Real estate markets are constantly changing. One of the keys to be a successful long-term investor is navigating whatever comes your way. Anyone can thrive in growing markets, but it is what you do when things turn that will define your business. Kipling had a famous quote “if you can keep your head when everyone is losing theirs” that definitely applies to real estate investing. Things often change suddenly, and it is critical that you stay calm and avoid panicking in down markets. You may take some minor losses but those who make it through will come out much better on the other end. Real estate investing has been on the uptick for the better part of the last decade, but you should always be ready for the bottom to drop out at any time. Here are five tips to help you get through any market condition.
- Avoid panic sales. If you see that home sales and volume are on a sharp decline the worst thing you can do is sell on the way down. Sure, there is something to be said for cutting your losses but unless you need capital there is no reason to sell below market value. The first thing you need to do is examine why the market has slowed. Is it just a short term correction that will play itself out or a long-term issue that cannot be ignored? If the problem is short term you should ride the wave and pay little mind to the current value. Home value is only important if you are considering selling. If not, there will always be ebbs and flows associated. You need to assess just how big the problem is with the market and make your decision only after a careful review. Unless you deem the market in too much trouble to recover you should sit tight and avoid panic selling.
- Make rental appealing. One of the reasons that many investors ran into trouble during the mortgage collapse was because they didn’t adapt to change. They just assumed that things would stay at status quo and ran their business as usual. When there is a market turn you need to look at every aspect of your portfolio. If you have multiple rental properties, you need to keep them rented and cash flow coming in. Now, more than ever, you need to be open minded in making concessions to price or amenities. It is much better to knock off $100 a month in rent than to deal with a vacancy. If you have a good tenant who may be struggling offer to reduce their rent if they renew their lease. You should also look to add amenities such as a washer/dryer or upgraded appliances to generate interest. In down markets there will be more renter supply, but the demand might not be enough to keep your property rented. Be proactive and open minded in making changes to the property.
- Stick to numbers. When markets shift the quality of deals will not be as high as they previously were. This can lead to long stretches between deals. During this time, it is crucial that you stick to your numbers and stay firm on what you want. There is a fine line between stepping slightly outside of your comfort zone and making offers on properties deep down you don’t really want. While it is tough going a month or two without a new property to work on you don’t want to compound the problem and make things worse. By getting involved in a property with slim margins you need to do everything right just to scratch out the same profit. You can be open to different markets, different types of property and even be willing to make a smaller profit but you can’t take on deals with more risk than reward.
- Build rental portfolio. Down markets provide an ideal opportunity to build your rental portfolio. If you have never previously considered a rental now is the time to take a look. There may be plenty of properties listed at a discount that don’t necessarily work best for rehabs and flips. However, they can be great long-term rental candidates. All it takes is one quality rental to change your portfolio. You can have cash flow coming in while building appreciation for when the market shifts. In some cases, rental property management is relatively easy and in others you may need a dedicated property manager. What you shouldn’t do is blindly dismiss this option until you give it a fair look.
- Affordable housing. When the market turns you need to adapt with it. Your rehab projects need to be geared more towards affordability than the high-end market. Buyers that come out will typically be first time homebuyers or buyers that have recovered from a short sale or a foreclosure. These types of properties may not produce huge spreads and margins but will have a greater chance in selling in a timely fashion. The last thing you want in a down market is a property going unsold for months. If you completely misread the market and over improve this is exactly what will happen. You will have all your eggs in one basket and won’t be able to act when a truly good opportunity comes your way.
There is money to be made in any market. Use these five tips to help guide you if your investing market turns.