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How I’m Preparing for a Potential Real Estate Market Crash

Engelo Rumora
4 min read
How I’m Preparing for a Potential Real Estate Market Crash

I’m going to be a little bit selfish here today. I’m going to talk about myself and some of the things that I’m doing now and looking to do to prepare for a market crash. Now, I’m sure you’ve seen in the news that real estate prices are pretty much at all-time highs. The market is fairly expensive on the East Coast and West Coast.

We’ve had a great run, and everyone is talking about how awesome everything is. That is when you should start getting a little fearful. Personally, I think we are still at the top of the cycle. Only time will tell. It’s really hard to predict these things.

But whether you are a Debbie Downer or an Optimistic Oscar, I still think that you should look at implementing or replicating what I’m about to share with you—no matter what the market is doing or what cycle the market is in.

Before I get into that, I want to share something that I have heard many times: Multimillionaires have multiple streams of income that are diversified across different asset classes and businesses to generate profit and income in various ways.

How I’m Diversifying Within Real Estate

OK, back to business. First of all, I run a turnkey company. We buy distressed properties, we fix them, and we sell them for a profit. I’ve been doing it for several years, and we’ve been doing really well.

Now, I understand that if the market does tank, a lot of investors are going to be on the sideline, and they’re not going to be investing as actively as they are right now. That will affect sales, and if that happens, we make less money.

So, what else do I have to help us weather that storm? I also own a property management company that manages hundreds and hundreds of units. I always like to refer to the property management company as recession-proof because the two most important things to humanity are food and shelter. People need a roof over their heads—they will always need a place to live. Hopefully, they keep paying the rent, and as long as they keep paying and we keep managing well, we’re going to get residual fees every single month.

Again, we have a turnkey company, we make large lump sum profits, and we have a property management company where we make residual fees every single month. Those are the two main income streams that I have today. In the meantime, I’ve been holding onto a lot of dry powder and waiting on certain things to happen in the market.

They say cash is king and cash flow is queen. That’s another tip for the Debbie Downers: it’s always good to sit on cash if you feel that we’ve reached a peak from a market-cycle standpoint. Why? Because you want to go all-in when everything hits the fan. That’s historically when many of the millionaires are made.

And many of the companies that we know today were established in a market downturn. So, it’s always good to have some dry powder like I do right now.

The most recent layer to my diversified strategy is buying a large number of single-family homes or purchasing distressed multifamily assets. Then, I fix them up, increase the occupancy, and simply hold them.

In the past, I was very active with a lot of my capital. I hadn’t really been investing in buy and hold assets because I wanted to keep growing my wealth. However, I feel it’s a good time to pull the trigger on something if the right deal comes along and create an additional stream of income.

Once again, I’m spreading out that risk by having multiple streams of income because that’s what all the multimillionaires do.

red down arrow on black and white grid indicating stock loss

Related: 9 Ways to Survive (and Thrive) During the Next Market Crash

How I’m Diversifying My Portfolio With Other Investments

Another thing I have been working on for quite a while is an online company. It’s subscription-based and generates money very similar to the property management company with monthly fees.

Last but not least, I like stocks. Stocks do carry some risk, but if you know how to look at a company and estimate what you think its market value will be, you should be OK. I’m not going to say I’m an expert, but I’ve run various companies, I’ve been reviewing P&Ls and balance sheets, and I understand the economics within a company.

I suggest that you also go down that path in regard to focusing on multiple streams of income. I think you’re playing a risky game if you solely depend on one business, one investment strategy, or one piece of real estate. I think you should have multiple things in the works because if one fails, you can always rely on the other one.

Warren Buffet calls this the “chain link of error.” If one link is faulty, the chain is useless. Something that I tell our investors is if you just invest in one property and it becomes vacant, that is a 100% hit on your portfolio. However, if you have 10 properties and only one becomes vacant, that’s just a 10% hit.

Related: Should Real Estate Investors Sleep Soundly Despite Stock Market Scaries?

The Bottom Line

Before I go, I want to leave you with this: If your bread and butter is real estate, stocks, or tech, I think that you should stick to what you know best. If you start diversifying into industries that you don’t understand, it can be very risky.

For example, even though I have various companies and investments, they are fundamentally real estate-related for the most part. Even so, I’m not overly exposed in the real estate market.

I have a turnkey company where we buy, fix, and sell. I have a property management company where there are residual fees. I’m always looking to add on properties or a multifamily where I would get passive income. I dabble in stocks. I’m getting on board with online companies that provide residual income.

I’ve tried new things, and I feel that I’m pretty well diversified across various businesses and asset classes.

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So that’s it. Do you agree? Disagree?

I’d love to hear from you.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.