What happens when the market drops.

4 Replies

Helllooo bigger pockets. I’d just like to ask a simple question without going to much into detail. Long story short my lovely wife and I. Like to buy somewhat fixer uppers love in them for 2 or more years then sell them for a profit. We are looking at a 4 bedroom 2 bath that was built in 1893. The arv according to comps is in the 280 plus range. My question is. What happens if I buy the house now for 160,000 (asking price) and the market drops. Do I lose a lot of money or what happens?

@Matthew Fassett you don't necessarily lose or gain money until you attempt to sell or refinance. If it's worth $280,000 right now and you buy it for $160,000 then the market price would have to drop $120,000 before you would start losing money. The market may drop but it's unlikely to drop that far.

The good news is that the market will always come back. Even if the value did drop below $160,000 you can just hold onto it until the market bounces back. This is why so many invest in buy-and-hold properties; we continue renting it whether the value goes  up or down and it doesn't really affect our bottom line.

You buy for 160k, and the property is worth 280k.  That means you have 120k in free equity from the start...that you didn't pay for at any time.  You only paid for the first 160k.  This means the only money you can lose is the first 160k.  The last 120k, isn't anything tangible until you access it.  If the property went down to 121k, you are still ahead 1k.