It might be time to admit we are headed for a down market. We continue to see an unstable economy. Stock Market, Bitcoin, Inflation, Interest Rates, and Commodities all seem to have a ton of volatility. There are many smart people that 90 days ago were talking about the bull market continuing on Wall Street. But unfortunately, these same people are moving into value stocks which have been a dirty word for the last few years.
However, the current economy has not affected the real estate market yet. Real Estate volatility always trails the more significant markets because the real estate market has little liquidity. The other markets I mentioned can be liquidated daily. With real estate, buying or selling takes a few weeks or months; if things are going fast. If there are title issues, seller occupancy, financing, or regulatory or legal issues, it can take months or years to transfer the title of a property.
When you invest in real estate, you need to keep a long-term approach. Even if you are fixing and flipping a house, if things are going well, it should take anywhere from 3 to 4 months to buy, restore and sell your property. Again, not very liquid, and that’s if things are going fast. If you are developing a multifamily rental property, it may take 2 or 3 years from start to finish to get your project thru zoning, construction, and renting.
Last month we talked about speed and how being efficient can save you a lot of pain in a turning down market.
The volatility from the other markets will eventually move to the real estate market. It might take 12 to 18 months, but rest assured, it will come. So what do you do in the meantime?
Now is not the time to be greedy. That time has just passed. A few months ago, you could sell anything to anyone. If your buyer went sideways, you just relisted your property, and another buyer appeared. If it took you twice as long to fix your property or twice as much, it didn’t matter because the market kept going up.
We are at a different time right now, and a new strategy should be implemented. Below is a list of my “do’s” and “don’t’s” as we are headed into a down market.
- Do clean up your house.
- Do move quickly.
- Do be proactive with work.
- Do watch your numbers.
- Do invest in quality properties that will stand the test of time.
- Don’t raise your rents.
- Don’t take on more than you can manage.
- Don’t hold onto the last dollar from the sale of a flip.
- Don’t stretch on a deal.
- Don’t invest in low-quality properties, like a two-bed, frame bungalow, with no basement and no garage on the main road in a bad neighborhood.
- Don’t assume the market will never go down because it’s gone up for the last ten years.
When the market shifts, it is easy to identify those whose past investment successes might have just been timing and a bit of luck. Success in a down market takes skill, discipline, planning, and ample resources.
Good Luck
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