Market risks on buy and holds

[Nick Bleser]

People are talking about the real estate market changing. We know it cycles but how does that effect the buy and hold investors? If the market is going to turn soon how can the market effect properties I've already bought and plan to hold? Can it effect the pool of renters?

[David Faulkner]

You need three things to protect you from market risk in a downturn:

1. Equity, which gives you more options to sell if you need or choose to or refinance.
2. Cash reserves, to pay expenses, unexpected CapEx, vacancies which could increase in a recession as your tenants lose their job, etc.
3. Cash flow. Quality of cash flow is every bit as important as quantity. Higher quality properties attract higher quality tenants, which in turn gives you higher quality cash flow that is more stable and less likely to be hit hard in a downturn. However, this quality comes at a price ... quality properties are expensive and generally typically result in lower quantity of cash flow at least initially. So, both quality and quality of cash flow must be considered and balanced.