250: 10 Best Steps to Prepare for a Market Correction

SHOW NOTES FOR EPISODE 250: 10 BEST STEPS TO PREPARE FOR A MARKET CORRECTION

The signs are there: something big is coming. Consumers and investors alike are holding their breath, waiting for events to unfold.  With America’s economic expansion in its 10th year, many worry that we’re overdue for a recession, and a bear market that usually goes with it.  How should you organize your finances considering the uncertainty about prospects for a recession? In today’s podcast episode, Bill looks at 10 things you can do to better prepare for the economic shift that’s coming

Many of us are in the middle of big deals.  Some are considering a real stretch to make the numbers in their pro-forma.

Many of my recent guests have been talking about the fact that a major financial downturn that is imminent.  Real estate and economic cycles are predictable and have been consistent for decades.  Whether they occur every, between 8-12 years, or let’s just say, on average, every 10 years… the last big recession was 2008.  It’s 2018.

The current economy is the best it’s been in decades so why should we be concerned?  If you were an investor in 2006 and 2007, it also looked like a booming economy or, in the late 1990s.  The bell curves over the last 100 years have been fairly consistent.  Peaks and valleys happen.

The question is, as an investor, are you ready?

Here are 10 practical things you can do now to hedge your bet before the economy shifts.

10 Best Steps to Prepare for a Market Correction

1. Build a Buffer

• 1. Building up a cash reserve for unexpected expenses protects you and your family. Keep growing your emergency fund until you have accumulated three to six months of expenses held in cash deposits that you can easily access.
  2. Savings account
     1. To cover shortages
     2. Additional advertising to get tenants
• Invest when the markets are low

2. Write a Budget

1. A key way to prepare for future financial uncertainty is to have a clear oversight of what your weekly and monthly expenses are. That way you know how much you have coming in and going out, and it will be easier to identify where it’s possible to cut back.
2. Look for ways to save more

3. Become a Minimalist/Reduce Expenses

1. Acting now to move onto a better rate for energy, banking, phone and broadband, and other costs can help ease your budgeting over the coming months.
2. Shah suggests: “Set some time aside to make sure you do a full review on your borrowings, savings, assets and financial position and make sure you shop around to get the best deal for you and your family.
3. “Sometimes these savings and incentives may not feel like much, but you can be very sure they add up to a lot.”
4. Time to learn to live like a miser
   1. Looking to buy a new car. Think twice.  Better to buy used and pay in full than to be saddled with monthly expenses
   2. Do you really need Netflix, Amazon and HBO?

4.  Reassess Your Current Bank Accounts & Loans

1. Go for fee-free accounts (online banks)
2. Reduce loan rates. Consolidate to lowest rate

5.  Get your Savings and Investments to Work Harder

1. When it comes to your long-term savings, make sure inflation isn’t eating into the purchasing power of your money. Make your savings work harder for you on the markets – that way you can try to protect your money from inflation and grow it for your family’s future.

6.  Create Multiple Streams of Income

1. Convert a room or basement to AirBNB. Take a 3/bd rental home and convert it to three AirBNB rooms
   1. People that have to travel will be looking for akternatives to pricey hotels
2. Look for other “non-real estate” income sources
   1. Amazon business
   2. Freelance online
   3. Be a virtual assistant

7.  Anticipate Rising Interest Rates

1. Interest rates now only have one direction left to go: up. It is too late to preach advice about over-committing to large mortgages. So how might homeowners best prepare for further impending rises in interest rates?
2. Try wherever possible not to commit to other mid- or long-term loans. Even if low-interest or interest-free, these payments will still be a drain on your monthly bank balance, and you may well need these finances to help bolster your mortgage payments.

8.  Lock In Affordable Repayment Plans

1. If you’re in debt then it’s time to think about protecting yourself from any future uncertainty.
2. Serious consideration must be given to the affordability of debt. The reality is that rate hikes are expected over the next few years.
3. I would encourage anyone with debt to start giving consideration to sharper repayment plans wherever possible, and I certainly would advise a proactive approach to debt. Look for the most efficient method of repayment by locking in an interest rate that is affordable, rather than being at the mercy of an increasing variable rate.
4. High interest rate credit cards will get higher!

9.  Pay Down Mortgages

1. Many first-time buyers only have a small amount of equity in their homes, meaning that if prices fell even by 10 per cent they could end up owing more than the property is worth.
2. The problem with being in negative equity is that it makes moving home very difficult. It can also obstruct your ability to remortgage. You could slip onto your lender’s high-interest standard variable rate as a result and become trapped as a mortgage prisoner, unable to switch to a cheaper rate.
3. While this is a highly unlikely scenario, you can improve your position by overpaying on your mortgage where possible. Doing so will reduce your overall amount of debt and you’ll gain more equity in your home.
4. Of course, it’s important to check how much your lender will let you overpay so you don’t get caught out by penalty fees.

10.  Stay Informed

1. I am going to feature a number of guests that will be addressing recession issues
2. For many, the financial press can be a bore; but it’s really important to make sure you keep absolutely up to date with what’s happening in the financial world, as it impacts your money on a day-to-day basis.
3. The Government may change a policy, a large company may hit difficulties, there are a number of things which can impact you and your money that you need to keep track of.
4. We’d certainly agree with that, except of course the idea that the financial press can ever be a bore. Let’s just hope that whatever is around the corner is not too exciting or terrifying.

I know this is a brief overview.  But, in weeks and months to come, I hope to look at more specific REI issues as they may be impacted by a market correction. And I’ll be looking at other issues that can help prevent recession traps.

Now please, don’t get me wrong, I don’t ever want to be a purveyor of doom and gloom but, at the same time, I don’t think we should walk around with blinders on either.

There will be market corrections.  On last Monday’s show, Nizan Mosery shared how he belived that economic indicators point to a major shift in as soon as 18-24 months.

Are you prepared?

Being conservative with our finances never hurt anyone and can help you in the long run to not only survive a recession but be poised to thrive as well.

Well, that’s all for today…

IF YOU LIKED THIS PODCAST, we would love if you would go to iTunes, Stitcher or GooglePlay and Subscribe, Rate & Review our podcast.  This will greatly help in sharing this podcast with others seeking to learn real estate investing as a means to achieve a successful retirement.

Check out our other podcasts at olddawgsreinetwork.com.

Get a FREE copy of our 3-Minute Rental Property Analyzer at olddawgsreinetwork.com.

Episode Sponsor: Meno Studio – menostudio777@gmail.com