A Bright Future Requires You to Recession-Proof Your Business

If an economic downturn doesn’t occur, it will be surprising.

Inflation has remained tamed for over a year thanks to the Federal Reserve’s interest rate hikes. We have already seen more stringent credit conditions. There are even some regional banks that have closed their doors. However, even the Fed’s staff economists anticipate a recession even though the job market remains healthy.

It’s no wonder most business economists anticipate a U.S. recession to begin in 2023, much later than previously expected.

Recessions typically lead to double-digit stock market declines. Understandably, this is especially concerning for investors. During the Coronavirus pandemic in 2020, for instance, the S&P 500 declined by nearly 34 percent.

Surround yourself with the right people to recession-proof your business

However, it’s not all doom and gloom. When you realize a downturn is coming, you can still adjust because the real estate market moves slowly. Market crises are hard to predict — but they will happen eventually.

Embrace the next downturn by surrounding yourself with the right people, asking the right questions, and putting yourself in the best position.

That’s exactly what David Lawver did.

Creating wealth in every aspect of life is David’s specialty. Following his first year at university, he entered the mortgage industry. Over that next summer, he made $50,000 — so he decided to bet on himself. After dropping out of college, he dived into the world of real estate and hasn’t looked back since.

Now, David owns a wealthy Airbnb portfolio, a seven-figure flipping company, and a massively successful mortgage brokerage firm. In addition, he is the Principle Operator of Palladium Development. Since 2014, he has acquired over $75,000,000 in real estate projects, including residential apartments, retail stores, and single-family dwellings. The mission of David’s company is to provide hassle-free, high-quality services that continue after a transaction is completed.

Here, David Lawver shares his tips for creating wealth in a volatile market, and how to position yourself for the next downturn, and tips on surviving and thriving during tough times.

Value is at the heart of good deals. You can’t just find a good deal — you have to make it happen

Today, it’s hard to locate undervalued deals — so you have to be cautious. Most stuff gets bid up due to fierce competition. How can you get a good deal from 50 people bidding on a house or an apartment complex? In other words, that pretty much eliminates the possibility of getting a good deal.

The competition places a high premium on obtaining what you want at the lowest possible price. Many markets are experiencing this type of issue — especially in hot markets.

Creating value is the key to finding the right deals

Creating value is the key to finding the right deals, according to David. When he first started flipping houses, he called hundreds and hundreds of realtors and averaged 70 percent off-market referrals a month. As a result, he created value by aggressive selling.

These days, David is mostly buying commercial assets, and he adds value by also building structures. David could, for example, purchase an anchorless retail center and lease it out to a new tenant. By doing this, not only is it recapped, but it also adds new value to the property.

Business longevity is not guaranteed by cash flow

“Cash flow is the key to living the life you want,” says David. “The BRRRR method is another real estate buzzword, in which you buy a place, fix it up, refinance your money, and keep it with some income.”

While it may be easy to say — actually doing everything necessary in any business isn’t always easy. The flipping business, for example, requires constant work, finding deals, turning them over, and renting the pieces of property out to someone. All of this takes an incredible amount of time and energy. Even though this type of business can create passive streams — there will always be a lot of “managing your managers” that has to take place.

“Conversely, with retail centers, you sign a ten-year rental agreement and receive a monthly check,” David adds. “In other words, if you’re speaking about passive cash flow, this model seems to work well.”

David continues, ‘There’s no doubt about it, and Amazon is destroying many businesses — like Toys “R” Us and many other businesses.” David talks about how a retail platform doesn’t have a lot of big tenants to fill it up. David always looks for in-person businesses and recession-resistant businesses — such as Crunch Fitness.

After he purchases the building, he advertises and then puts the tenant in it — in this case, Crunch Fitness. After that, he will build out the store for them and then give the new leasor the keys. In short, the new “lease owner” runs the store while David’s business owns the property and receives monthly lease money.

The hack that you have to work through in this business is to find a large building that can be divided into half gyms and the other half into other tenants — so there is a mix of several tenants in the building. David says that this is just like thinking about money — you don’t put all your eggs in one basket.

With any investment, you need diversification — don’t put all your eggs in one basket

David was able to diversify by putting together a mix of tenants. He also had to put together multiple business partnerships. For example — with Crunch — David keeps 40% of what he builds out.

The gym itself would have to raise $1.5 million from a landlord, they’d get a small tenant improvement allowance (TI allowance) budget money — and they’d have to go to a landlord for a lease. In other words, they usually give away 40% of their profit anyway. The gym needs to raise money and bring in partners to be able to open. David’s work involves raising money and managing construction, which the building contractors and managers, and other landlords don’t like to do. David found his niche, and you can find your niche business, too — he tells you how to do that in the podcast.

“So, I’m literally just like — we pick the real estate, I raise all the money, handle everything, hand the leasor the keys to an open store, and they get just to operate the business the way that they want to operate the business,” he explains.

Another way David earns passive income is through Airbnb

David Lawver is a rockstar in this business. As it turns out, he found out that Airbnb is very similar to flipping houses. In other words, you’re not just putting a renter in and having an income. A manager is under your management. The phone is always ringing, and there can be maintenance problems. So, while he was building his Airbnb portfolio, he bought a retail center with a credit union for a flip deal. The retail center then helped facilitate the transition he was working himself into — because he realized how easy it was to flip that building.

I wouldn’t say “easy” because that gives a person a false sense of what this type of business takes to accomplish the details, but David can keep all the information and everything together.

In Nashville, David had 14 homes at one point, and “we got the permits to rent short-term before they canceled the ability to do so.” The properties were all bought in his personal name because he used Fannie Mae loans, and he had an attorney review the portfolio to give him asset protection ideas.

The attorney suggested that David put these loans and rentals into a rental LLC to protect him from lawsuits. David was then able to form “NASH BNB” and made the LLC. As a result of changing the title, all permits were canceled.

How to recession-proof your business.

“Honestly, I think you should remember the worst-case scenario, that if a recession occurs — think now and prepare! What does that recession look like for you?” David asks.

For example, look at COVID. He had to close his businesses for a year — so how did he handle that? Each of David’s businesses had several hundred thousand dollars in reserves so that he could go without payments for a while. “So, I think there are two ways to create business models that account for recession,” he adds.

Additionally, David considers the major things in his life and business. You can do the same thing with things in your own business and life. For example, David looked at this: the number of new homes that have been built since 2008 has been way below the number of families created. That number is basically half of what it should be, according to the stats floating around. Again — as with many business things — we have a supply chain problem here.

The second piece is that the government has printed 10 trillion. There has never been anything like this in terms of this amount in “money supply” as a percentage. “So, I just can’t see any scenario where the real estate asset class gets walloped unless they start lending poorly again, and as a lender, we’re still qualifying docs,” David adds. There are a lot of down payments being made. Compared to 2008, it’s a lot different now.

David Lawver has high hopes for the future that can give us all hope — but he also hedges against his business-assets-bets and makes sure that his future is bright because of recession-proofing his business.

Featured Image: Photo by Pixabay; Pexels; Thank you!