The Property Voice Podcast - Series 2: Top Tips in Surviving a Recession
Booms and busts are part of our economic cycles as we have seen and this inevitably means we will at some point face a recession during a complete cycle. During recessions, a lot of business and property investors can come a cropper and even face bankruptcy. This is where my guest today, Ed Atkinson, comes in. He wrote a paper and developed a simulation tool that not only guides us through how to survive a recession, but also allows us to model and play out a number of scenarios in respect of our personal portfolios…before we really have to do it for real. Join Ed and me as we unpick the main warning signs and top tips in how best to beat a recession.
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Resources mentioned
Giving in Action…supporting an Amazonian School
The charity and fundraising website of www.justgiving.com contains many deserving causes to get behind, so check that out too. Here is my Just Giving page
Today’s must do’s
Grab your copy of the House of Cards, how to survive a recession paper and simulation spreadsheet and see how secure your portfolio is
Consider pledging your support to my Amazon School 10k run here
Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!
Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!
Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com in case you would like to get yourself a copy to accompany this series
Get talking!
Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net
Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page
Transcription of the show
Hello and welcome to another edition of The Property Voice Podcast, my name is Richard Brown and as always it is a pleasure to have you join me again on the show today.
What goes up, has to come down they say. This is certainly true with both economic cycles and specifically property cycles. The good years are usually quite straightforward for us, as time can fix many problems in property. House prices and rents will rise and this can make a bad investment an acceptable one, or an average one a good one even.
Inevitably though, understanding that there are these cycles also means we will face some harder times, when rising house prices and rents won’t bail us out and in fact we can even run a risk of bankruptcy if we are not careful.
So, possibly a little doom and gloom episode today, however an essential one as well, as we unpick some of the attributes of a recession that can cause us trouble and then adopt a few good practices to help avoid these issues undoing all of the hard work put in to get to where we are at the time a recession hits.
I am joined on the show today by a property investor by the name of Ed Atkinson, who has invested in property through 2 recessions and earns a significant part of his income through property. Ed has written a paper called House of Cards: How property investors can survive future recessions and an accompanying simulation model to plot your own portfolio against the 5 major recessions of the past century.
Ed’s work is aimed at property investors using leverage or higher levels of mortgage lending, as these are the investors most at risk during a recession.
So let’s hear my chat with Ed in Property Chatter and then we can pick up the thread again shortly.
Property Chatter
Interview with Ed Atkinson
I have to say that Ed was very gracious in accepting my invitation to come on the show this week, a short notice request and a Sunday evening shows his passion for the subject and also his willingness to help spread the message for all of our benefit I would say.
I guess to summarise his vicious spiral, as I am going to refer to it, during a recession we are faced with the following potential threats:
- Negative cashflow through higher interest rates and thus mortgage payment and / or a squeeze on rental income
- Exhaustion of any cash reserves or supplementary income to be able to bail out the negative cashflow arising from point one above
- Forced sale of properties placed upon us by lenders as we fall into arrears and / or default, often at a discount, along with a raft of additional fees.
This can be a death by a thousand cuts like experience as we lurch from one catastrophe to the next until finally we have no portfolio left or could even face bankruptcy at the extreme as others have done in the past.
Ed has a list of 10 tips to apply in order to avoid this disaster striking in his paper: A House of Cards, here were his top 3:
- Ensure you invest with a positive cashflow across the portfolio
- Have a cash reserve fund
- Concentrate equity into one or two properties rather than spread about
He also added a bonus tip of avoiding investing during the 2-3 years leading up to a recession, also known as the ‘Winner’s Curse’ phase as per the 18-Year Property Cycle that Akhil Patel shared with us a couple of weeks ago.
Personally, I agree with a lot of what Ed was saying and indeed I have been advocating much of this advice for some time, both on the blog and here in the podcast.
In my experience, there are two main killers of a business, including a property portfolio, and they are a lack of cash and / or liquidity. If we can avoid negative cashflow and poor liquidity, then we should be well positioned to survive most downturns well. They are slightly different however.
Cash is literally cash funds available in the bank that we can access immediately, or close to immediately. That is why Ed talked about ensuring positive cashflow across our portfolio and also having a reserve fund.
Liquidity is having access to cash-equivalent resources in a reasonable time period. It could be assets we could sell, additional borrowing we could call upon, or alternative income streams we could rely upon say.
Therefore, by implementing a plan that considers both cash and liquidity, we can put measures in place to ensure our survival during harder times, almost regardless of what happens in the economy.
However, the bonus tip is also extremely important – having an awareness of some basic economic principles, such as the 18-year property cycle and the 6 key factors that affect house prices as we discussed in the last two episodes in this series. We don’t need to become full blown economists, we just need to be aware of some of the warning signs and as such, we could just avoid being a lemming diving off the cliff in the ‘winner’s curse’ phase of the property cycle.
Today’s theme I guess is something of a defensive measure, how to survive is hardly the most inspiring of titles after all is it? However, in order to enjoy the highs and good times, as we are no doubt all seeking, we also need to ensure we are in great shape for when those inevitable troughs arise as well.
As we mentioned during the interview, Ed will be making a guest contribution to our blog, but in the meantime, if you would like a copy of his paper: A House of Cards and a copy of his Excel spreadsheet, or recession simulation model for yourself, then just drop me an email podcast@thepropertyvoice.net and I will send you the details of how to get hold of them.
Thanks once more to to Ed, but right now, it’s time for Your Voice.
Your Voice
Back to Your Voice then…
Another 5-star review this week, this time from BB in Property who says:
Fills the void!  |
| May 8, 2015 by BBinProperty from United Kingdom |
| This podcast series plugs the gap in the learning resources for property investors neatly. Not an interview-based show but sometimes snippets from industry 'subject matter experts', not a news service, which would be the equivalent of chip-wrap newspaper but instead a more in-depth look into specific topics that property investors want to know about. Some nice features too like the production quality and the glamorous assistant 'Casa' do make it stand out in the crowd. Worth subscribing... |
Thank you very much BB in Property, sorry that we have not had Casa for a while now…we didn’t find that many people such as you that seemed to want her to stay on the show I’m afraid. But if you and others like you want to start a lobby group to get her back on the show, let’s hear from you!
We really do appreciate the reviews though, so do please take a moment to leave us one if you can as it helps to spread the word. Meanwhile, you can also get involved in Your Voice by sending in your questions, or stories, or why not leave us a voicemail via our website www.thepropertyvoice.net
Next up, the Shout Out
Shout Out
Ok, so I now promise you this will be one final push as far as my 10k fundraising run is concerned, if you would indulge me briefly here.
I did it! Last Saturday, I managed to brave the wind and the rain and ran the 10k with my brother-in-law in a time of 56:19, which was better than my sub 1 hour target. It was a little tougher that morning than I expected for some reason but it is done now, so that’s my end of the bargain completed I am happy to say.
It would be great if you could support the fundraising effort if you have not done so already, just visit our website and search for the post called Giving in Action…supporting an Amazonian School for the back story and details of how to support the cause.
So, I guess the resource I would like to share this week is www.justgiving.com which is a great site to get involved with to support worthy causes, or for one of your own, just as I did. Check it out and see what other well-deserving causes would benefit from even a week’s abstinence from your Starbucks or Costa coffee to support them instead.
OK, so that about wraps things up for another week then, by all means feel free to drop me an email personally podcast@thepropertyvoice.net and as always the show notes will be over at the website www.thepropertyvoice.net
There we have it, and in our customary style, all that remains for me to say is: thank you very much for listening again this week and until next time on The Property Voice Podcast…it’s ciao-ciao