How to Recession-Proof Your Real Estate Portfolio | Mortgage & Cash Flow Strategies for Investors

Welcome to the Wisdom Lifestyle Money Show. I'm your host, Scott Dillingham. Today, I'm going to be going over how to recession proof your portfolio. And I think we're at a very important time when this should be a focus of yours. So you look at all the turmoil that's going on with our financial markets, with our economy, with The US and Canada, right, the trade wars and all that good stuff.

So the thing is is every investor has an opportunity to optimize their portfolio at any point in time. Absolutely. But when things are good, we don't we don't really think about it. Right? We're like, okay.

We have cash flow. Things are great. Yada yada. But if you take a more proactive approach to your portfolio, you can make so much more money. And the side effect is it recession proofs your portfolio.

So I'm gonna be going over a couple of the different things. I've got some some notes here that, I repeatedly talk to clients about. So these are, like, the the top top things. So the other thing that I wanna point you know, paint the picture of is, right, it's early twenty twenty six. There's more and more negative news of of, you know, recessions and things like that going on.

And I think, you know, that is a great opportunity to buy. So, like, I'm not scared of of this market, and I don't think you should be either. I think there's always an opportunity in any market. It's just your strategy and your game plan needs to change. Okay?

But specifically with rates, right, we know the Bank of Canada last year kept lowering and lowering and lowering and lowering. They're saying they wanna raise. The banks are predicting by the 2027 that rates start to raise. So that gives us, you know, a year and a half, let's call it. But the thing is is they actually might drop, and stay lower for longer because if Canada's market's weak, they're not gonna raise the rates.

Do you know what I mean? They're they're gonna spur the economy by lowering the rates. So then I just want you to think back to the COVID days. Right? This same thing could happen.

Right now, we're in a renewal crunch. It's a massive wave of people renewing in 2026 and 2027 that have rates in the one and a half to two and a half percent range. So when they renew, their payments are going to drastically increase, making their payments hard to pay. And we could be entering in that cycle again. Maybe not.

Hear me out here, though. So if rates do artificially go down to help the economy continue to grow, and then it gets stronger, they're gonna raise the rates again. Right? So we're gonna be there again. So this is why I think you should take the time to recession proof, and maybe even call it rate proof your portfolio, and there are there are some things that you can do.

So, I mean, number one, the number one thing that I think that you should do is try to have a minimum of three months rent saved per unit that you have. And the reason for this is vacancy rates are going up across the board. There's multiple reasons why. I mean but I think two that speak very clearly to me, is when you look at the CMHC, you know, MLI select program where people can build apartment buildings for as little as, you know, 5% in the deal, obviously, qualification, of course. But when you have that and then you have these people building all these apartment buildings, then you have the government of Canada who's doing they're they're very much against not against, but they've heavily slashed the immigration numbers.

Some people think it's good. Some people think it's bad. I don't like, I'm I'm not getting there or going there for political reasons, but the overall point is we're seeing apartment buildings get built, and we're also seeing immigration go down. Right? So it's it's creating more units in the market.

And we're seeing it's rare, but we're we're seeing and hearing of of large developers having these properties, and they can't rent them out. So that's in certain markets. Right? Not all markets. But they're offering incentives like three months free rent or, like, all these different things just to just to get somebody because the vacancy rate's so high.

So you wanna build in that reserve because if it spreads deeper and further and longer, right, that could affect you. We don't want that to. So, build in that reserve. And it's it can be hard. Right?

Like, especially if you're you're just breaking even on the on those properties. We have some things to discuss with that too, but, keep that in mind. Try to have that target, and that will protect you financially. Okay? Then to tie it into the rates, right, with the with the rates going up, the thing is is you can you can optimize this now.

So if your rate renews and it comes up higher, you're good. Plus, if you if you edit your financing now, today's rates are are quite good. So what we're doing for investors, we do it all the time. We do, we call it like a portfolio review, but we review someone's portfolio. We look at their amortization on their properties, how much they owe, what their payments are, what their interest rates are.

And then we say, okay. On this property here, you know, maybe we only save you a quarter or a point on on your rate, but we're adding ten years to your amortization, which is improving your cash flow by $700 a month. That's just an example, but it happens all the time. Like, literally, this is it's it's so easy. It it happens.

Yes. There's a cost. Right? There's there's potential mortgage penalties and and stuff like that. But by tweaking that and optimizing and stretching it out, what happens is it's less of a sticker shock.

Right? Because if you are at let's just say you're at two percent still, from the COVID days, and you have twenty years left of your amortization, which is what most people have because the the thirty year on first time homebuyers and stuff, that just started coming out. So it's always twenty five years. Some investors could get 30, depending on your lender and bank. But if we look at it, right, so you have 2% with twenty years left, you're up for renewal.

Right? Renewing at four and a half is gonna be a big impact for you. However, if you renew at four and a half and change from a twenty year to a thirty year, it may not even phase you. Now the negative, of course, is it's gonna take you longer to pay this loan. But the way that I look at it, that doesn't matter to me because I'm not paying it.

It's not my primary home. The the tenants are paying it. And that's what an investment property is. Right? You set it up so the tenants pay it.

So, you're just tweaking how long it takes to maximize cash flow now. Now that doesn't mean that's always the case. What if rates stabilize and then they end up being lower long term? Right? Like, who knows?

We can then increase your payments to speed it up. So it's not like you're stuck. You can always increase your payments. Or if you've added in a unit to the property, now the rent is so much higher. Right?

We can increase those payments. So just because we're bringing it to 30 years doesn't mean that's how long it you need to take. So I think a lot of people think that that is the case, but think of the thirty year as the minimum payment. Okay? And then you can increase the the payments from there.

So now by altering your payments and extending the amortization, that does protect you because if the if the rates are increasing, again, and you're extending your payments, it's not putting you in that financial gym. Okay? Next up is tenant quality, and this is why I think the first point of having that reserve fund is so important because a lot of people are accepting tenants, who maybe are not their ideal tenant just to get somebody, and that is a huge problem as well. That can greatly open up problems for you Because what if they are a bad tenant and and because you just, you know, you needed that money, you just accepted them. So you don't want that.

So this is why the reserve comes in so handy is because if if you can hold out longer. Right? You don't have to just accept the first person that walks through the door that says, yeah. I'll pay the rent. You can pick and you can wait, and I encourage you to do so because you don't wanna get a wrong tenant that can ruin you and your portfolio, absolutely.

So I think the portfolio reviews are incredibly important. If the banks are right and rates go up at the 2026 sorry, 2027, then you need to be tapping into, you know, the most optimized mortgage that you can now, right, to give you that five year buffer. That's that's the most popular term is the five year. Some people get the three. I don't think the three is good in this market right now.

I think the three serves a purpose in certain markets, but knowing that the Bank of Canada wants to potentially raise rates. Now, again, when they do raise, it's variable, but, you know, they kinda they're synergistic. They they kinda follow each other a little bit. In fact, you could look at the past twenty five years history of the fixed versus the variable rates, and you'll see that the variable is usually lower, but you can see that they do kind of follow each other. So they go up and they go down together with the exception of, you know, the end of COVID when they, jacked the rates way up.

That was an anomaly that was not seen the previous twenty five years. So, that was a little bit different, but, you know, that that could happen again. And that's why I think it's so important to redo your portfolio even if you have strong cash flow now. Like, even if you have fantastic cash flow, but maybe say you've got a, you know, fifteen years left on your amortization, switch, redo it, get thirty. Again, thirty, just think of it as minimum payment, not what you actually have to pay.

Then when money's tight, you can keep that minimum payment so you have a stronger cash flow. When money's fantastic, you can increase your payments and pay it off faster. So it gives you that flexibility. But if your amortization is fifteen years, you can't change it back up without redoing your loan. So you're stuck.

Right? That's your that's your max that you can have a payment based on. So, yeah, there's all these things to consider. So, anyways, I wanted to to share this with you. This is happening a lot.

These are what we're hearing, from investors in the market. Right? They're concerned. They don't know what's next, and, I do think it's a great opportunity to buy. I feel like right now specifically, and here's why I think it's a great time to buy.

There's not as much competition. So I think that's that's great because when it's a seller's market, the bidding wars get out of hand, and then properties get overpaid for. And one thing that I learned from Robert Kiyosaki way back when I first started investing is you make money when you buy, not when you sell. So if you enter investing with that mindset, we need to make money on the buy. Well, in a seller's market, it's really hard to do that.

Right? Unless you're finding something off market or, you know, like, it's it's tough. But in a buyer's market, especially if you go after those listings that have been on the market sixty, ninety days. Right? Those people still have the home listed because they need to sell.

And, you know, we don't know why they need to sell, but they need to sell. It doesn't mean there's something wrong with the property. It could be their realtor is, you know, too busy, and he's not screening calls properly, or being available for calls. It could be the the marketing team that that broker you know, the realtor works for, like their brokerage. Maybe they didn't market it right.

Like, there's there's different things maybe they didn't price it right. One of the properties that I bought in the past, they had it listed in the wrong zone of the city. So they had it listed in a zone, and I don't know why. I mean, it it literally shows the address, but the zone was a bad zone that you wouldn't wanna buy in, but it actually wasn't located there. Right?

So they just picked the wrong thing. So on realtor.ca and stuff, it was showing you that it was in this area, but it wasn't in that area. So, you know, something like that, I I made up really well with. So my point here is that I think it's a great time to buy because you can get deals. You can negotiate stuff.

Generally speaking, as rates go down, the purchase prices go up. Right? Because there's more more demand. We're entering the spring market. I feel like a lot of clients and investors are used to the tariffs at this point in time a year ago.

Right? Everyone was like, what the heck is this? Everyone was concerned. They didn't wanna take action because they were fearful that, you know, they might buy home and then lose their job in a month or two. I feel like a lot of that dust, has settled.

Like, mentally, like, feel like people mentally, the ones that I talk to, they're much more confident, going forward than they were, you know, this time last year, which is great. But we've also had pent up demand over the past few years because, after COVID, the rates skyrocketed. Right? So we had buyers that were like, woah, woah, it's getting too expensive to buy now. We're gonna hold off and then the rates came down, and then tariffs came.

Right? So that kinda delayed a little bit more because I was actually expecting last year to to be fantastic as far as, you know, buyers coming out there and and the market just being crazy. So, anyways, I I do think there is is buying opportunities. I think investors are targeting more multifamily. That's what we're seeing.

We're seeing a ton of US stuff, and a ton of multifamily in Canada. Those are, like, the two biggest areas that we're seeing investors invest in. So, anyways, just wanted to share this all with you. I hope this helps. I hope it added value.

If it did, please like, please follow, share with a friend, and, of course, if you have any questions or wanna book a call with an expert on my team, the link is in the description below. Thank you so much. Have a great day.