People get really worked up when the market takes a downturn. I understand it’s a topic that often scares people in real estate. They see that real estate can go down in value just like the stock market and ask, “Why should I invest here? Why is it different?”
My perspective is that I am not going to invest totally based on the ups and downs of a real estate market that I can not control — just like the stock market! While you can’t control the economy as a whole, you can control an individual property.
What to Know About Investing During A Downturn in The Economy
1. Consider Which Factors You Can Control.
For example, we were just looking at a storage facility in Fort Smith, Arkansas and considering the factors we could control, such as expanding the space, raising the rents, pushing other products or services, etc. Those are all things we can control which force the equity and appreciation. At the end of the day we decided this was a property that didn’t have enough value-add so we passed.
Let’s say there’s a downturn in the economy and your property went down by 20%. If you haven’t overleveraged or borrowed at 100% (which, no sane bank would allow), you’re not going to be totally “under water” on that particular property.
Here’s an example: We invest with a gentleman who finds true bargains on double wide mobile homes on acreage. Let’s say you buy a double wide mobile home at $80k. After rehabilitation it may have a value at upwards of $120k. Our partner, who is an expert in mobile home investing, forces the equity through rehabilitation. Hence, even if there’s a downturn, we’re protected. You want to make sure you’re buying right, so even if the market dips, you’ve still put in less than its current value.
2. Wait to sell.
When people get worked up about the value of their property going down, I say one simple thing: “Don’t sell.” You don’t sell when something is worth the least possible amount.
As a matter of fact, that’s when you should be buying. This is the time to form alliances and create networks.
When we have another reset (which we will, it always happens), that’s when you want to be buying because properties are at their least value.
3. Start forming alliances.
Remember back to 2007-2008 when the credit market tightened up and you couldn’t go to most institutions to borrow money?
It had to be private lending — people dealing with people. If you’re not creating those alliances now, when there’s a downturn you’re not going to get the credit to buy those properties.
Now is the time to become knowledgeable about investing in real estate because when there is a downturn, there’s going to be a lot of opportunities. There were a lot of people who made a lot of money in 2007-2008. They understood the nature of the market, and had created networks and alliances to take advantage of opportunities at exactly the right moment.
Start creating those alliances NOW, and get educated NOW! So, when there is a downturn, you’re able to swoop in and snatch up some great bargains. Hang on to them and then ride the appreciation roller coaster back up!
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