There was a thread titled, Thoughts on Economic Emergency Preparation over on AR15. There were a lot of good ideas. I posted a response, but wanted to archive it here on my blog, too. The subject came up about buying rental properties as a form of replacing your personal income. Another idea was to pick up a trade skill from your local vocational school.
1. Rental Properties: Rental properties are money pits. Even in the best of times, it’s darn near impossible to cash flow enough to cover your personal expenses. I’ve been a member of three real estate investment clubs in two different states and I’ve helped the owners of two of the larger real estate investment info product web sites get started. I’ve owned a four-plex, a duplex and several single family houses and my family has owned property (both commercial and residential) for three+ generations. Don’t believe the hype: You need large cash reserves if you’re going to hold rental properties, even if you own them free and clear. The culture has changed in America. Most tenants– even when you screen them well– will not take care of your property like YOU would. Even if they do: Owning rental property (I repeat) is a money pit. Roofs need to be replaced. Air conditioners break and need to be replaced. Properties get infested with bird mites and the tenants need to be put up in a hotel while you have the property tented. Money pit, Money pit, Money pit. How are you going to pay for those expenses when you don’t have a job and you’re trying to live on whatever the property cash flows? (After PITI? Good luck!) Don’t believe the hype. Guys lie about their great investment deals just like they lie about their truck MPG and their penis size.
Every successful investor I’ve met eventually graduates to holding paper (I.E. lending money) or jumps up to big multi-family units, which are beyond the scope of anyone still working a day job.
In a bad economy, people stop paying their rent. Not only will you not have cash flow, but you’ll also have lawyer fees to get the tenant out. Once they do leave, you’ll find that they have destroyed your property. Where will the money come from to fix it up and get another tenant? (If you can find another tenant, because there are now so many vacant properties to compete with). Rental property is fine if it’s part of your investment portfolio. But it is foolish to depend on it as a source of income. Sure, you might be that one guy who gets lucky with his rental property. But if you want to play a game of luck, you might as well just invest in the market and sidestep the leaky toilets. [/flame shield ON]
2. The Trades: Let’s look at the Great Recession as an example: Construction jobs dried up. Suddenly, carpenters, plumbers, roofers, drywall guys… were out of work. What did they do? They either sold everything and moved (contributing to the glut of housing and depressing rents) or they tried to pick up odd jobs and start “handyman” businesses. Are you really going to compete in a crowded market with your newly acquired trade school skill? I visit a lot of pawn shops in my free time, just to get a gauge as to what is happening with the economy. I still see a lot of tools for sale. The pawn shops can’t get rid of them.
My guitar instructor used to work on a construction crew. When the construction jobs dried up, he started teaching guitar. He makes enough to pay his bills. What he found is that: People with money — and retired folks– will still pay for guitar instruction. Parents with money will scrimp on other things to make sure their kids can still get an education. Now, if the Great Depression 2.0 hits, will he be able to make a living teaching guitar? I doubt it. But it was good enough to get him through the Great Recession.
I wrote about a guy buying and selling used appliances, on my blog. Now that’s a recession-proof business. Is it easy? No. But it’s easier than competing against the throngs of experienced tradesmen in a bad economy. ** Although I should note that tradesmen in my area are busy as heck, right now. But they weren’t a few years ago.
Study Entrepreneurship Instead
I think the trick is to find a little niche (like buying and selling used appliances) that will continue to make you money, regardless of the economy. I’ve lived in some real shit holes. One thing I’ve noticed is that: People will always find a way to buy the latest cell phone device, and young men will always spend money on fancy rims and car stereo systems. Neither of these are businesses that I personally have an interest in getting involved with, but the examples should at least get you thinking in the right direction.