Last updated on January 3rd, 2022 at 12:49 am
This was written on March 16, 2020, and given the rapid pace of events (coronavirus covid19), it is likely that at least part of what I say will be out of date as early as tomorrow. Regardless, this is my take on the situation and it can be filed with many others who are plowing new ground here.
I vividly recall the real estate disaster of 2009. The stock market took a massive hit and believe it or not, the market today is far above what it was back then. You know the saying, what goes up most go down. If it were not for the Coronavirus, something else would have eventually ended the longest-lasting Bear market.
So here we are, lots of people giving lots of advise which probably does little but cloud the issues. I am joining because I have been through that last terrible financial time and for the reason, I am going to primarily talk about the financial side of the Corona Virus issue.
Do not sell all of your equities now!
Don’t sell all of your equities! You are too late to the party, we are way down the curve. With the markets down more than 30%, you will lose the dividends and the original acquisition price. In other words, selling now may put you into a permanent loss depending upon when you purchased the stock.
There were a few who cleared out their 401k’s and stock portfolios at the first hint of the pandemic, that time has long passed us. If you are sitting on cash which will probably earn little now that the Fed has lowered interest rates, consider holding it until there is a better floor on the stock market. Then buy and take advantage of those foolish people who sold gold-plated stocks.
I am a fan of real estate investments
I am a fan of real estate investments. During the previous six months, I pulled funds out of equities at the top of the market and purchased bargain properties, and leveraged financed at very low rates. Those residential rental properties are generating great cash flow. I also own equities and of course I have taken a bath but as most will advise, spread your risk around. I did and I am glad that I did.
Providing financial advice is easy for people who have little to lose, have not won and lost, and are not “in the game”. This is one of those defining moments when we will look back and evaluate what we did during this period. Sitting tight on your stock portfolio and buying a bit here and there will prove to be the best advice.
Cash is king now. with it, you can take advantage of everything from low gas prices to the lowest interest rates in history. Be smart, evaluate where you are, no need to take unnecessary risks, instead take logical, well thought out steps.
Consider buying residential rental property
For example, you consider buying a residential rental property. Good for you. After you analyze it to death you find that you will make 8-10% cash on cash with a 5 year ROI of over 100%. Good so far. You obtain a loan with an interest rate in the 4% range, great. Now before you consider following through, do you have sufficient cash to withstand six months of no rent?
Why do I ask this? Because of the Coronavirus. Your prospective tenant may be out of work and it may be difficult to remove them and replace them with another tenant. Due to the emergency edicts, there may be a rule in your area that you can not evict without six months’ notice during the state of emergency.
Cash is King
Remember when I said that cash was king? This is where that saying comes in. Move forward with your outstanding deal but make sure you can sustain a prolonged shortfall in rental income. Perhaps this will not happen depending who you place in your property. Be sure to check their employment before you decide to rent to them. Lots of positions are critical and will not be laid off. Financial is the one item left that you can discriminate against.
Many who read this within the days and weeks of posting will have time on their hands as they may be laid off from work or told to stay home. Take this time to read articles like this one and catch up on much-needed personal work and planning.
The Corona Virus will leave us at some point and we will learn a little from it but most of us will go on with our lives. Consider this, our country went through a world war. We mobilized the entire nation and won that battle. Not just a battle in the shoot the bad guy, but the battle to work as a coordinated nation all striving for the same goal to reinvent peace.
We also clawed ourselves out of the Great Depression, the Spanish Flue epidemic, the Korean War, Vietnam War and a multitude of hurricanes and natural disasters. Every time, we come back better than before.
Be prepared for the turn around. Use this time to plan for your future retirement or investments. Consider what you have learned:
- Have access to cash
- Invest in a variety of areas e.g. equities, money market, real estate etc.
- Do not panic at economic events, the markets always bounce back.
- Be prepared for signs that there is a turn around, no need to be the first to get back in but move quickly.
What should you do right now?
This is a good time to reevaluate your financial situation.
If you have a mortgage with an interest rate in the 5% rate or higher, get it refinanced this minute. Call your loan broker and start the process.
Cancel any subscriptions that you do not need. Time to save some money. This includes club memberships etc.
Make sure you pay all of your bills on time. Do not miss a single payment, shore up your credit for that refinance or later loan to remodel or buy an investment property
Work on your own house if you own one, time to put in some sweat equity if you have to time off from your job. This will save you money and improve the value of your home.
Research the internet for sites like this one and other where you can learn about investing and other things of interest e.g. planting a lawn.
Make plans to reorganize your financial life
Make plans to reorganize your financial life. What stocks, bonds, CDs, etc you will liquidate etc. at the right time. When do CD’s come up, will you renew or use funds for something else.
What services around your home can you do yourself and cancel. For example. you can spray your home every month for pests as well as the service you pay can. Why not save some money and do it yourself. If you have an infestation of something you can get advice from Utube or call for a one time fix.
Learn to become self-sufficient as much as possible. What can you do that you currently pay someone else to do for you? Washing your car for example (if you live in an area that permits it), can save money.
Its time to rethink lots of things
Essentially it’s time to rethink lots of things and right at the top is your retirement plan if you are not already retired. If you are, you may have to recalculate given that it may take a few years for many for the stock market to come back.
The link above will take you to our retirement budgeting spreadsheet where you can make adjustments to your plans. Copy it to your computer and spend some time with it. Knowledge is power. It’s uncertain that bothers people. Take command of what is within your power to control and planning is within your control.
Finally, read more articles on this blog site and check out our partners who provide services such as real estate investment, vacation rentals and financial services. I work with each of these firms daily so you can be sure they will provide value for you.
UPDATE: It’s now January 2022 and what I said above is still true, one reason for not revising it. Please subscribe to our blog on the top right side. Thanks.
