Live on Stage: The Upside of Downturns, Recessionary Acquisitions Fun(d)
Now, in order for you understand why this topic is near and dear to my heart, I need to tell you a little story about young Patrick. He was an engineer, a robotics guy. Doing well, like many of you making great income, right here in Silicon Valley. I wanted to do better, though. I wanted to be very ambitious and invest. So I got into a highly leveraged pre-development, put everything I had all in one deal, personally guaranteed it, and what could go wrong? It was 2007, right? Well, I became very quickly, intimately familiar with the downside of downturns. I lost it all. The bank, it flipped up, property went upside down, the bank took it. I ended up even having to pay debt forgiveness to the IRS. I was humiliated, I was broke, and I had to completely rebuild myself.
How many people have worked hard at something and completely failed? A lot of us. What do we do? We pick ourselves back up. So, not too far from here I got a master’s in engineering. I got an MBA. I started doing well again, robotics and automation. I then had income again, I had bonus checks. I had to do something with it. I followed the breadcrumbs of the wealthy. Where did it lead me? Right back to real estate. But how? They invest as the tortoise and not the hare. I learned about recession-resilient markets, asset classes about buying existing construction, and cashflow. I learned how to do safer leverage, lower leverage, and I succeeded.
I grew a single family portfolio, scaled it into larger multifamily. I write for Forbes, I’ve got books out, all culminating on being on this stage and wrapping up my career into five minutes. Pretty impressive, right?
Now we have a half a billion portfolio in recession-resilient asset classes, multifamily value add deals. Sounds very familiar, right? But why would I be talking about something new, and something different? Well, over the last decade, things have been different. We now have Covid and inflation now. Our material costs are going up, our labor prices are going up. That’s increasing our budgets and our timelines. Delinquencies are killing us right now. Rental assistance checks dried up, payments did not resume. What does that mean? That means delinquencies and evictions skyrocketed at a time when the courts wouldn’t exercise them. That means we can’t even get people out to improve it, further exacerbating our income, and taking things longer. Plus insurance skyrocketing, taxes are going up, and the worst of all, interest rates are rising. Meaning our valuations are going down, with this debt wall, a trillion and a half by 2025.
So what are you going to do? Hide under a rock? What does this guy say? When others are fearful we need to be?
All right. Great assets with distressed ownership are everywhere right now. Two, three, five years ago, I couldn’t bring new deals that were as juicy on the buy. So what did people do that won in 2009 and ’10? They bought as much as they can. They made their return on the buy. They didn’t hide under a rock. They looked for distressed operators, ownerships, not distressed assets. They bought in cash quickly. They refinanced out their debt when they could, bought another asset. They did a 1031 exchange forward, to turn one into two, and then two into four, and then four into eight. They didn’t lock it up for three to five years in one asset. By doing that, you can build a quickly and swift, large portfolio of diversified assets, and using 1031 exchanges you can do that in a tax advantaged way, and participate in the most strongest wealth building tool, other than infinite banking, I guess.
But the principles are still there. We still have to buy for cashflow. The challenge with that is cashflow is really hard to get today, if you put all your capital in one investment. But if you turn that into two, and that into four, that cashflow compounds. The principles of diversification and resilience are also still present. We are still in recession-resilient asset classes and markets. We are still buying diversified locations in landlord friendly areas, but when you put your capital into the one and you compound it, you can build that diversification in faster.
So if you’re sitting in fear right now on a pile of cash, waiting for the chance to buy, you’re getting a negative return. As everybody is saying, this window is limited. We only have a year, maybe two, maybe three, to buy as much as you can. So if you want to participate in a recessionary acquisitions fund, give me a call. Happy to chat. We’ll get you pointed in the right direction. I also giving away a free copy of my bestseller to people that set up a meeting. Thank you so much.