How are 11 top entrepreneurs preparing for the next economic downturn?
While several of the entrepreneurs chose cryptocurrencies, education, precious medals, and investing overseas...
5 out of the 11 entrepreneurs chose real estate as their hedge for the economic downturn.
So, when people say that "you shouldn't buy real estate because the market is going to tank", it looks like the smartest people are buying real estate because they are counting on economic downturn.
I know I am...
I get it all the time - Why are you buying real estate right now, the market is so hot...
There are still so many deals out there to buy.
If you're buying right, its tough to lose money in real estate. And by buying right, I think we probably need to add two pieces to that. 1) Buying at a discount 2) Buying with cash flow.
You can buy something at a discount and see the prices fall and, if it doesn't have cash flow you may not be that happy. But if you get it at a discount and it cash flows, you're probably going to be in good shape no matter what happens.
That being said, there are still hot market swings that would probably be at risk no matter what you do. Those areas like california, new york, arizona, etc where they have such run ups in pricing are all about risk reward. The rewards can be huge. But they will always have some risk in there too.
Historically, very few times have people taken a beating on real estate. The most recent crash was really created because people were buying without any fundamentals to back them up. They weren't trying to get a discount and they weren't really worried about cash flow. Most of the ones that took the biggest beating were people that were speculating. Buy it, hold it for a year and cash out when the appreciation was going to make them 30k or 40k.
Didn't even fix a thing and got that. That and then you simply had the people that were flipping or building and simply got caught with homes at a bad time. Nothing you can do to prevent that other than, maybe, limit how many homes you have unspoken for at any given time.
To me, as a buy and hold investor in decent areas with decent schools, there isn't much risk. If there is a downturn, people will still need a place to stay. Rents in my areas almost never go down. Stay flat maybe. But finding renters has never been a problem even during the worst of the bust. What might become a risk is if they open up lending to anyone with a pulse again. That would reduce the number of renters and make things difficult. That would also drive up the prices way up. So worst case is you cash out your rentals then and grab the cash.
But I don't see lending ever going back to that kind of crazy any time soon.
And quite honestly if trump has his way and this budget passes, we might see far more people remain or become renters because the cost of home ownership is going to go down if they phase out mortg interest deductions and everybody just uses the standard deduction instead.
I know @Mitchell Jaworski will be happy to hear about crypto
They key is - I have real estate, crypto and precious metals. Diversify into the top entrepreneurs favorites @Jon Huber :-)
@Mitchell Jaworski I'm trying to get on board... I really am.
That is reassuring that even the pros have all this faith in REI.
I’d say as long as the RE portfolio can survive with 30% less cash flow you should be ok. To me thats the stress test.
The argument is that even in a recession people need a roof. Got it. But they don’t have jobs to pay rent or want a lower rent.
So if you can deal with vacancy and lower rental income even as your fixed costs may remain the same you should be ok.
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