Crisis Investing in Real Estate

Booms and busts always happen. You can’t defy the Law of Gravity. What goes up must come down. Today, the real estate market is a Sellers’ Market in most areas. Most average folks view real estate investing as speculating in price appreciation. The real objective of real estate investing is passive positive cash flow.

The next crash will have awesome opportunities to pick up foreclosed properties at “bargain basement” prices, even lower than the 2008 crash. However, your strategy must have a tight focus:

  1. Buy distressed income properties, fix it up, then rent out for long term positive cash flow with at least a Debt Coverage Ratio of 1.50, and refinance when possible to fixed rate, fully amortizing, long term debt.
  2. Flip the property “as is” to another investor for a cash assignment fee. This is “deedless transacting” and it provides the least risk and the highest yield on your invested cash.

Anything else will leave you without a chair when the music stops. Don’t get caught holding title to a property that won’t pay for itself with a positive cash flow or that you cannot sell for a conservative profit.

When is the next crash coming? My “Crystal Ball” is in the shop for repairs, so I cannot predict with certainty 🙂 . However, my “informed guess” is between 2014 to 2019, and probably much sooner rather than later. The crash will be unexpected and the Federal Reserve won’t have a clue (again) that it’s happening until the extreme damage is done. The rapid price inflation that led up to the 2008 crash won’t be as obvious the next time.

When the crash happens, serious deflation will drive down commodity prices, real estate prices, bond prices, and stock prices. You can hedge by buying investment grade gold and silver, using “dollar cost averaging” as the price declines. Remember, you’re not investing for price appreciation at this time. It’s all about storing “purchasing power” for when the real inflation strikes hard. Take physical delivery of your gold and silver bullion (American Eagle coins are my favorite) to provide a cushion, but don’t sell until very strong price inflation can offset your capital gains tax and the net profit will substantially pay down your debt. Avoid Exchange Traded Funds (ETF) for gold and silver. Paper gold and silver doesn’t exist. You must have physical possession of it, or the counterparty risk will destroy your investment.

The Federal Reserve only has a “hammer” in its toolbox, so every problem looks like a “nail”. Frantic monetary stimulus (printing digital counterfeit currency) to avoid deflation will eventually force strong inflation and probably hyperinflation. Time the inflation by watching the price of your gold and silver. When you have enough locked-in profit to cover your capital gains tax and to pay off your debt on your income property, that’s when you can sell. Your passive income and net worth will dramatically rise with “free and clear” real estate.

When the market price of your income real estate crashes, you’ll be very glad that you had the foresight to ensure a strong debt coverage ratio to tolerate recessionary pressure on income and expense. You’ll be in a strong financial position with positive cash flow to pick up awesome deals on good real estate, because everyone else will be in “panic mode” trying to raise cash by selling.

Learn more with my real estate investment courses.

Introduction to Income Valuation and Syndication

Property Analysis Worksheet

How to Pyramid Your Equity to Create Wealth and Financial Freedom

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