We’ve really been enjoying a healthy real estate market for quite a while now, but as history tends to show, sooner or later the market will hit a wall or maybe even crash. It may be soon, or years down the road, but it’s wise to protect yourself from a future real estate crash by gaining insight and wisdom.
Senior market strategist Susan Green states that our economy experiences a recession usually between five and ten years. This is based on economic activity in the past and has been fairly accurate. If this is the case, we could see some economic turbulence within the next few years.
To be on the safe side, here are some ways you can protect yourself from losing out if a crash occurs.
- Know what median rent is in your area
In a solid economy, there are plenty of people who rent above the median, but when a recession comes, people will gravitate toward the median rent. Therefore, when you’re looking to purchase a rental property, purchase ones that rent below the median. This way, you’re more apt to hold your occupancy rate if the economy hits turbulence.
- Crunch cash flow numbers realistically
There’s a lot of investors who will not be realistic when their crunching their cash flow numbers. As best as you can, be as specific as you can down to the penny. If the market takes a dive, and your numbers were inflated, you could lose out on some money.
- Offer exceptional landlord service
It never hurts to be the kind of landlord you’d want to have. Offer exceptional service to your tenants, because if the market turns, they’ll be more apt to continue to rent from you. However, if there’s a lot of tension between you, they could bolt as soon as the market turns.
- Be ready to leverage
Some people say that you should take your extra money and pay down mortgage debt. Others say that you should use that money to invest in another property. If you pay down your existing mortgage, you’ll be able to use that as leverage should the market crash and you find yourself struggling with payments.
Essentially, there are things you can do to prepare for a future real estate crash. At the same time, diversifying your investments is helpful and recommended. In other words, “Don’t put all your eggs in the same basket.” Real estate investing is a great way to build wealth, but don’t forget about other forms of investing too. When you diversify, you decrease your risk of loss when the market turns and that makes for smart investing.