Upcoming Correction Confusion

[Connor Vanin]

New investor here, learning as much as possible while I build up some seed money. While researching, I've seen people bring up the idea of a market correction in the near future, and it makes me wonder why I keep reading that. Historically, at least what I've looked at, real estate cycles tend to go at 18 year intervals, with being 8 years or so since the last correction, I am just confused as to why there seems to be a consensus on the topic. Any insight would be great!

[Russell Brazil]

If there is a consensus.....then it's probably wrong. Doing the opposite of a consensus will usually make you money.

Everyone likes to think that they are Nostradamus and can predict where housing is going. The experts have no better track record than a monkey throwing darts at a dart board. 

Instead of trying to time the market...build a business that can survive all markets.

Peter Lynch made the point that far more money has been lost by people preparing for market corrections than has actually been lost in market corrections.

[Ralph R.]

Russell Brazil I agree 100% Russel. Watch how you leverage and buy right makes for more restful nights RR

[Connor Vanin]

That is great advice! Thank you!

[Account Closed]

It's a long term game, just make sure you're not too leveraged. So you're not forced too sale during a dip. So dips are welcome to invest more , keep a balance between cash at hand and make sure the cash flow is good. Risk will only go down over time if you pay off the mortgage, i.e. you will become dip proof so to say.

[Ralph R.]

@Account Closed  Good thoughts Richard, but owning long term and paying the mortgage down without paying the mortgage off is a form of security too.  Remember the numbers you use to buy the house with start changing the day you close.  one thing that most certainly changes is the taxes.  most counties will use your purchase price as a new evaluation of the tax appraisal for that property.  if you paid more than the seller than taxes will go up.  rents go up.  expenses go up too.  All of my property's cash flow way better today than they did when I bought them, while the mortgage stays the same.  rents have gone up more than expenses.  Call it luck or skill or whatever you want.  that means in most cases on my current rentals I could drop rents by as much as $150 a month and still cash flow SOMETHING.  if I had too I could re-fi, and possibly get a lower mortgage payment due to loan pay down by the tenant, allowing you to lower rent even more.  you would need to do this before the property reached the value you paid for it.  That's why you need to make the best deal possible before you sign on the dotted line.  while these options are there they will not help your wealth building, but will help cover your butt in a severe dip, and I would only use them in an extreme case.  selling is also an option, though taxes are involved here unless you 1031 exchange.  then you could be forced to buy a property that's falling in value. not good either.  equity is a double edge sword.  it hurts your wealth building  due to missed opportunity, but too much leverage will give you no lee way if there is a severe drop in the market/rents.  Your best safety net is too buy right, keep your leverage at a safe margin, and try to ride out any  market downfalls  by lowering rents, offering incentives when you do have vacancy's, and trying to manage through the tough times.  In 2006 I gave a months free rent to one particularly poor rental I had.  it was cheaper than having 1-3 month vacancys.  today that same house casf flows 350 a month, but still hasn't reached a value I could sell it at without sustaining a loss.  fortunately its the only one I overpaid for before the crash.  if you've built your business on a solid platform you can withstand a lot.  its as the old saying goes.  "anybody can manage a business that's doing well, but it takes a better manager to manage one that's not doing well"  You have to "prepare for the worst yet expect the best."  Its all management, and how you manage your business   RR

[Account Closed]

@RalphR. Excellent post, the rising rent indeed helps a great deal, didn't think about that. And indeed the numbers change. From what I hear around me the banks are still demanding fast repayment for rental property's , so I have no choice but paying off faster. During the crisis some people even got letters from their banks stating their mortgage needed extra payment because their total portfolio value of rental property's was higher then the current market conditions. 

Even though they paid every month on time and rental income exceeded their total cost by a nice margin. Most flatly refused , and told the banks to back off. That's not happening any more due to the rapidly rising house prices. 

If the economy keeps improving the banks will be a bit more lenient with their conditions. For now it makes it hard to get that excellent deal, a few years back it was possible but I didn't have enough money. Now I have and the housing prices went up a lot in recent years. But I will keep on searching and hopefully make my first buy sometimes next year.