5 Reasons I’m Not Worried About the New Real Estate Market Correction

5 Reasons I’m Not Worried About the New Real Estate Market Correction

3 min read
Sterling White

Sterling White is a multifamily investor, specializing in value-add apartments in Indianapolis and other Midwestern markets. With just under a decade of experience in the real estate industry, Sterling was involved with the management of over $10MM in capital, which is deployed across a $18.9MM real estate portfolio made up of multifamily apartments. Through the company he founded, Sonder Investment Group, he owns just under 400 units.

Experience
Sterling is a seasoned real estate investor, philanthropist, speaker, host, mentor, and former world record attemptee, who was born and raised in Indianapolis. He is the author of the renowned book From Zero to 400 Units and the host of a phenomenal podcast, which hit the No. 1 spot on The Real Estate Experience Podcast‘s list of best shows in the investing category.

Living and breathing real estate since 2009, Sterling currently owns multiple businesses related to real estate, including Sterling White Enterprises, Sonder Investment Group, and other investment partnerships. Throughout the span of a decade, he has contributed to helping others become successful in the real estate industry. In addition, he has been directly involved with both buying and selling over 100 single family homes.

Sterling’s primary specialities include sales, marketing, crowdfunding, buy and hold investing, investment properties, and many more.

He was featured on the BiggerPockets Podcast episode #308 and has been contributing content to BiggerPockets since 2014, with over 200 posts on topics ranging from single family investing and apartment investing to mindset and scaling a business online. He has been featured on multiple other podcasts, too.

When he isn’t immersed in the real world, Sterling likes reading motivational books, including Maverick Mindset by Doug Hall, As a Man Thinketh by James Allen, and Sell or Be Sold by Grant Cardone.

As a thrill-seeker with an evident fear of heights, he somehow managed to jump off of a 65-foot cliff into deep water without flinching. (Okay, maybe a little bit…) Sterling is also an avid kale-eating traveller, but nothing is more important to him than family. His unusual habit is bird-watching, which he discovered he truly enjoyed during an Ornithology class from his college days.

Education
Sterling attended the University of Indianapolis.

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There is more and more talk about a new real estate correction happening. It’s smart to be alert and aware of how the market is changing. But it’s even more important and wise to be ahead of the curve and to have efforts in place to weather the storm.

They say that the Manhattan property market has been in a correction for a year already. Some think that will keep spreading—though there are many others in the media saying we won’t face another crisis like 2008.

Whether or not you’ve experienced a correction, there are things you can do now to mitigate risk when it happens. Here’s what I do personally so I don’t have to worry as much when I hear news of a possible market correction.

5 Reasons I’m Not Worried About the New Real Estate Market Correction

1. I buy on cash flow, not appreciation.

My real estate investing model is to acquire income properties. I’m not counting on flipping or gambling on appreciation. That seems especially dangerous right now. The numbers have to work up front, and I have to be able to hold it. More recently, I moved up to multifamily apartments, which are even more resilient during tougher economic times.

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Related: With Markets Shifting, Should You Invest in Real Estate Now—Or Wait to Buy?

2. I focus on growth markets.

There may be some housing markets and cities that have peaked or even surpassed their recent peaks already. Still, there are also markets that are growing and have plenty of room for growth. Even within these cities, it is best to make sure not to be investing in the worst neighborhoods, which have poor performance and crime rates that bring down values. Initial cash flow projections and returns on investments in those lower income neighborhoods may look good on paper, but the longevity is not there. That is why they frequently change hands to different owners in short time periods of time

3. I’m selective.

ATTOM Data says that only just over 30% of houses flipped in the first half of 2018 were bought as distressed properties. That means most investors are picking full-priced properties (or higher) off of the MLS. They are gambling on appreciation to sell them for more or are putting little rehab work in to them to sell. You may want to be more selective. I probably now look at 175 to 200 properties before pulling one down to work on.

4. I stick to the numbers.

The numbers have to work. It’s still hard not to fall in love with properties, but you can’t afford to. You aren’t going to live there. It is far more profitable to just buy on the numbers alone. That’s why I often say my best deal was this 118-unit apartment complex I didn’t do.

If you let yourself fall in love with a property, you can be tempted to stretch numbers, make excuses, add in hope instead of facts, and generally sell yourself on a property you have no business buying. It helps to have a great partner who underwrites the deals on the math and always keeps you in check.

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Related: How I Found & Financed My Second House Hack in the Hot Market of Denver, CO

5. I focus on service and long-term value.

When it comes to management, I’m focusing more on service and making apartments “communities.” So, if or when rents drop, then that can give us the upper hand. If another community has lower rents or is marketing special deals, but our service is better with the rent rates a little higher, that is value we offer, and folks will see that.

People have been burned so badly and frequently in so many aspects in this day and age that they just want a business that will do what they say. It’s interesting that this basic level of honesty is so rare—and that’s good for us. It’s sad to see what will happen to so many other brands and jobs because they are trying to squeeze every dime out of people with sneaky tactics. People know they can trust us. They will stay. They will tell their friends, family, coworkers, and people they meet in the coffee shop or gym. That means lower turnover rates, and it adds far more net profit to our properties.

Conclusion

There may or may not be a housing correction at play. No matter when it comes or how deep it is, there are smart adjustments investors can make now to avoid risk. If you think bigger and longer term and aren’t drawn into stampedes in either direction, you should be OK.

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What do YOU do to sleep well at night despite talk of market corrections?

Comment below!