How to handle a market correction

5 Replies

Does anyone have experience holding small (less then 25 units) commercial multi unit deals through market corrections like the 05-08 timeframe? Would anyone recommend leveraging now into a small commercial deal like this or advise to wait for a market correction before taking any sort of leveraging action? Did anyone see the 05-08 positively affect the buyers market for commercial deals? Market rates for commercial deals locally at the moment are at cap rates between 5-7% and I am wondering if a market correction would likely improve those numbers for a buyer. 

Timing the market in general is a bad idea. If you want a higher cap rate then I’d wait. If that cap rate is acceptable to you then I’d go for it.

To make money when timing the market you have to be right twice. Once when getting out and once when getting back in. The chances you do both effectively are very slim

Scott.

I didn't go through the market crash, but I think that it depends where you are located. In the Bay Area, cap rates went up a little bit from the 4-5% that they were at, but not by much because the demand. If you're in a market like Memphis where the cap is 8% right now, then maybe that property will go up to a 10-12% if the market were to crash. I think the location matters the most. Of course when the market crashes prices will go down. 

I really don't think we will have another crash like we did in 2008. That was not a part of the normal real estate up-down cycle. That crash was caused by a credit bubble, which created a housing bubble. The credit bubble popped and you know the rest. My point is that a lot of measures have been put in place to prevent this sort of thing in the future. Without a doubt, it is harder to get bank money now than it was in 2005.

Source: I watched "The Big Short"

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@Dillon Leider No I don't think there will be a "crash" either but I think I correction sometime in the next 3 years is very likely. I am wondering how closely the smaller commercial market prices and cap rates follow the standard residential trends in peoples experience.

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