How to sell the real estate market short?

Question

Please, I know there are a lot of people who will want to argue that real estate is not in a bubble, and/or that it will never burst. We disagree, and that's not what I'd like to discuss. I made a lot of money in stocks by buying in 2009 when blood was running in the streets. I know that idea as a play for real estate- be sitting on cash and buy steals in a buyers market, then make money on the appreciation later. What I'm trying to find is a play to do today in real estate that will pay when the bubble bursts. I know how to get paid on the way up, I want to learn how to get paid on the way down.

Anton Young · Answer

Thanks guys, that's helpful and the inverse ETF thing, I didn't even know that existed. To further the discussion, I'm not necessarily looking to _actually_ sell short real estate on the stock market (although I'm gonna research those funds), but more the idea of short selling- that I'm betting on real estate losing value rather than gaining value, and I want to profit as it loses value. I was trying to find out a play within real estate investing itself (as opposed to stock investing) that might function that way. Any ideas along those lines?

Brandon Roof · Answer

None of what I'm about to describe should be considered advice.  It would be easy enough to do via options or equities.  You're timing would have to be pretty impeccable though as you're going to get saddled with some serious dividends every quarter, not to mention possible capital appreciation in the meantime of any REIT.  The better play may be to find companies tied to housing, with low or no dividends, that are currently victims of other factors, such as the threat of tariffs/trade war and how that alone would impact their bottom line.  Unfortunately, a number of these companies are already well off their all-time highs, such as the home builders and fixture manufacturers such as Masco or Fortune Brands.  Again though, I think this is likely a very dangerous play as well.  A few months of good housing numbers or remedied trade talks and you could find yourself in a world of pain.  Remember too that a recession is not necessarily synonymous with the bursting of a housing bubble.  It just so happened to be the most catastrophic case coalescing a decade ago.

If you wanted to try to somewhat limit your risk, you could make a long/short trade where you are long a company or aspect of real estate you believe will remain strong (maybe industrial or cell tower REITs), paired with a short trade of commercial or residential REITs).  Again, none of this should be viewed as advice, but these may be some possible ways to accomplish what you are looking at.

Either that, or go watch The Big Short.

Scott Rogers · Answer

There are a number of inverse and leveraged inverse ETF products available should you decide to bet against the REIT sector.  DRV, SRS, REK.    Personally I would rather stay with the momentum and invest in real estate (VNQ) and maybe short something that is under performing like energy or commodities.  MHO