It looks like this boom may be changing. I do worry for those who don’t see it coming — but there are still ways to invest sustainably and profitably.
In this recent BiggerPockets post, I pointed out some of the new real estate data that indicates that things may no longer be as rosy as some want us to believe. For now, things still feel great in most markets. Based on how real estate cycles have performed in the past, some markets are still likely to have a couple of years of growth in them. But you don’t want to wait until the correction comes to your town or niche to try and restructure your portfolio on the fly. Those who stay ahead of the wave should be more than fine.
Let’s Learn From the Last Market Crash
Fortunately, many real estate investors and homeowners have been buying smarter. They are less leveraged, they have affordable payments, and they have great financial cushions. However, this is certainly not true of everyone. A report by CoreLogic reveals mortgage and real estate fraud still running rampant. Others have been tempted with easy credit offers over the last couple of years. Some have either forgotten the lessons of the last correction — or have been oblivious to them.
A new Fox Business report shows Capital One, Wells Fargo, and Chase among the major financial institutions tightening their belts and assigning hundreds of millions of dollars to reserves to cover the rise in defaulting consumer debt. And like with the last crunch, when interest rates finally go up is when when many find they can no longer keep up.
Structure Your Portfolio for Sustainability NOW
It makes me shiver thinking of how tragic this could be for those who have invested poorly. This is especially true for those homeowners who have taken out high LTV loans and adjustable rate mortgages, as well as investors who have taken on properties with low cap rates and balloon mortgages.
Of course, some investors have proven that they cannot only survive tighter times, but that they can consistently thrive in them. They’ve accomplished this by acquiring smarter long-term rentals, consistently investing in good properties at the right price, and ensuring the numbers will still work in all market phases. This can mean not buying and betting on appreciation alone or anticipating short flip times in an attempt to beat the market. If you do this, real estate is still the best investment in town. It is reliable and can deliver great returns. After all, we’ll always need housing, and if consumers are not buying, they are renting.
There is still time to shift portfolios for safety and performance away from over-leveraged positions in heated markets to those with more value and sustainability. Where will you sell, buy, and invest this year?
Investors: How do you ensure you’re prepared for a possible market correction?
Let me know what you’re up to with a comment!