Is a Market Correction Imminent? Here’s Why NOW is the Time to Prepare.

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It looks like this boom may be changing. I do worry for those who don’t see it coming — but there are still ways to invest sustainably and profitably.

In this recent BiggerPockets post, I pointed out some of the new real estate data that indicates that things may no longer be as rosy as some want us to believe. For now, things still feel great in most markets. Based on how real estate cycles have performed in the past, some markets are still likely to have a couple of years of growth in them. But you don’t want to wait until the correction comes to your town or niche to try and restructure your portfolio on the fly. Those who stay ahead of the wave should be more than fine.


Related: The REAL Importance of Warren Buffett’s Words About Today’s Market [An Alternate Interpretation]

Let’s Learn From the Last Market Crash

Fortunately, many real estate investors and homeowners have been buying smarter. They are less leveraged, they have affordable payments, and they have great financial cushions. However, this is certainly not true of everyone. A report by CoreLogic reveals mortgage and real estate fraud still running rampant. Others have been tempted with easy credit offers over the last couple of years. Some have either forgotten the lessons of the last correction — or have been oblivious to them.

A new Fox Business report shows Capital One, Wells Fargo, and Chase among the major financial institutions tightening their belts and assigning hundreds of millions of dollars to reserves to cover the rise in defaulting consumer debt. And like with the last crunch, when interest rates finally go up is when when many find they can no longer keep up.


Structure Your Portfolio for Sustainability NOW

It makes me shiver thinking of how tragic this could be for those who have invested poorly. This is especially true for those homeowners who have taken out high LTV loans and adjustable rate mortgages, as well as investors who have taken on properties with low cap rates and balloon mortgages.

Related: Grant Cardone Just Warned Investors of a Market Correction: Here’s How to Protect Yourself

Of course, some investors have proven that they cannot only survive tighter times, but that they can consistently thrive in them. They’ve accomplished this by acquiring smarter long-term rentals, consistently investing in good properties at the right price, and ensuring the numbers will still work in all market phases. This can mean not buying and betting on appreciation alone or anticipating short flip times in an attempt to beat the market. If you do this, real estate is still the best investment in town. It is reliable and can deliver great returns. After all, we’ll always need housing, and if consumers are not buying, they are renting.

There is still time to shift portfolios for safety and performance away from over-leveraged positions in heated markets to those with more value and sustainability. Where will you sell, buy, and invest this year?

Investors: How do you ensure you’re prepared for a possible market correction?

Let me know what you’re up to with a comment!

About Author

Sterling White

With just under a decade of experience in the real estate industry, Sterling currently manages over $10MM in capital, which is deployed across a $26MM real estate portfolio made up of multifamily apartments and single-family homes. Through the company he co-founded, Holdfolio, he owns just under 400 units. Sterling was featured on the BiggerPockets Podcast and has been contributing content to BiggerPockets since 2014, with over 200 posts on topics ranging from single-family investing and apartment investing to wholesaling and scaling a business.


  1. Curt Smith

    Hi Sterling. You’re on a roll with great topics. But you left out the biggest down side protection strategy:

    – when you buy nicer rentals with low LTV in great school districts those rentals have a floor under them. Good schools, great schools >=6 will always have high demand.

    But this tactic also helps to lower property managment hassel because good families that have good jobs, want their kids in good schools never leave, never call, never damage. I never hear from our renters!!!!

    The key metric in general for a rental is: free cash flow per month. This is the amount you can drop the rent and still be covering the bills. My metric is >$300/mo net of all expenses including a bit for vacancy and Capex fund and what’s left over must be >$300. This is the low (bottom) mind you. I do NOT buy at this point. I buy above $450 net free cash flow / mo typically. At this cash flow one can have a modest income with just 10 rentals. And live nicely with 20.

    • Curt Smith

      Replying to the questions to my post:

      – We stay a head of the current market. Which means we move zips / counties every 12 mo to 18 mo per Atlanta / Georgia’s market is pretty fast at changing. We left the Atlanta metro area around 2014 as the cap rates drop below our goals: 11% cap, 22% cash on cash or better. We won’t do a deal for less than 20% cash on cash with conservative calc for NOI.

      – Zillow will have schools listed below, the number to the left of the school name is Great Schools rating. We buy in 6 or better high schools.

      – The curb look has to be cute!! You can’t win over the wife with a cute interior if the curb look is dull or ugly. Or on a busy street or the dog next door is barking its head off. Just facts here.

      – BUT greatschools dot org , put in your county you can get a map of high school disctrict maps and the number rating. This can help you buy ONLY in that school disctrict. Some RE search engines allow you to search in a school disctrict. IE MLS search tools. Zillow does not but others might.

  2. Curt you are so correct. Have you noticed an increase in the chatter on BP about appreciation. Most of these people have been investing since 2010 and have no clue how important cash flow is. They may mouth the words but they do not have the scars yet, but they will. THE most important thing in investing is not appreciation, not tax benefits, not mortgage pay down it is monthly cash flow. Using your formula one will survive and prosper. I have 10 free and clear homes in Phoenix in good area’s with minimal turnover. When the market tanked I hunkered down and purchased at a steep discount. Prices dropped 30-40% but my rents only went down 10%. Cash flow is what allows me to live the good life. The hopes of future appreciation that is not available to spend except at a great cost is a fools way to invest. Everything appreciates over time but that does not pay the bills unless you sacrifice your cash flow by refinancing or your cash machine by selling. Newbies should re-read your post and learn.

  3. David K.

    Just curious what you guys thoughts are on this. My worst 3 family rental cashflows after mort, tax, ins, water is $850 month fully rented. As long as I can keep 2/3 units occupied ALL of the bills are paid. Is this what you mean by protection from downslides?

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