I wrote last time about the current difficulties planning for the future during the great covid suppression. There are just so many unknowns right now that planning anything is tough. But, even in the worst of times (which we are no where near) we entrepreneurs have to try to do some forward thinking. We have to thoughtfully consider what may lie ahead and what we could do to both grow our business and survive. Here some of my thoughts.
Of course, current thinking is going to revolve around the covid virus along with government’s and society’s response to it. What we are all experiencing is simply unprecedented in our lifetimes. For example:
- Unemployment is likely above 20%.
- Many small business will never reopen again.
- Several large business will file for bankruptcy.
- GDP has declined by almost 5% here in the US.
- The Federal Reserve is creating a lot of money out of thin air.
- Lenders have significantly tightened their standards or are not lending.
- Calls for rent strikes and government intervention continue.
- There does not seem to be any good way out of all of this.
What does this mean for landlords, or for any other business for that matter?
- It is going to take a lot longer to get through this than we had all thought or hoped. There will likely not be any quick recovery.
- Things are going to get more costly due to inflation.
- Calls for regulation and other government interference will grow as the crisis continues.
- Some of the regulation and government interference that was inspired by covid will never go away. The level of regulations will never go back to what they were.
- Taxes of all sorts are going to increase.
- Politics is going to become even more divisive.
I hope I am wrong, but the above does not paint a very optimistic picture. Now, I am not saying we are headed towards a dystopia, but believing that impacts will be minimal and contained or that “this time it’s different” are I think, misguided.
So what to do? What do we plan for?
First, I would think about items that you can control in your business. What expenses, people and resources can you as the business owner control? Some expenses such as maintenance are directly under your control. Others like taxes and mortgage payments come with steep consequences if not paid. When you think about it, there is often not many expenses in our businesses (or any business) that can be easily cut without dire consequences. Knowing that, I would carefully consider adding any new expenses or expanding significantly until things become a bit clearer.
If you have employees or contractors, you may have some hard choices in the near future as these expense items are often some of the largest expenses a business has and has control over. Is it wise to cut employees or farm services out to professional managers at this time? Maybe. Again however I think having direct control and access to employees and these types of resources may make our business more nimble and better able to weather this crisis.
Secondly, do not take the easy way out. Seek out options in places you have perhaps not done so before. It is can be easy and tempting to simply throw cash at a problem to make it go away, but that may drain needed reserves too quickly. I think we are all going to have to work harder in the near future to trim costs, search for the best prices and prioritize projects.
Third, consider that your tenants may have a difficult time paying rent, not pay at all, or move back home with mom and dad. How will that affect your business? What would a 10%, 20% 30% drop in revenue mean for you? What are the actual numbers? How would you survive that drop? Could you make enough cuts in expenses? If not, what are your options? Best to learn what these numbers are and think of possible options now.
Fourth, how could you respond to keep at least some revenue coming in? What would make you stand out in your local market and cause tenants to choose or stay with you over going somewhere else? Could you reduce rents or add some other incentive? How much could you reduce rents? Do you know the numbers? Again, it is best to figure them out now as we may all need to get very creative in the coming months or years.
One thing is for sure, there will be an other side to all of this and most of us will hopefully be there to see it. It just may take a lot longer and be more difficult to get there than we first thought. We may all however need to tighten our belts and get creative to get there. But any plan begins with knowing where you are today and where you hope to be. So beginning with your own numbers today and projecting into tomorrow is a very good place to begin a plan for the future.
Kevin Perk is the founder and publisher of Smarterlandlording.com. He is the author of Advice From Experience To New Real Estate Investors. Subscribe to Smarterlandlording here. Contact Kevin here.
