It is common knowledge that the housing market is cyclical, but while most investors agree this is the case, they do not have firm plans in place to help them adjust their investment strategies when downturns occur. Certainly, some investors thrive in down markets, snapping up great deals and setting up for the next upswing with calculated confidence. However, far more investors, particularly those who are relatively new to the real estate game, simply focus on optimizing their time in an up market rather than preparing for the inevitable downswing.
Part of developing a lasting pathway to smart investing involves being prepared for market shifts. Here are three ways that you should be preparing for the next real estate correction:
1| Invest with Experience
If you have been investing for a decade or longer, then the odds are good that you have experienced at least one market correction and understand how those events affect your strategy. However, if you have been investing for five years or less, then you may not have the personal experience with a downswing that can help you invest productively throughout the correction. Align yourself with investors who have invested through market corrections successfully, either by investing with their team or by following their actions and educational offerings. “I’ve been investing passively and profitably for nearly 20 years,” observed Charles Sells, CEO of the PIP Group and Think Realty’s 2016 Master Investor of the Year. Sells offers his investors the opportunity to invest in tax liens, fix-and-flips, and a variety of other investment vehicles and publishes a monthly newsletter about market strategy. “It’s important to remember that your local market may not be the best place to invest. You need to constantly be learning where to find the best deals out of state,” added Marco Santarelli, CEO of Norada Real Estate Investments. Santarelli is a published author and hosts an educational podcast, the Passive Real Estate Investing Podcast, about how he analyzes markets and has been successfully following the best opportunities, regardless of location, since 2004.
2| Be Willing to Consider New Options
Part of investing through a housing market correction is flexibility. When one aspect of the market corrects, often another begins to heat up. Sometimes, identifying this shift is as simple as keeping the right market indicators on your radar. “The real estate market has four cycles it goes through, typically every 18 years,” explained Tom Olsen, president of Good Success. Olsen argues that knowing these cycles provides investors with all the tools and knowledge they might need to “wisely maneuver during the next market fluctuation,” regardless of which of the four cycles that market is currently in. Pete Asmus, CEO of GreenZone Properties, believes that sometimes new opportunities are the best way to insulate a portfolio against known market shifts. GreenZone invests in the commercial land and properties that support the now-booming and, in many states, now-legal cannabis business. “The impact of this single product will be so big we can’t even truly quantify it yet,” Asmus observed, adding that he believes that this type of innovative opportunity is the key to “a legacy of multi-generational wealth.”
3| Shore Up Your Strategy
At the end of the day, an investor who can offer buyers or tenants a product they want or need at a price that beats the competition will win that day, no matter where in the market cycle we happen to be sitting. Part of being that investor involves understanding how to access properties at deep discounts and then leverage that access toward the success of your preferred strategies. For example, Kent Davis, CEO of Equistream, founded his company on the concept “Ugly is the new pretty” when it comes to investment properties. He teaches “uncommon strategies that defy conventional wisdom and result in double-digit returns,” placing a heavy emphasis not just on getting deals at a discount, but on creating investments that cashflow. That cashflow is crucial to investors’ success because during a correction, homebuyers may not be purchasing properties in great volumes and appreciation may slow or even halt completely. Cash-flowing properties continue to generate income for their owners even if their market values are not currently climbing.
By carefully preparing for a market correction long before that correction occurs, you create a lasting real estate investment strategy rather than just doing a series of deals that could “expire” when the market shifts and your techniques become outdated. Savvy real estate investors always have more than one exit strategy for every deal they do and more than one pathway laid out toward productive, profitable, lasting investment returns.
You can learn directly from all of the experienced and innovative educators mentioned in this article at Think Realty’s National Conference and Expo in Atlanta, Georgia, on October 14-15, 2017, at the Westin Buckhead. Click HERE for more information and to reserve your place in their classes.