Housing bubble 2.0? What's your strategy?

[Dan Bryskin]

Market is strong and continues to improve. Everybody likes speculate on how long the rally will last, how much steam is left in the market, and how bad next crash or correction is going to be. It is entertaining but largely useless, as nobody can time a market, except by accident. Buying is risky.  Are you buying on top of the market? Will you have to sit on the asset for 10 years before you can sell it? Selling is risky. In my heck of the woods - Minnesota, twin cities area, in the last 6 months market went up at least 10%. Sell today, and how much appreciation are you missing on in the next 6, 12, 18 months? That brings up my question. What is an optimal strategy for operating in the rising and uncertain market? I have a few objectives:

1. Prepare for the next crash

2. Minimize my risk

3. Maximize my returns

 Here is what we know: 

• Market is rising
• Duration of the rise and the top of the market are not known
• Every passing day brings us a day closer to the correction / crash

1. Flips seem to be no brainier.  Buy something, push closing as far out as you can and sell it after, or even do a double closing make 5% - 20%. Easy. Risk - what to do with unsold inventory during crash / correction.

2. Buy and hold. Seems to make less and less sense as rent increases are not keeping up with property appreciation. Returns on investment are compressing. Safe play, but in case of crash / correction you may be stuck for years with the same door making a hundred or a few. Doesn't seem sexy.

3. No balls no glory. I mean new construction. Risky. Start in the spring, build a few, sell and run. Next year is far from certain. Complicated. Try to find a framing crew, or a tile setter. Pace is feverish, people are busy, prices are crazy. By the way this endeavor is going, once the cost of anti-anxiety scotch factored in, there will be just a few dollars left for a needed physiological help.  But seriously, this is how people lost their butt in the last crisis.

Here is what I am thinking:

1. Liquidate a portion of my long term holdings. Lock in some gains, shore up my cash position. Sell my worst, hardest to rent, least performing properties.

2. Finish and sell my flips asap

3. Get as much financing as possible, I will need it once wind will start blowing north

4. Keep buying, but buy replacements for properties in my portfolio. Buy a replacement first, say 20% better then what I want to replace. Fix and rent it. Then lipstick remodel and sell existing asset for top dollars. This way, I am paying a long term capital gains, still taking advantage of rising market and minimizing my risk. If i am lucky,  I will be left with a bit of change and a better asset. 

Curious to see what the great minds here think. Thank you.