One of the greatest challenges facing real estate investors is surviving a recession. Although it is common knowledge that the economy is on a pendulum, most investors cannot time it right. The downswing or the upswing. This leads to holding on to assets that have a diminishing value. Feeling like the loss isn’t realized until the asset is sold, most investors refuse to take the hit and hold on hoping they can outlast the recession. Holding on usually means injecting additional capital into your investments to stay afloat. This can go on for several years. Recessions are never short. Once all available capital is depleted, a panic mode develops and people tend to make even poorer decisions. They borrow funds at any cost. Like a drug addiction, they drain good investments to support bad ones.
I experienced this scenario back in our last recession of the late 80s. My aggressive investment style of highly leveraged acquisitions, along with what appeared to be a sudden and severe recession, left me with several nonperforming properties. For 5 years I stayed ahead of debtors by borrowing funds and developing creative ways to hang on. Over many nights of scotch with trusted friends, I finally decided to let go. It was pure relief. No longer carrying the anchors of debt allowed me to build a fresh start. With the skills I picked up staying one step ahead of debt collectors through the recession, rebuilding from bottoming out was a breeze.
My words of advice to anyone in this situation:
Don’t waste good money (and energy) after bad money. More often than not the best thing to do is let go.
Don’t blame yourself for being caught up in this situation. Economics scholars cannot predict what’s coming up in the next six months.
It’s not about how hard you fall it’s about how quickly you get up. Success is sweeter after a fall.
True friends make difficult times bearable. Appreciate those special few that you can trust and depend on.
By: George Potsidis