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

by | BiggerPockets.com

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, and so is the stock market.

We’ve had a peak, and because it has tapered off a bit, 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. And even if you’re 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 a profit and income in various ways.

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 five 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. So as long as people need a roof over their head, 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 mainstream 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 cashflow is queen. 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.

What I’m looking at and want to try next year is buying a large number of single-family homes or purchasing a distressed multifamily asset. I plan to fix it up, increase the occupancy, and simply hold it. I’ve been very active with a lot of my capital. I haven’t really been investing in buy and hold assets because I want to keep growing my wealth, but I feel it’s going to be a good time to maybe pull the trigger on something if the right deal comes along. I wouldn’t mind having an additional stream of income. Once again, I would be spreading out that risk by having multiple streams of income because that’s what all the multimillionaires do.

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

Other Investments

Another thing that I’m working on right now and have been working on it for quite a while is an online company. It’s going to be subscription-based and generate money very similar to the property management company with monthly fees. There are actually two online companies that I’m looking at: one that I own and invest a lot of capital into and another one that I would acquire and pay others to put it on autopilot.

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 it 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 percent hit on your portfolio. However, if you have 10 properties and only one becomes vacant, that’s just a 10 percent hit.

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

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 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.

So that’s it. Do you agree? Disagree?

I’d love to hear from you.

About Author

Engelo Rumora

Engelo Rumora, a.k.a.”the Real Estate Dingo,” quit school at the age of 14 and played professional soccer at the age of 18. From there, he began to invest in real estate. He now owns real estate all over the world and has bought, renovated, and sold over 500 properties. He runs runs Ohio Cashflow, a turnkey real estate investment company in the country (Inc 5000 2017 & 2018) and is currently in the process of launching a real estate brokerage called List’n Sell Realty. He is also known for giving houses away to people in need and his crazy videos on YouTube. His mission in life is to be remembered as someone that gave it his all and gave it all away.

19 Comments

  1. Erik Whiting

    Turn-key real estate flipper, rental property manager, web-based internet entrepreneur (x2), apartment re-habber / buy and hold investor, individual company stock analyst….all in one package? Wow…. if Elon Musk ever dies you could apply for his life.

  2. Will Kaufmann

    I really like how you de-mystified investing in/valuing publicly traded companies based on your experience running a business, to which I am sure that many BP users can relate.

    Although there are market forces (volatility and risk) and metrics (earnings multiples) that cannot be quantified by looking at the 3 statements (balance sheet, statement of cash flows, income statement), they still present sound investing fundamentals for long-term investments.

    Thanks for your contribution!

    • Engelo Rumora

      Thanks for your comment Will.

      I’m not the smartest or most sophisticated investor there is.

      So I always try and use common sense and simplicity.

      It has served me very well in a world of “too much information”

      Most of it just makes me confused and doubtful anyway lol

      Thanks again for your kind words and I’m glad that you enjoyed the blog

      Much success

  3. Matt NA

    One rule I like to follow is to look at you recession resistant income as your budget. In other words, if you had had a good run up in earnings due to the economy doing well over recent years, don’t take on a bigger mortgage and expenses based on those earnings. Instead, think of the good times as a means to invest in stable income producing vehicles or savings rather than taking on a grander lifestyle with more debt. Let your fixed, safe investment vehicles be the barometer for covering your expenses. Not what you’ve been averaging in short term capital gains in good times.

  4. Ralph Martinsen

    Besides sitting on liquid cash the three revenue streams don’t provide a safe haven from the black swan bogey man crash asserted in the the articles title. None of the proposed is truely ‘turnkey’ the modern day holy grail for adherents of the mythical four hour work week.

    1. House flipping like most endeavors is typically won on a low basis entry. Property management is low margin, but may provide some cash flow at scale.

    2. Online subscription based business, a hard sell sales pitch playing on human emotion or psyche for self-improvement or gain targeted at the 2am tv watching segment promising something for nothing.

    3. Stocks or equity investment based on the ability to read financial statements demonstrates no added value or prognostication other than the company makes money or has debt.

    All said and done all of the above are based on macro economic assumptions of a bright future providing no real safety in the event of a real estate crash nor explanation why the aforementioned event is likely to occur.

    To borrow a quote, ‘be fearful when others are greedy and greedy when others are fearful.’

    Find a niche service with sustainable earnings and apply thyself. Stand in the way of the nascent or growing cycle and let commerce lift all those to new heights.

  5. Adrian Ayub

    Great Article Engelo,

    My virtual wholesaling business has allowed the capital to build a rental property portfolio in Toledo which I have bought at fifty cents on the dollar on average, now getting set to 1031 exchange the entire portfolio into multi but I may take this to heart.

    • Engelo Rumora

      Thanks for your comment Craig.

      I own a few properties in the Bahamas but more so for fun than anything else.

      I’m playing around with “vacation rentals” now but it’s not my bread and butter business.

      There are other easier/more profitable ways to make money in real estate than via Airbnb in my opinion.

      Thanks again and much success

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