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Victor Steffen
  • Investor
  • Austin, TX
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When real estate values fall, what asset type goes up?

Victor Steffen
  • Investor
  • Austin, TX
Posted Jul 2 2022, 09:08

In other words, what asset type would you buy to hedge against real estate? 

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Joseph R. Smith
  • Rental Property Investor
  • Carthage, NY
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Joseph R. Smith
  • Rental Property Investor
  • Carthage, NY
Replied Jul 4 2022, 20:23

I totally agree with JHL's reply.  Moreover, IF real estate prices were to fall say even 30%, that has no Bering on severely distressed real estate which can continue to rise 50%/yr in some well selected places. Also looking into mobile home parks and RV parks if things overall continue to go south.  Short 1 other answer-Commodity Indexes (including energy and foods such as wheat continue to rise). And likely mineral indexes, things such as gold. The entire broad indexes as a hedge. 

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Paul Moore
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  • Commercial Real Estate Fund Manager
  • Lynchburg, VA
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Paul Moore
Pro Member
  • Commercial Real Estate Fund Manager
  • Lynchburg, VA
Replied Jul 11 2022, 12:46

Hi @Victor Steffen great question and thread. Thank you for posting this. @Bruce D. Kowal is right and here is why…real estate prices tend to overshoot the market on the way up.

So when there is a boom, some real estate goes far above what it should in good times. As a result, it will likely go much farther down in bad times.

So in bad times it’s likely you will find incredible bargains.

Examples abound like Florida in 2008 or Phoenix and Las Vegas for that matter. It is likely that there will be opportunities again, in the likely coming downturn. However, I don’t think we will see a downturn like the Great Financial Crisis because there is still enormous demand in rental properties like single-family homes, especially in places like Florida, Phoenix, Las Vegas, etc, where people are moving. Good luck!

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Stephen DeThample
  • Real Estate Agent
  • Las Vegas, NV
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Stephen DeThample
  • Real Estate Agent
  • Las Vegas, NV
Replied Jul 11 2022, 13:24

There will be a lot of great deals in the real estate market.  Everyone talks about "buying the dip" in the stock market, get ready the dip is starting in real estate.  Here in Las Vegas, we are already seeing some big price decreases for houses that need to be sold (divorce, moving....).  I would get cash or financing ready to go so you can move fast when there is an opportunity you like.

Good Luck!

Stephen DeThample LLC Logo

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Paul Moore
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  • Commercial Real Estate Fund Manager
  • Lynchburg, VA
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Paul Moore
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  • Commercial Real Estate Fund Manager
  • Lynchburg, VA
Replied Aug 19 2022, 08:10

Hi @Victor Steffen! I wanted to add to my earlier comments above...

I have read Mastering the Market Cycle--Getting the Odds on Your Side by Howard Marks twice. This is the best book I know of on this topic and I highly recommend it for anyone thinking about market cycles. It does remind me that it really is true that the best time to buy is when blood is running in the streets. However it is also the hardest time to get financing. Good luck!

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Victor Steffen
  • Investor
  • Austin, TX
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Victor Steffen
  • Investor
  • Austin, TX
Replied Aug 23 2022, 06:42

Excellent share, thank you @Paul Moore !