How To Stay Profitable During A Tough Real Estate Cycle

real estate investing

This article is a response to a question that I received via email from a reader asking how to stay profitable during slower real estate cycles. As I went to reply I thought that this might be a good topic to share here with you as well.

Many people are quick to sound the alarm as soon as soon as real estate prices begin to dip and sales start to taper off in the market. It happens to every market and you know what? It always comes back around again.  That is why it is referred to as a cycle.

But the real trouble can come when you aren’t prepared to wait around for that next bubble.

If your reason for buying real estate is for a flip or capital appreciation, I believe you are at a higher risk because you are making the assumption that the value of that property is going to go up. I don’t make that assumption when I buy a piece of real estate.

I make the assumption that the revenue the project can generate will create positive cash flow for me, regardless of the cycle

Re-Think Your Strategy

In times where there are places across Canada with stagnant real estate values, you’ve really got to think about your strategy and make sure it’s airtight. This is why you continuously have to be evaluating your business plan when you look at real estate. Look at why you’re doing something and the methodology you’re using to make money.

If you’re focusing on value growth, you’ve got to be able to hold through the ups and downs of the market. If you’re looking at flipping you’ve got to consider what you plan to go with if the property doesn’t increase in value. What’s the secondary and third option for the project if the first plan falls through? If you really study at a project before you invest you will have strategy 1, 2 and 3, all ready to go at a moments notice.

If strategy 1 is to buy at a really good price and sell tomorrow at a higher price but you try to sell it and it doesn’t…you’re going to need to look at option 2. What is option 2? It might be that the property creates cash flow so you rent it out. Option 3 might involve a rent-to-own project.

The point is you need to come up with different options for every project that you buy so that you decrease your risk.

Recommended Reading

If you want to learn more about building a successful real estate portfolio, I would highly recommend the following free reading materials.

One Response to How To Stay Profitable During A Tough Real Estate Cycle

  • Jennifer Cowan says:

    Great reading your blog Ken…I pass it on to people I talk to about real estate. They don’t believe me….so I tell them to read about it in your blog!

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