US Housing Market is at an all-time low. Every real estate investor is looking for one thing, how to survive this housing market crash.
Current market is vulnerable to rapid changes, especially, if you’re entering real estate at this moment.
If you have been flourishing as a real estate investor for years, let’s say you were a house flipper who had flipped over 600 houses, you wouldn’t be at so much unease.
But, those starting today would be very concerned with what’s going on in the real estate market as they face the eternal dilemma of buying or not buying.
Someone who started their real estate investment career back in 2000 must have seen several real estate market crashes, like in 2008.
Since then, the housing market has witnessed a tremendous rise.
What’s happening in 2022 is quite unconventional as this housing market crash is sudden and more potent as it has forced everyone to re-strategize their real estate investing plans.
The US Housing Market Crash has adversely affected the investors who were in the house flipping business or ardent followers of the BRRRR method (Buy, Rehab Rent, Refinance, Repeat).
As it has made these residential real estate investors adjust their buying criteria and change their outlook on today’s market needs.
Let’s check out how you can also change your real estate housing strategy and survive this housing market crash.
The following ways will aid you in mitigating risk in your real estate housing business and prevent you from losing your precious MONEY!
WAYS to Survive US HOUSING MARKET CRASH
#1 Adjusting your Business Analysis
You may want to know how can one analyze their deals when they are prone to sudden changes.
Well, you may be aware of real estate comparables also known as ‘COMPS’ properties that you look to buy or sell in a specified area.
Through COMPS, you try to analyze a property in two different ways, first is the value of the property at which you will purchase it and another way would be a different property having similar features as the previous one.
Multiple houses like these help you to make a good strategized guess on what that house might be worth.
Also, there is the ‘ARV’, which means the after-repair value. It’s the most important thing you must be looking at.
For example, if you have decided to purchase a house but it needs fixing, it’s common that you would like to know its after-repair value across different times.
Thus, you should look for ‘fixed comps’ houses that no longer require any repairing work.
Through this, you would be able to take lots of comps on their after-repair value but one thing which you should always keep in mind is the selling price of those houses in the last 30 days.
Rather than focussing on the price which was 3 to 4 months ago because market rate change fluctuates over the 30 days.
We would also suggest you look for pending sales, properties that were on the market that went pending and haven’t closed yet but are still under contract.
Now, you may be thinking about why pending sales are so important, right?
It helps you to know more about the property including its market price, offers it has received, and so on. Thus, making a better call on that pending property.
Furthermore, you also need to look at active listing down the market as the rates go up in today’s market there will be more inventory supply and demand dictates price.
Moving on to the reason why there’ll be more inventory is that more properties will sit on the market a little bit longer.
But, you must have observed that we’ve been at a record low inventory forever, however, mark our words soon this inventory will rise to a new high.
Thus, if there are too many active properties and listings on the market in your area and you want to sell your house fast, you will have to adjust the pricing accordingly.
#2 Looking at Shorter Projects
In our experience, we have dealt with projects that take 12 to 18 months even
for large single-family flips. Even these projects have also met with some development.
The way the market is heading it’s very difficult to predict anything out of it.
So our suggestion to you would be to keep your projects for shorter terms, probably 3 to 6 months.
If possible, 6 months is considered good with some adjustments that benefit you. Though you will need to adapt to these circumstances as earlier you may be focussing on much longer or shorter projects.
You need to understand that projects longing for 6 months gives you a decent time frame to adjust for your strategies maybe cut losses if you have to and so forth.
Let’s say on a project if something goes south or it’s time to take advantage of the market if there’s an opportunity for it.
The whole point of this is to invest in time frames that you can tolerate in today’s market based on your risk level and your risk mitigation.
That’s all you need to do in this business especially when there is an immediate threat of a housing market crash, to mitigate risk, time can be your biggest asset in this.
So, ‘invest in time’ you can tolerate in today’s market!
#3 Avoid Narrow Margins
Try to avoid narrow margins as much as possible. Certain markets allowed you to do an 8 to 10% ‘cash on cash return’ on a single family flips.
There’s a variety of markets out there that with quick flips can get you a lower margin on the returns.
Now margin according to us dictates risk. It means that ‘RATE=RISK’.
So, if you have a higher margin, you are lowering your risk as you got a bigger
buffer. If you have a lower margin then you are increasing your risk because you don’t have as much of a buffer.
Now other factors go into the margin and buffer like your skill set, time on the market, how long it takes you guys to rehab a property, and so on.
You can also consider it like that if it’s a bigger project that takes a lot of construction you should have a larger margin.
However, if you used to buy property all the time at 15% cash on cash. In today’s market, it has received an increment as it has gone up to 17 to 20%.
Avoid such sort of narrow margins with the aid of larger buffers like these can help you to survive the possible threat of a housing market crash.
#4 Don’t Chase the Market
If you are an aggressive house-flippers then you must heed this point.
If, you are buying properties right now and then you list your house for sale at the price you aggressively want.
Let’s assume that it comps for $250,000 and you pushed it further to $255,260. In our opinion in today’s market, you should probably price it for what you want to sell it and observe to see how long it takes.
If the market starts to drop, you should never chase it by dwindling your price, it would be like chasing after a mirage in a desert.
It’s a real estate business, if you planned on making all your money on one particular deal then try to maximize it.
If you try chasing the market with a downward trend then you are never going to get a very good value for the property.
#5 Multiple Exit Strategies
In this situation where US Housing Market is declining with each passing day, this strategy may appear as a silver lining in the dark cloud.
A lot of times we might see a single family flip and the only way to make money on it is to rehab and sell it to flip it.
Furthermore, what if you could find a property by giving more of your time and strategy to it? And, you can not only buy and flip it but can also keep, refinance, and rent it out in case something goes wrong.
Well, that’s called the ‘BRRRR Strategy’ where you can buy, rehab, rent, refinance, and repeat.
Instead of doing a higher-end maximum sale price rehab on a property you could also do a lower grade finish maybe do less rehab to it.
But, you wouldn’t be able to make as much money as you anticipated still you would be easily able to get rid of that property.
The point is if you can find a property that has more than one way to disposition it then you have multiple ways to mitigate risk.
#6 Wait
Yeah, you heard it right. All you need to do is play the ‘waiting game’.
Do you have to buy a deal? No, you never lose money on the deal you don’t
buy but you also don’t make any money on the deal you don’t buy.
By wait, we don’t suggest you wait and see what happens to the market as a lot of people are doing that right but it’s only advisable when you try to mitigate the risk by not taking any more risks when there are unforeseeable circumstances.
The best thing about real estate is the ‘long term’.
In our opinion ‘Long Term Real Estate is Always Victorious’.
Now, you may ask, ‘how long?’, well we don’t know how long, for example, people who heavily invested in 2009-10 must be pure visionaries and geniuses, right?
The wait can be as long as 5 years or can go up to more than 15 years, the point is if you can weather the storms on your properties and just wait.
You’ll be able to make it up later in the longer run.
Some people buy high-end properties in 2007-2008 and those who bought low-end properties in 2007-08 as they lost a ton of equity and a ton of value when the market shifted.
But it took until 2013-14 for a lot of those properties to regain equal value and those who kept them for the long run benefitted the most from it.
SUMMING UP!
It would be right to say that market shifts always happen in the business of the real estate.
In the real estate market which is always prone to fluctuating witnessing ups and downs is a normal thing.
However, the way US Housing Market is crashing can be a sign of worry but all you need to do is wait for weathering of the storm.
Once the sky gets clear, you will see the bright sun shining over your properties which will be ready to be sold like a hot piece of cake.
We hope with these 6 ways you will be able to survive the housing market crash if it ever happens. You should not forget that whether the market is low or thriving there is always an opportunity to make money.