Recently, a publicly traded company went from about $2/share to over $9/share. Nothing changed about their business except that they changed their name from the “Long Island Iced Tea” company… to the “Long Blockchain” company.
Whether you think Bitcoin and cryptocurrencies are the next big thing or not, the company’s rise in share price, resulting just from a name change, tells me that we’re in a boom period for crypto… and booms lead to busts.
This doesn’t just happen in the stock market. It happens in the real estate market too. And in the economy at large. I probably only need to mention the years 2007/2008 and you know what I’m talking about: the years leading up to that period was a boom time for house buyers because of cheap mortgages; and the reality hit in 2007/2008, and suddenly the real estate market crashed.
Real estate goes through cycles: there’s growing interest until it peaks in a buying frenzy (which we refer to as a “seller’s market” because sellers make a lot of money at this time), and then it plummets until everyone sells for pennies on the dollar (which we refer to as a “buyer’s market” because buyers can get houses very inexpensively). This cycle happens like clockwork every few years.
And right now? It’s our observation here at Legacy Capital that we’re approaching a boom period… a buying frenzy… a “seller’s market”… and real estate prices are soaring, so sellers are making a lot of money.
… Which means there will be a downturn. It’s inevitable. Markets don’t go up forever.
Downturns aren’t a bad thing—if you’re prepared for it. In fact, many can prosper in a downturn. Savvy investors who are thinking two steps ahead are preparing for the downturn and will prosper in it.
Here are some strategies to make sure you’re prepared for the inevitable real estate downturn:
#1. Prepare mentally.
Downturns can turn some unprepared investors into a spiral of worry and doubt. So just remember this: markets fluctuate. They go down and up. If you know what’s happening, you can act accordingly and make more money.
#2. Sell now.
If you are thinking about selling some of your holdings, sell now while everyone is buying. Prices are high and there are a lot of investors in the market. (I’m not suggesting you sell everything… but if you were thinking of selling, now is a good time to do it.)
#3. Get ready to buy.
There’s a saying that goes, “sell when others are buying and buy when others are selling.” It’s good advice not just for buy-and-hold investors but for anyone who wants to minimize what they pay and maximize what they earn. Start looking for properties and watching prices. There will still be good deals now but there will be a lot of good deals in a downturn.
#4. Check your credit.
If you plan to borrow with your own personal credit, make sure it’s in good shape. It can take 3-6 months to make corrections if there’s an error on your credit score. In a downturn, traditional lenders may tighten up lending policies but that doesn’t mean it’s impossible to borrow, you just need to have the credit levels they’re looking for.
#5. Make your money ready.
One of the most challenging aspects of investing is having available cash. Sometimes it’s tied up or even locked up and difficult to access. Or maybe you work with joint venture investor-partners who you know have their money tied up (or may perhaps be skittish in a downturn). Lay the groundwork now to make your money more liquid. This includes preparing your JV investors that the downturn is a good thing.
#6. Build more relationships.
In my experience, the most successful investors during EVERY part of the real estate cycle are those with the most relationships. Make it a point to expand your Rolodex with strong relationships with sellers and referral partners, JV investor-partners, and lenders.
(Pro tip: are you connected with us here at Legacy Capital? We’d love to connect with you. Fill out the form in the sidebar even if you don’t have any deals to fund right now. We want to get to know you so we can be ready to act fast when you need your deals funded.)
Summary
The real estate market is great right now. Savvy investors know it won’t always be that way. Fortunately, savvy investors also know that money can be made in ANY market if you’re prepared. These 6 tips will get you prepared no matter what happens in the real estate market tomorrow.