What to do during a real estate downturn?

Is it too late to buy real estate and make money? Many experts who have been investing in real estate for decades will have seen the ups and downs of the real estate market cycles. Most will acknowledge that as long as one is prepared to stay through the bad times, the assets made will turn out to be a good investment. Of course it can be quite frantic to keep a real estate with diminishing paper value and if the cash flow is tight.

What if real estate values go down where you live? Here are some possible strategies for a real estate downturn.

Keep your property unless you have already made a profit

How serious is the problem really? Let’s say that the home you live in, your rental property, or the property you bought as a “fix and flip” goes down in value. Well, if you weren’t planning to sell right away, would it matter? Hang on until the market comes back. Historically, in the bigger picture, a real estate market will always come back.

If your current rental properties are having a positive cash flow with tenants, there is little incentive to sell, unless you have already profited from the value (which is still substantially high if one bought at the previous bear markets).

Emotions can go wild during a bear market, but with a well adopted strategy, one can still profit from a down market. In Singapore where land is scarce, real estate is a good hedge against inflation, though one may be worried about deflation nowadays. But if your rental properties are having a decent yield, you might as well just keep the properties for decent cashflow.

Manage your property investments like a business

One of the fundamentals of business is to look for a way to create more value in what you’re selling, whether you are renting a property, or straight out selling. And, if no one is buying (or renting), ask yourself why? Is there a way to add more value by making it more desirable for the buyer/tenant?

Some ideas might include changing the property–adding additional features that no one else has or making more favorable terms for a potential buyer/tenant. Having strong business skills means you have the ability to look at any market in any climate and figure out what to do next without panicking.

Also managing the cash flow is also important as it can help in your next property grab during a downturn. If some of yours has reached its peak value, it may be worthwhile divesting it away to get a replacement asset with potential.

Focus on the real goal.

No matter what type of business or investments you have, you need to have fundamental skills. During a downturn, one can have another opportunity to grab a trophy asset at a fraction of its normal value. This means doing your homework, understanding the macro and micro environment in the real estate market, looking out for good buys, getting to know professional realtors who can help you locate and negotiate good deals, and managing a sound financial plan with bankers and financial institutions. It is especially important to keep cash in a downturn as it will be a boon when you are in a position to take a trophy asset.

 

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