Americans are in serious financial trouble, here’s how you should prepare

Tough time ahead: play defense now, so you can play offense at the right time

A lot of success in life—including real estate investing—revolves around your understanding of when to play defense and when to play offense. 

Right now, we are headed towards tough times. The New York Fed reported credit card delinquencies passed pre-pandemic levels in Q1 2024. Additionally, we’ve had years of high inflation rates, signs of a recession are on the horizon, and there are fears of stagflation.

You have to play defense now so you are positioned to make the right offensive moves down the road—and these offensive moves might come sooner than you think. After all, recessions typically only last 10 to 18 months. 

In my discussion with Anna “REI Mom” Kelley last week, we discussed what these defensive and offensive moves look like. 

Anna says you should have sufficient reserves and savings before you invest so that you can weather a layoff. The goal is to have three to six months (ideally) of expenses saved.

That can understandably be hard to hear for some of us who want to invest every penny we have. It takes sacrifice to build this buffer, but it is the defense you need to protect yourself and your family heading into an economic downturn. In the end, it’s worth it.

That being said, playing defense is not the same as being fearful. Rather, you are setting yourself up to invest your excess money when other people are running away. 

Real estate entrepreneurs like Ken McElroy are doing just that—earlier this month he announced his plans to spend $500 million on real estate in the next 12 months.

In my conversation with real estate investor Jonathan Twombly last week, we discussed the lessons people can learn from watching how top-tier investors like McElroy.

McElroy described himself as a speedboat around cruise ships. Cruise ships are a massive force, but they are harder to stop and start. Right now, he has a small window of time to maneuver around them, striking while there is a period of disruption among investors.

Number of the week: 21%

As of May 23, mortgage refinancing demand is up 21% year-over-year. This worries me. Does this jump in mortgage refinancing mean the consumer is getting desperate? Are they using their home equity as an ATM?

In my discussion last week with Matt “The Mortgage Guy” Gouge, he says many of the new applications he’s seeing make financial sense, according to his break-even analysis. For many homebuyers who bought at a rate around 7.5% or 7.75%, they can now refinance for a rate about 1% lower—which is usually worth it. Now that rates have rolled over, it makes sense that there would be a surge in folks wanting to refinance. 

However, there is potential for more refinancing deals that don’t make sense. Matt says it's important to talk to people you trust and run a full analysis to ensure you are refinancing at a time that is right for you. 

There are call centers and companies dedicated to making their next deal, whether it benefits you or not. This may come in the form of pressuring you into cashing out equity in your home to pay off some debt, or pushing a rate-and-term deal with a breakeven period that is too long—so you should proceed with caution.

ResiClub chart of the week

Last week, ResiClub’s Meghan Malas used two numbers to describe just how much trouble the U.S. office sector is in as groundbreakings for office buildings hit an all-time low in Q1 2024.

265,897 = Square feet of new office building construction started in Q1 2024

10,562,590 = Square feet of new office building construction started in Q1 2020

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