the next little bit just because we already know that it works. And so why would we have all these experiments when we can instead just put that capital to something that we already know is gonna be beneficial for us? Right? And so that's something that you should definitely be doing. And then I guess the last thing I'll say is you should definitely be much more conservative when you are looking at profits that you're actually going to be keeping yourself, you're gonna be buying, and maybe getting a little bit of extra room on the deal. Right? So expect to be buying stuff at more of a discount than you traditionally have. Expect renovations to be a little bit more expensive. We start to see these tariffs come in and prices increase. We're also having a lot of issues with labor. And, you know, the deportation stuff going on in certain markets is getting rid of some of the the cheaper labor that we've all been using. Expect that to start to change. Right? You're gonna have to expect more money to be spent on the renovations and and some of these additional costs. Right? Also, same withholding costs. Stuff might be sitting on the market a little bit longer, and so you need to realistically account for that. Like, don't expect things to just go on the market and go pending in one week or two weeks anymore. It's very possible that you'll have flips that will sit on the market for three or four months, even if they're great looking flips. Right?

Mike DeHaan: [6:25] That's just the nature of the economy that we're going into. We've already been seeing that a little bit. It's only gonna get worse. And so just be in a defensive position, but don't be, you know, concerned or or cancel or stop your business or whatever. But just be, like, a little bit smarter with how you're approaching things and get rid of some of the the fat where it's not needed. Now talking about the things that you shouldn't be doing, and there's really just, like, one primary thing I want to touch on with this because I've already been through, I would say, like, three hiccups in the real estate market. Right? And so I started flipping properties in 2018. The first one that we saw was in 2020 during COVID. Sure. 2021 followed after that. But during 2020, man, everyone thought real estate was doom and gloom. I remember listening to all these podcasts where people were just, like, losing everything. So I saw that. Then we saw the 2022 period, which was the reaction to 2021 when everything got weird and kind of froze up. Interest rates shot up. Took a long time for buyers to get accustomed to that. And now we have this one that is that is coming up right now, which seems to be a little bit larger and is more significant. But who knows? Right?

Mike DeHaan: [7:29] We could be looking at things six months from now and not even remember that this hiccup even happened. But either way, when things start to get hard, assuming that you have done all the the defensive measures to continue moving things forward in your business, the thing you should absolutely should avoid is getting this, like, shiny object syndrome that always seems to happen when the market starts to get kinda a little weird. Right? And so the reason I brought up the the previous little market hiccups was because every time that those happen, all of a sudden there would be this huge increase in real estate people that were pivoting to some whole new endeavor in their in their business. Right? And I was one of these people in 2022, honestly. So the you'll start to see people starting coaching communities. You'll this is act 2022 was actually when we started scale. Sure. I'm coach guru. Call me hypocrite, whatever. We started that as a result of our real estate business getting more challenging, and we're looking for some more consistent income. Right? So we started scale, and then we started our marketing company and our our partnership program. And we did that for years, trying to do that in tangent with the the wholesale company that we were running.

Mike DeHaan: [8:39] And in hindsight, if we had just stuck with the wholesale company, we probably would have been significantly better off. And I see so many people start to make the same mistake over and over and over again. And I don't know if it's because they get bored, they get nervous, they just don't know any better, they think that maybe their opportunity has dried up. But they start to hard pivot to these things that feel like they are in tangent or in sequence with their their current business, but in reality, they're not. Right? So you'll see flippers suddenly start general contracting companies. You'll see wholesalers start marketing companies. You'll see people start podcasts and and coaching communities. You'll see people go and get their real estate licenses. They're the only thing my house. People are starting to buy small businesses because those are recession proof. That's the dumbest thing ever. By the way, I've talked to, like, three people in the last week and a half that have lost their ass off of a small business acquisition. So that bubble is coming crashing real soon. But point being is what you gotta do is just stay the course and stick with what you already know, and don't try to reinvent the wheel just out of fear.

Mike DeHaan: [9:36] Like, it doesn't make any sense. And what'll happen is you're gonna divide your resources, and your currently existing business is gonna struggle because it's gonna lose your attention. It's gonna lose your money. The new business will never do that well because you're gonna be trying to balance both business at the same time. You're gonna increase your workload a lot. You're gonna increase your stress, and you're gonna make dumb decisions as a result. Something that has happened time and time and time again, and especially when the economy gets weird is not the time to be doing that. So right out with what you know works, take advantage of the opportunities and network you have, get liquid where you can, and just stay the course. Right? And figure out how to use your knowledge and your business to weather through and continue to grow and potentially come out the other side stronger. You know, the the downsides and the dips and the challenges are when companies get better. That's why there's, like, companies that have been around for, like, a super super long time through all the different ups and downs. Whereas during all the big downturns, there's always like a big washout of a lot of companies, but the ones that come out end up being these big legacy companies. It's because they learned how to thrive when stuff is really hard for everybody else. So you gotta focus on being one of those people, so that you don't make the same result that thousands have made before you and end up just like coming out nothing or significantly worse just because they were afraid or they were kinda lazy.

Mike DeHaan: [10:47] So anyways, as you're going into it, save the course everybody. Keep your head up. Don't watch the news. Just focus on increasing revenue and cutting your costs wherever you can, and doing what you know works. And typically, if you focus on the stuff that you know is gonna do well for you, it should continue to do well for you going into the future unless something else happens. And when all else fails, track your KPIs and look at what your actual return on everything is. And sometimes what you gotta do is you gotta zoom out. So if you have a bad month, look at the quarter. If you have a bad quarter, look at the past six months. If you have bad six months, look at the past year. And then if you have a whole bad year, sometimes you gotta look at multiple years, right, just to make sure that you are actually on track. So hope that's helpful for you guys. I appreciate you guys listening, and I'll talk to you guys next time. Thanks, everybody.