How Should I Prepare For a Market Crash?!
Hello All,
I've been doing a ton of research on the 2008 market crash. I feel like I've garnered a strong understanding of what happened and why, however there is one thing I feel I am missing. What steps could a small-mid level investor such as myself (Own 6 duplexes) have taken to prepare for such a market crash? I would like to be prepared in the eventuality that a similar crash happens, even if its not as big. Thanks in advance for the advice!!
Kenneth Scarbrough
Most Popular Reply
Its all about cash flow. If you have enough cash flow to service your debts, and cover contingencies, then your equity is almost irrelevant. You need to "stress test" your portfolio. How do you answer questions such as:
- Do you have any variable rate debt? If so, what would happen if the rate on this debt increased by 2,3,4,etc %. How much of an increase can you still cover, and is that amount of increase realistic to happen over a short period of time (say, 2-3 years)?
- What would happen if several of your tenants lost their jobs & couldn't pay the rent, you had to evict and had trouble finding qualified renters?
- Do you have the cushion in your cash flow to cover an extended period of vacancy in several of your units?
- Does you profitability depend up on any sort of refinancing in the next few years?
- What would happen to you if market rents in your area fell by 10%?
- What would happen if YOU lost your W2 income/job?
Are you confident that you could ride out any of these events happening, and still be comfortable?