The government shutdown is over, at least for the next three weeks while lawmakers continue to negotiate. But even with the record-breaking shutdown temporarily resolved, real estate investors may be experiencing a ripple effect, and now is a good time to assess the strength of your real estate investment business and shore up any weaknesses.
In looking ahead, how might this and future shutdowns affect the fix-and-flip industry, and what can you do to be better prepared to weather uncertainty?
In the event of a shutdown, you could experience issues with delayed closings, potentially leaving you vulnerable to financial overextension. To avoid potential long-term effects on your business, planning for uncertainty is critical for a fix-and-flip investor.
Before the next shutdown or other crisis comes along, take this opportunity to assess your fix-and-flip business plan, as Fortune Builders recommends.
In the face of uncertainty, make sure you have solid answers to these questions:
1) What are your goals and what concrete steps will you lay out to reach those goals? It’s difficult to have a good plan if you don’t have a firm idea where you’d like to end up. A slow period is a good time to assess what goals you hope to reach with your fix-and-flip investment business and what you need to do to reach them.
2) Who are the most important members of your team and how do they help you reach your business goals? No investor in the fix-and-flip world succeeds alone, and your business plan should account for the people who help you drive your success. As you assess your plan, consider the people upon whom you depend to make your business run. Are your relationships as strong as they could be? If so, is there anyone you could add to your team to improve it even more? If not, what can you do to shore up your important relationships?
3) What does a SWOT analysis reveal about your plan? Assessing the Strengths, Weaknesses, Opportunities, and Threats to your business plan is an excellent way to uncover potential gaps or avenues for improvement. If home buying slows as a result of delays in FHA and other government mortgage programs, are you prepared for any potential financial impact on your business?
4) Where is your funding coming from? Is it secure? Funding is perhaps the most important element of your business plan and having a clear understanding of your funding sources and their reliability is crucially important. While the government shutdown may have only affected specific sectors of the real estate lending industry, it’s still a good time to assess your funding stream and its strength moving forward.
How the lending sector was affected by the shutdown
Effects of the government shutdown showed up most prominently in the government lending sector. Bankrate.com reports several types of loans directly handled by the federal government experienced the most significant issues during the shutdown. While the shutdown didn’t affect VA Loans, FHA mortgages could continue to experience closing delays well beyond the end of the shutdown, thanks to a backlog of unprocessed loans.
Ultimately, the shutdown hit USDA loans the hardest. The U.S. Department of Agriculture did not issue any new USDA Direct Loans or Guaranteed loans for the duration of the shutdown, though that lending program has now resumed.
The bottom line is, whether it’s a government shutdown or any other widespread disruption of the housing market, uncertainty can cause problems for investors. To combat the threat of market uncertainty, investors should take this time to reestablish ties with lenders, buyers, and title companies, and review their business plans. Take every opportunity to make sure everyone on your team is on the same page regarding any deals you may have in the works. Even if a market disruption doesn’t affect your projects directly, a little extra communication is never a bad thing.