Ep 40: Now is the Time to Start Tweaking Your Business Plans
Did you hear that?
Do you feel it?
Now it's time to experience the power of The FED!
No, no, no... Not FUD (Fear, uncertainty & doubt)
I said the FED (The Federal Reserve)
Deep into the 4th quarter of 2022, we are all feeling the impact of increasing rates and inflation.
In this episode, I will suggest ways to deal with it as a Value Driven Investor.
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Full Transcript
Did you hear that?
Do you feel it?
Now it's time to experience the power of The FED!
No, no, no... Not FUD (Fear, uncertainty & doubt)
I said the FED (The Federal Reserve)
Deep into the 4th quarter of 2022, we are all feeling the impact of increasing rates and inflation.
Remember episode 38, when I warned you about FOMO and gave you a run down on housing prices and where I thought our real estate market was headed.
When I warned you to think twice about buying your new home, your second home, or investing in commercial assets. Unless you were planning for what was coming.
I spoke about the CRAZY DEMAND for housing because of the unbelievably low-interest rates.
I spoke about the CRAZY Home PRICES that were driven by demand and inflation...
We all sat on edge as we made assumptions about "Where the interest rates are going to go."
And how those interest rates were going to impact us.
Well, today... It's safe to say we know where rates are going and feel the negative impacts of the FED tightening on interest rates.
All around me I am seeing and hearing about the impact THE FED is having on our economy.
Personally, I am feeling it too!
In 2021, I was thinking about buying a second home in Florida.
In 2021, I was making investments in commercial real estate.
In 2022, I am still purchasing residential real estate investment deals.
All the while interest rates have gone from 3%, 4%, 5%, 6%, 7%, and possibly higher when we hear what the FED has to say this week.
Should you be scared?
Should you be freaking out about the WHAT IF?
YES!
You better be focused on your business plan and building a strategy that allows you to protect yourself from what's happening right now.
The other day I was talking with my multi-family investment team and they asked me, "Murph, do you think it is best to stick with a variable rate mortgage or move to fix your financing?"
These were GREAT Questions!
Here is my Answer:
Value Driven Investors,
As an Investor who wants to hold the assets, we invested in as long as possible.
The key things I want to know before you restructure the debt on our multi-family assets are:
How much will my shares get diluted if I don't invest more money?
If I wanted to stay whole how much more money would I need to invest?
what are the dividend payouts projected to be after the debt has been restructured?
After restructuring the debt when will we start receiving dividends?
What is our projected NOI growth over the next 5 years factoring in the restructured debt, current rent projections and operations?
I believe, If you can restructure the debt and start paying our dividends again by 2024.
Then it's a NO BRAINER to fix your debt and take back control of your destiny.
Sticking with variable-rate debt in the current environment is gambling NOT investing.
I believe rates will go up and have the potential to correct by 2025.
If your cashflows can remain strong... Even as rates increase. Your odds of surviving are great!
My theory is, The Fed will keep pushing rates until 2nd Quarter of 2023. The world will scream bloody murder.. Just like they are starting to now.
Everyone will panic and drastically slow down consumption as we are starting to see.
1.2M - 1.5M jobs will be lost
Inflation will start dropping from 8% - 6% - 5% by end of 2023.
I believe once the Fed sees Inflation at 6% they will hold on to rate increases in 2023-2024. That hold will keep pushing inflation to 5% or less.
Once Inflation hits 5% the FED will ease up on rates a .25% point until they see the drop in Inflation slow down and ideally hit 2%. But, I don't think they are as worried about actually getting to 2% as they are about correcting the inflation trend.
This could all happen a lot quicker. But If they want a "Soft Landing" it will take more time.
The ONE THING they can't allow for is DEFLATION.
That's what they have been working to prevent ever since 2010. That's why rates have been so low and why The FED has found every excuse in the book to keep printing money.
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This was my answer to the guys I invest in large multi-family real estate deals with.
My answer to those of you investing in single-family real estate deals is not much different.
No, now is not the time to stop doing deals.
NOW is the time to start tweaking your business plan.
Start adjusting your financing.
Make sure plan B & C are still options.
Reduce your risk.
And most of all... Worry about what you can control.
If you bought your deals at the right price, in the right location, with the right plan.
Everything will work out!
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Times are changing and the best way to navigate is by sticking together.
Don't hesitate to leave questions in the comment section or contact me directly at
TimMurphy@ValueDrivenInvestor.com
Because NOW is the Best Time To Create a Life On Your Terms!
