Entrepreneurial Lessons from the ’08 Recession with MaryAnn Hoffman & Andrew Dougill

We’re welcoming MaryAnn Hoffman and Andrew Dougill back on The Property Management Show. They are the couple behind Hoffman Realty in Tampa, Florida, and they were with us on a previous podcast, where they discussed how they got started in the property management industry as a husband and wife team.   One of the things they said during that discussion was how scary it was to have all their eggs in one basket during the Great Recession of 2007 to 2009. We asked them to come back and talk about how they managed that crisis and how it affected their business, especially since there’s talk of another real estate crisis looming.  Business Lesson: Learn to Be Prepared  MaryAnn says she has learned to be prepared. She recommends having some extra money in the bank because it will be tough for a while. During any recession, you’ll be white-knuckled and wondering what’s going to happen next, but always remember that the market comes back.  Last summer was wonderful in the Tampa rental market. They were renting houses easily and the rents were going up. Now, the market is adjusting. Prices are coming back down. You have to be prepared for that, and you have to remember that when things are really good – they’re not always going to stay really good. And, when they’re really bad – they’re not always going to stay really bad. Nothing lasts forever.  Andrew remembers that in 2005, they began working with an older couple who had about a dozen rental properties to be managed. Everyone could see, at that point, that the real estate market was potentially going to tank. Everyone wondered when it would happen, and as Andrew was talking with this couple, he asked for some advice since they had been through three real estate recessions in their lives.  They told him that it would be scary, but that he’d get through it and the market would recover. When it did recover, they said, it would recover better and grow even more than before. They advised him to be prepared and to know his financials.  So, Andrew and MaryAnn took a hard look at their financials. They are real estate investors, too, and they had their own rental properties to evaluate. They decided that they’d probably be fine if the recession did arrive, but they might struggle a bit if rents dropped.  They made the decision to sell three rental properties so they’d have enough cash on hand to keep their business alive. It may be what saved them.  In 2008, rents dropped 10 percent. They dropped again in 2009 and in 2010.  Andrew reminds us that the great thing about getting loans for real estate is the leverage that provides. They increase your yields when things are going well. Cash on cash returns are better with a loan. But, when things go bad, you find yourself with negative leverage, and that can sink you quickly.   The number one lesson, then, is to have enough cash on hand so you can make it through the worst of the recession. Making Recession-Proof Business Moves: Deciding which Properties to Sell One of the properties they sold was actually their dream home. It was a gorgeous house they had just finished remodeling, and the idea had been to move into it themselves. But, knowing what was potentially coming, they sold it instead. This made them a lot of money and helped them get through the economic downturn. They had to give up a dream home, but they kept their business running and they paid their staff. And, they built another dream home after the recession.  The experience of MaryAnn and Andrew is interesting because the negative leverage and dropping rents weren’t just their own concer...