Biggest Threats of 2023
In 2010, I took on debt. Searching for deals in the housing sector after the 2008 bust, my agent brought me a seller-financed listing.
It was a triplex that was newly built by an investor who partnered with a constructor. Because of the meltdown, they never finished the units, and some $30,000 was still needed to get the project done.
Before the crisis, the units were collectively appraised for $95k each or $285K for the complex with rents at around $650/unit.
In other words, had the 2008 subprime mortgage crisis not happened, these two partners would have sold it to a landlord who would have made about 8.2% on a gross cash-on-cash basis pre-expenses.
That’s a bad deal.
I offered $125K for the entire complex with $10K down and the remainder ($115K) in monthly payments with two balloon payments along the way.
They were stressed for cash, so I sweetened the deal by telling the contractor that I could still pay him to finish the units and he would be hired if the deal was signed.
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The reason they took the deal was because I agreed to an 8% interest rate.
Accounting for all expenses, this would still give me a cushion to fall back on, but what we didn’t realize was that rents were not $650/unit anymore. They had dropped to more like $425.
I needed to bridge that gap, so the first thing I did was contact the seller who was getting 8% from me and got to know him a bit better.
Slowly but surely, he also understood that by lowering the interest payment to 6.5%, then 5.5%, 4.5%, and eventually 4% in 2016, he and I would have a successful relationship.
We sold this triplex in mid-2022 for over half a million.
What’s my point?
I overpaid in interest payments because I had a good underlying asset and was able to raise rents to roughly $1,000/unit over the years.
When the IMF makes loans to emerging market countries, we often hear of defaults, countries that can’t manage debt properly, and corruption.
The energy squeeze of 2023 and the need for the IMF to issue loans to countries that don’t have the deep pockets of the Western nations to weather the storm mean that the IMF will again consolidate power and attempt to exert its control. Because of President Xi’s total dominance of the Chinese party, it might be that these countries decide to partner with China instead of the United States in another clear sign that the U.S. is no longer the only influential player.
The recession of 2023 will help reveal if the world is shifting away from the U.S. and into Chinese hands or if the U.S. is still able to persuade everyone that globalism is intact.
I believe we’re about to learn that the U.S. isn’t as strong as it thinks it is.
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