Elizabeth Kelly recommends first understanding your long-term goals and how negative the cash flow truly is. Depending on your situation, you might optimize the portfolio by shifting a property from long-term to short-term rental, bringing in a joint venture partner for a cash injection, or restructuring debt through strategies like extending amortization or converting to interest-only payments temporarily. She cautions against fire sales unless the negative cash flow puts you in a bad financial position.
According to Elizabeth, it depends on your strategy and the specific deal numbers. While flippers and BRRRR investors are largely sitting on the sidelines, long-term investors are still shopping if they build wider margins for error and ensure the deal still makes money even if values soften further. She estimates early 2023 before the market starts turning around and advises being ready to take advantage of opportunities as they arise.
Elizabeth suggests securing access to cash through conservative methods, such as taking out a secured line of credit if your property is at 40 or 50 percent loan-to-value. She strongly warns against over-leverage, unsecured promissory notes, and 90 to 100 percent loan-to-value positions, noting that high leverage can turn you into a motivated seller if values decline and you need to liquidate.
The most important step is to take an honest look at your current position by knowing your true portfolio values and cash flow numbers. From there, chart a path to your future goals, gather a team of professionals including a mortgage broker, get financing approval before making offers, and use protective conditions like financing and appraisal clauses to mitigate risk in a declining market.
