How to Prepare for a Possible Recession and How to Underwrite Deals With That in Mind 

Today we are reviewing how to make investments with a possible recession coming up, and how do you underwrite deals with that in mind. We are interviewing Hunter Thompson, the founder and managing principal of Asym Capital.



You can read this full interview here: http://montecarlorei.com/how-do-you-prepare-for-a-possible-recession-how-to-underwrite-real-estate-deals-resistant/



I am personally very excited about this topic, from my observation living in Silicon Valley, I think that the signs on an upcoming recession are everywhere:

1. One of the companies that I used to work for is currently losing $130 million per year, and they’re valued at almost $10 billion in the stock market.

2. I dabbed into angel investing, and so much money being thrown at startups that don’t have any customers

3. There’s a lot of money being thrown in real estate. Cap rates are very low, interest rates are at an all time low, and the government is not raising rates for some strange reason.

These signs all happened right before 2000 and right before 2008, and now is a great opportunity for us to jump into why we should be looking at session resistant properties and how to underwrite these deals.



How do you prepare for a potential downturn and how do you underwrite real estate deals with this in mind?

My thesis is that all types of real estate are going to perform if the capital markets are booming and the economy is really heating up. If you can raise rents aggressively, you can fill occupancy, you can complete capital expenditure and expect to be able to raise rents, etc. But only some types of real estate do well when the economy is contracting, so even if you have a portion of your portfolio that’s focused on the types of real estate that do well when the economies are contracting, it really significantly increases the overall risk profile of your portfolio and increases the favorability of the risk profile.



A significant portion of our business is focused exclusively on things that cater to people that are making $35,000 – $55,000 a year, somewhere in that range. The mobile home park business, for example, is probably the most clear example of a recession resistant asset because the worst the economy does, the more demand there is for the product. Think about it like this: if everyone that’s making $100,000 moves down to making $60,000, and everyone that’s making $60,000 moves down to $40,000 and everyone that’s making $40,000 moves down to $30,000, there’s always demand for that bottom product. Now that doesn’t paint the whole picture, which is something we can get into from a big picture perspective, though the mobile home park business is very compelling because the demand is stable.

A similar case can be made for something like self storage where people use the product when they’re going through some kind of life change. Let’s think about things like downsizing, which is very common during recessions, people change jobs, people have to move in order to stay employed, things like that are all very common during recessions, and also you have people moving home from college unexpectedly, but all of them spur demand for the product of self storage. From a downside protection standpoint, it’s very compelling. And also looking at the historical data, this isn’t something that just sounds reasonable. It’s very compelling and not just something that makes sense from a big picture.



Hunter Thompson

Email: [email protected]

Website: https://asymcapital.com

---

Support this podcast:

Today we are reviewing how to make investments with a possible recession coming up, and how do you underwrite deals with that in mind. We are interviewing Hunter Thompson, the founder and managing principal of Asym Capital.



You can read this full interview here: http://montecarlorei.com/how-do-you-prepare-for-a-possible-recession-how-to-underwrite-real-estate-deals-resistant/



I am personally very excited about this topic, from my observation living in Silicon Valley, I think that the signs on an upcoming recession are everywhere:

1. One of the companies that I used to work for is currently losing $130 million per year, and they’re valued at almost $10 billion in the stock market.

2. I dabbed into angel investing, and so much money being thrown at startups that don’t have any customers

3. There’s a lot of money being thrown in real estate. Cap rates are very low, interest rates are at an all time low, and the government is not raising rates for some strange reason.

These signs all happened right before 2000 and right before 2008, and now is a great opportunity for us to jump into why we should be looking at session resistant properties and how to underwrite these deals.



How do you prepare for a potential downturn and how do you underwrite real estate deals with this in mind?

My thesis is that all types of real estate are going to perform if the capital markets are booming and the economy is really heating up. If you can raise rents aggressively, you can fill occupancy, you can complete capital expenditure and expect to be able to raise rents, etc. But only some types of real estate do well when the economy is contracting, so even if you have a portion of your portfolio that’s focused on the types of real estate that do well when the economies are contracting, it really significantly increases the overall risk profile of your portfolio and increases the favorability of the risk profile.



A significant portion of our business is focused exclusively on things that cater to people that are making $35,000 – $55,000 a year, somewhere in that range. The mobile home park business, for example, is probably the most clear example of a recession resistant asset because the worst the economy does, the more demand there is for the product. Think about it like this: if everyone that’s making $100,000 moves down to making $60,000, and everyone that’s making $60,000 moves down to $40,000 and everyone that’s making $40,000 moves down to $30,000, there’s always demand for that bottom product. Now that doesn’t paint the whole picture, which is something we can get into from a big picture perspective, though the mobile home park business is very compelling because the demand is stable.

A similar case can be made for something like self storage where people use the product when they’re going through some kind of life change. Let’s think about things like downsizing, which is very common during recessions, people change jobs, people have to move in order to stay employed, things like that are all very common during recessions, and also you have people moving home from college unexpectedly, but all of them spur demand for the product of self storage. From a downside protection standpoint, it’s very compelling. And also looking at the historical data, this isn’t something that just sounds reasonable. It’s very compelling and not just something that makes sense from a big picture.



Hunter Thompson

Email: [email protected]

Website: https://asymcapital.com

---

Support this podcast: https://podcasters.spotify.com/pod/show/best-commercial-retail-real-estate-investing-advice-ever/support