Survive a Market Bust

Basic Ways to Outlast a Real Estate Downturn

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Everyone who’s even dabbled in real estate knows: the market can be fickle. That doesn’t mean, however, that you should only try your hand at real estate investment when it’s a buyer’s market or that you should give up at the first sign of a market downturn. On the contrary, if you can learn how to outlast a faltering market, you’ll most likely end up more successful in investing than those who are easily spooked.

If the real estate values do happen to go down in your area – don’t panic. Remain levelheaded and reasonable and you’ll most likely come out on top. The biggest mistake investors make is jumping to rash, emotional decisions — rather than reason and patience — during a market downturn. In addition to keeping your head about you, there are a handful of simple things you can do to survive a market bust.

First, if you can help it, don’t sell. Of course the temptation is strong to keep properties moving to make faster income. But fixing and flipping isn’t always as easy as it seems, and sometimes you’ll get caught in a market bust while you have a property (or several) on your hands. Don’t panic! The market will come back up as it always does and that property might sell for even more than it would have initially. Of course, waiting the downturn out is often easier said than done. It always helps to stash away a little extra income when the market is high to help you outlast any negative market changes.

Don’t jump to conclusions. The stories of people renting out properties for a positive cash flow that panicked and sold during a market downturn are all too common. The adverse market might only marginally affect you, so don’t assume the sky is falling the minute you notice a market downturn. Try and salvage all that you have – if you’re renting with a positive cash flow, then by all means continue renting! If you sell during the market downturns, you’re only locking in your loss rather than waiting it out for eventual gain.

If you’re a bit of a risk taker or have sufficient capital, you could even take advantage of the panic by buying cheap properties and waiting for the market to swing back up again. Don’t be afraid of your tenants suddenly fleeing because of the change in market – there are generally more renters when the market turns down.

Again, if you’re lucky enough to be in a market that’s “running hot,” be sure and take advantage of the situation by preparing for a downturn. By putting cash away as part of a well thought out plan, you’ll never doubt your ability to outlast a market downturn. That’s what makes good investors.

Don’t forget – real estate is just another product and investments should be run like a business. A good businessman always does his research and knows his product and market. Houses are no exception. In many ways, real estate is even easier because the product appreciates in value unlike most products. So many investors succeed in a hot market without having a clue what they’re doing that they never exercise the basic fundamentals of business.

If you don’t rely on luck, you’ll easily survive whatever the market may throw at you. During a market downturn, try to be productive! Look subtle ways to create more value and appeal in your properties. But don’t go crazy – a downturn is not the time to make major renovations unless you have sufficient capital to do so.

Finally, use your investments to your advantage regardless of the market. Real estate investment provides you with a number of tax benefits and loopholes that help you no matter what the real estate market looks like. As long as you run your investments like a business – acting with patience, restraint, and reason – you should have no problem weathering a market bust, and you might even end up more prosperous for your persistence!

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