Market Contraction Strategies

4 Replies

Good afternoon everyone,
I have a question for anyone/everyone that is willing to ponder it.

I have been looking for something posted on strategies and techniques for positioning yourself for taking advantage of market contractions and downward curves etc.

There has been a lot of talk and articles written (for over a year now) about the impending "bursting real estate bubble". For any number of reasons, people have been predicting it going back to 2015 from what I have seen. There are as many people claiming it's imaginary or we shouldn't worry about it, which is fine. That isn't really what I am asking for a debate about.

Whether you believe it or not, eventually it has to happen. So, let's assume for just the scope of this conversation, that it has started, based on the indicators that are starting to come in, regarding inventory, interest rates and so forth. Again, I don't really care if everyone thinks it is or isn't actually starting the contraction.

What I want to know is, what is the smart strategy for real estate when it is happening? How should we be positioning ourselves for when it happens?

I am curious to hear from those of you that were active in the commercial real estate during the last recession and how you weathered the shock and pushed through it. What would you liked to have been able to do differently if you had known it was coming in 6-12 months?

The only strategy I have seen so far, and I forget who provided it, was to try and clear as much debt as possible on single family homes and pre-qualify for HELOCs of other lines of credit to be able to start buying at the downside of the cycle.

One person mentioned in a facebook group I am in, essentially, "don't worry about it, just hold everything tight and wait it out, it will correct itself."

One problem with hold through the rough times is it doesn't really position you to take advantage of the market to advantage. Perhaps I didn't mention it in the diatribe above but while protection of your current holdings is majorly important, it isn't everything, unless you play the ultra-conservative playstyle. At my age, I tend to drift that direction, but I am looking at how to position myself to take advantage of the contraction and am trying to find any other techniques than "Build up as much cash as you can and buy discounted". 


That technique works in any market so it really isn't specific to market contractions or bear real estate markets.

Does anyone have any suggestion on resources for profiting from bear real estate markets?

Sorry for the long ramble. But I would like to hear opinions if you have them. Thank you.

Bob

@Bob Starlin I’m an agent so some of my strategies are specific to how I’ll try to make money in the next contraction. Here are a couple ideas though. 1. Listing REOs - these REO teams made a killing 2009-2013 2. Leasing / Property Management business - when equity shrinks and credit dries up people have to rent out houses. The guy who helps them do this can make good money. 3. Wholesaling lease options - similar to above. 4. I know some top wholesalers killed it in the last contraction. Lots of distressed sellers and they don’t carry any risk or need financing. 5. Subject 2 deals and seller financing deals would be good strategies in this type of market as well.

@Bob Starlin Lease Options are an awesome strategy when you think the market has peaked. If you're wrong and prices keep going up or flatten out you can exercise your option. If the market tanks you can renegotiate or walk away.

After the collapse when the market is flooded with cheap inventory is a fantastic time to do subject to and seller financing, rent them out, and wait for prices to rise again.