What I learned from the recession of 2008 that has made me better. (this is long)
I've been through a lot of recessions in my life, but the recession of 2008 was a critical turning point in me. This time, I had a wife and two kids. I had two companies and six employees. This recession was going to be different.
In the Fall of 2007, I could tell something was happening in our economy. Sadly, I just didn't know what. Each year to that point, my electrical clients would begin to pay their bills late around October 31 - February 1. That was the norm. In 2007, I noticed that companies, and some individuals, started paying late in August 2007. I didn't pay much attention, but I noted it.
Also in 2007, my real estate company went from 5-10 BPO requests a month to 20-30. By the first months of 2008, that number jumped to 40-50. In the early summer it was nearly 100 a month, and it went higher. Real estate prices were through the roof with little to no reason, and houses were flying off the market at those insane prices. There were so many conflicting pieces of information coming at me, I didn't realize they were trying to tell me something.
The electrical business was booked from January 1, 2007 to July 31st. We had difficulty even maintaining our long-time commercial clients because of the workload we already had. We worked long days, long weeks and long months. And then, in mid-August 2008, it stopped. I don't mean it slowed down, it stopped. I kept the guys on through October, but by then, I was paying them out of my savings. Finally, a few moved away, a few found other jobs and some went on unemployment. I scaled back to 2 workers.
The real estate business followed a similar pattern. I went from "hair on fire" busy to nothing. I still owned two homes, a commercial property and three rentals. The commercial property and the three rentals all went from monthly income to no income. My rentals were still occupied with tenants who lost their jobs and were not able to find new ones. Every one of those properties had tenants who went into depression and no longer took care of their rentals. Suddenly, I had six mortgages to pay each month and three of those properties were going to need to be remodeled once I got the tenants out.
Within a year, I had eliminated my savings and most of my retirement. I went from a comfortable six figure income to $4000 income in 2009. I had multiple contractors drop their debt on me when they went bankrupt. Before 2008 was over, I had increased my debt another $120000 from those contractors, plus I had my own living expenses, credit card debt, mortgages, supplier account debt, two car payments and basically no income. Bankruptcy looked like the obvious solution, but I wouldn't do it.
What did the 2008 recession teach me?
1. Every problem has a solution.
It didn't seem like it at the time. Things were so bad that I stopped telling my wife where we were financially. I was already depressed, and I didn't want her to go there too. One of us needed to keep the family stable while I dug our way out of the mess we were in.
I did two things immediately. I paid off our vehicles and I canceled all of our credit cards. I knew I couldn't get to work if my vehicle was repossessed, and I wasn't willing to generate more debt just to stay afloat. I knew closing my credit cards would impact my credit score, but the financial position I was in was going to do that anyway.
I closed all of my contractor accounts. That meant I had to pay cash for all of our materials, which complicated our ability to do jobs because money had nearly stopped flowing in.
Because of that, I switched our electrical client market from wiring new homes to working for local restaurants and businesses. My wife and I reached out to a couple dozen restaurants when things went bad, and a large number responded. Maintenance became our primary source of income and residential wiring pretty much disappeared. We leveraged our equipment assets by taking on more street light repairs. We had a bucket truck that sat most of the time. Now was time to put it to work.
I went back into the electrical field as one of our techs. I didn't pay myself for a few years, but I was a much more profitable tech to have in the field. So, it was to our advantage for me to be back out there. I used my income to pay debt and to build a fund for materials. Our reputation for quality work soon opened more clients and before long we had regular income.
On the real estate side, I reached out to banks all over the country to trash-out and sell their REOs. I was fortunate to get into the REO market before a lot of lenders went to third party asset managers. That meant I was working directly with the bank who would absorb all of the debt created from a property until it was sold. I didn't have to put utilities in my name nor provide a referral fee at closing.
2. Cash is King
I went to a "cash only" lifestyle. I had already destroyed my credit cards to avoid using them to pay debts. My family ate at home, we took simple vacations and we didn't splurge. We dedicated our time to simple things that were free and we spent more time together. That was a great blessing.
Paying cash for everything reduced what I could do in all areas. I could only take on jobs that I could pay for up front. That reduced my potential, but it was liberating. I knew that every contract I entered into would end in a profit.
I paid for every restaurant meal, gas fill-up, birthday present, piece of clothing and a myriad of other things in cash. I canceled subscriptions to all magazines, unnecessary services and frivolous repeating debts. Suddenly, I felt freer and freer.
3. I refused to accept the worst
It can be difficult when you've never worried about money to suddenly have that worry in your face everyday. While I was relating this story to my staff one day, I explained to them that it was like a horse with blinders on. I couldn't afford to look at the problems, they were voluminous. I had to keep focused on the solutions. I worked around the clock. It was tough on my body and my mind, but at the time, I couldn't let my personal stress and exhaustion take me out of the fight.
I did talk to my attorney about bankruptcy. I told him that I had no plans to do so, but if the worst happened, it was an option. It never really was in my mind.
On the other side
That battle lasted until late 2012. The daily fight made me more determined than ever to never go into deep debt again. When things are good, debt is not an issue, but when things go bad like 2008, the old biblical wisdom that "the borrower is servant to the lender" becomes way too real.
In 2012, the real estate market in my community recovered enough to add much needed income to the family resources. All of my tenant occupied rentals had gone through the court system and the tenants were evicted. Those properties were soon remodeled and sold. I did all of the work since I couldn't pay someone to help. Each one made 100% profit from the purchase price and they helped retire debt. By the end of 2013 (five years later) we had no debt beyond three mortgages.
The local real estate market saw its best year in 2015 and it was also my best real estate year. It has been about 5 years since we climbed out of the hole we were in in 2008. The electrical company turns away about 30 commercial projects a month. I could easily take them on if I wanted to hire more technicians, but I don't want the stress again, and I still only do projects that I can pay cash for materials and labor. We have hundreds of regular clients who funnel projects to us constantly. I don't need to market out services any longer.
The real estate market is back to a healthy place in our area. I met Active Rain in 2010. That relationship helped me learn how to use the Internet to market my real estate business, and it has changed my business model. I spent all of 2011 learning techniques of digital advertising. That change has put me in the top 5% of local agents (out of 1200). I am forever grateful for that meeting. It became a part of my economic recovery.
I started buying rentals again in 2016. In 2009, I could never have imagined that would happen again. I've been able to provide housing for both of my sons and my granddaughter. I truly believe that God was the primary source of my recovery. He gave the me the strength and encouragement to battle my way through the recession without cracking up. I'm stronger today because of it.
The recession taught me to not live above my means. One quirky change that has taken place is that I only pick up my mail twice a week now. During the worst part of the recession, I picked every day to see who was suing me. Today, I have no debt beyond mortgages, and no one is suing me, and my credit score is the highest it has ever been.
Would I want to go through that again? Not a chance, but it did make me a more caring and compassionate person. I know how easily people can be blindsided by changes in the economy. It has also made me more aware of what those changes look like before everything blows up. Finally, I learned that you never know how strong you are until you're challenged beyond your past experiences. What did you learn from the recession of 2008?