| 5 Secrets for Surviving a Real Estate Market Downturn
History repeatedly serves to show us that the real estate market is cyclical. It has boom
times and stagnant times, occasionally it suffers a crash but real estate never becomes worthless,
therefore if the experts are right and we're about to suffer a slow to stagnant period in the real
estate market, all is not lost!
There are 5 fundamental secrets that real estate investors like to keep close to their chest
and they are the secrets that enable them to survive and even profit during a bear market.
This article blows the lid off the secret world of the professional real estate investor!
1) Aligning For Profit in a Bear Market
When professional property investors believe the market is entering a downward phase i.e.,
changing from Bull to Bear - they will change their investment strategies accordingly. One
method that tough investors apply is to buy up property in the best areas that they can afford once a
market is slumping already. Professional real estate investors know that the best areas for property
always boom again very early on in the next property cycle.
By working in this way they can then leverage their investment by selling their property
early on in the boom cycle and buying elsewhere and always remaining one step ahead of less
professional investors or average home owners.
Up and coming areas will eventually peak as well of course as they are swept along on the
tide of the boom, but they will not peak first and investors in these areas will have to wait longer
to see their profits.
Professional investors will likely enter these areas just before they peak and sell up just
before the heat goes out of the market enabling them to again buy up what they can afford in the
best areas thus positioning themselves ready for the next upward trend. And so it continues!
2) Slow Down Your Speculating
You may already have decided that the time is no longer right to be over extending yourself
and you may have cut back on your property purchases, but remember that making any home improvement
or taking on any renovation projects during a downward period of the property market is also considered
to be speculating. Don't just assume that capital appreciation from your property will justify home
related expenditure right now...in a bear market it won't.
3) Never Forget The Supply and Demand Theory
Property prices don't go up infinitely, if you examine the ebb and flow of the market in the
US over the past decades for example, you will see that stand alone investment in real estate
would've returned you gains of just over 1 percentage point above inflation! There comes a point in
every market cycle when the market runs out of investors willing to buy up at the top prices and there
comes a point when first time buyers are frozen out of the market. As demand dries up, over supply
brings down prices and this stops the entire market in its tracks. If you remember this fundamental
fact and examine the movement of the market closely and carefully you will be able to see when supply
is about to outstrip demand, you will be able to watch first time buyers reigniting the market, you
will understand when the time is right to sell and when the time is right to buy.
4) Balance Real Estate Exposure
You may assume that your only exposure to the property market is what you physically hold in
the way of real estate assets but don't forget all your paper investments as well. Do you have
money invested in REITs, do you have funds that invest in commercial property as part of the underlying
portfolio, what about your retirement fund, which market sectors are the find managers investing in
on your behalf right now? Don't assume that fund managers will make the right decisions at the right
time on your behalf, you might be able to see the heat going out of the market quicker than they can
react. If this happens you have to be prepared to rebalance your entire portfolio and move
your exposure away from real estate if you believe the market is about to dip.
5) Protect Your Equity
There is nothing more valuable than the equity you own in your own home. Do not put that at
risk. It is very tempting in a boom market to re-mortgage yourself back up to the new greater value
of your home, but in so doing you expose yourself, your family, your home and your future to
unnecessary levels of risk. Secure the roof over your own head first and foremost, and only then
proceed into the greater real estate market with care! Do not be tempted to secure any extra loans or
mortgages on your family home. Professional and wise real estate investors worth their salt will always
secure their own position first and foremost.
Rhiannon Williamson writes for real estate investors,
international investors and expatriates on her site
Back to Real Estate Investing Articles