How to make money in realestate if the bubble bursts?

Question

Hello everyone,

I'm very curious what strategies people are planning to use, if the housing markets tank again, like in 2009. I know many of you were investing during the last recession and were able to ride the wave. Any of you have ideas on how to be succeasful if the market crashes? Obviously, "buy everything you can with cash and wait" wouldn't be that helpful.

Tyler Gibson · Answer

@Jonathan Sikes If the buubble bursts then access to capitol from banks will become a challenge. I have heard many investors advice getting high limit credit cards now, opening Helocs and other lines of credit now while banking institutions feel safe giving it to you. Of course you don't want to use these right now but pay the fees required to keep them open and active. This way when it happens you can get the cash you need to do all the deals you want. Also I would build relationships with private individuals that have capitol start showing them you know what you are doing in the RE game so that when the opportunity is there to pick up cheap properties you got the means to do it. I think I would go the route of scooping up as much on the cheap as I can and do seller financing. This is what Robert Kiyosaki (rich dad poor dad) did in 08-09. He was buying the foreclosures dirt cheap and selling them seller financing for 2/3 of what they were worth 2 years before. Buyers were happy to get a cheap house and since it was seller financing they were able to get a loan which was hard to do at that time.

Tyler Gibson · Answer

I hear you Jay. I was trying to provide some other answer than "Cash buy everything" since the poster specifically mentioned wanting something other than that response.

Tyler Gibson · Answer

That is a great call out an I appreciate it.

Thomas Rutkowski · Answer

I'll take this angle a little further. Every time life insurance is mentioned, people freak because they heard that life insurance is a rip off. I'd like to make it clear that a maximum-funded, high cash value life insurance policy is the polar opposite of the "whole life" policies that everyone thinks are full of high fees. These policies are designed for minimum death benefit and fees so that most of the premium goes to the cash value and the cash value is hit with as little fees as possible. These policies are designed to only barely meet the legal definition of life insurance. But, since its still called life insurance, the uneducated masses still think its a ripoff.

When your cash is not working in a deal, it can be earning dividends or interest-crediting in a properly-designed policy. When you want to get back into a deal, you can borrow against your cash value as a source of funds. Done properly, the interest is a tax-deductible business expense, so you have the added benefit of minimizing your taxable income while you literally put your money to work in two places at one time.

More on this approach is in this thread...

https://www.biggerpockets.com/forums/519/topics/245380-paradigm-life-infinite-banking-whole-life-insurance?page=3

Jay Hinrichs · Answer

the frozen HELOC's caught many unaware during the GFC... and few people actually read the small print and come away from a HELOC closing understanding that these loans can and do get frozen or called.. so just pointing that out..

Jay Hinrichs · Answer

Tyler do keep in mind in a true bubble burst the FIRST thing to get frozen and called are HELOC's followed by high limit credit cards LOL..

in a true bubble burst situation its cash in the bank that is yours.. and or putting together investor groups who have cash in IRA's that sort of thing.. but then everyone is scared and its hard to raise investor cash..  And investor loans forget about those during a bubble crisis they are not offered even if you qualified for one if they don't offer them what good does it do.

for those positioning themselves for a true bubble burst best to get your cash ready..

Account Closed · Answer

@Jonathan Sikes

Some non-traditional routes to access cash include cash value in life insurance policies, retirement account loans or distributions, and borrowing from friends/family.  Let me be clear, all of these options have very specific tax implications but working with a tax professional would make sure it's done correctly.

Many individuals I work with that were looking for cash options in 08-09 turned to retirement assets they thought they couldn't use to invest in real estate or couldn't touch until 59.5 years old.  There are ways if done correctly.

Account Closed · Answer

That is when it is best to use creative financing like Subject To, Lease Options, Contract for Deed, Owner Financing. Learn it now to use it then.

Ralph R. · Answer

@Jonathan Sikes. One thing a person needs to remember. The last crash took a few years to set up and was the worst crash in 70 years. Many lending laws were changed to try to prevent this from occurring again. In short the odds are what may happen is a correction of a lower magnitude as opposed to a major crash.  My personal strategy is to make sure my properties are really providing a solid cash flow. I have eliminated all but 1 balloon type loan. It’s a 10 year balloon. I have shifted my loans around putting heavier 30 year loans on some properties (cash out re-fi’s) and paying off others. In a bad time the heavier mortgages could be sold if you can’t hang on to them and you own the remaining ones debt free.  By paying off all personal debt, (my car) and paying of my highest yielding properties I increased my cash flow by 600 a month. The car payment I lost was 400 a month. My primary re-fi dropped the payment $200 a month. Total gain is 1200 a month. The total payment increase was 300 a month. That means I gained 900 a month in usable cash. ($1200 minus $300 =$900). That’s not the end of it. After the new loans I have only one property that’s got a pretty close cash flow. It flows about $150 a month after vacancy cap ex management etc. all of the expenses. The rest of the payments went up only a little, 100-150 a month. They still cash flow very well. If I have trouble I would sell the heavy debts first and end up with paid off properties.  My idea is the hotter the market the heavier the down pmnt, and the lower the debt. Buy cash if you can. In a slow market buy using more debt and less of your own cash. Just a thought. RR

JD Martin · Answer

Stockpile cash and buy everything under the sun for cash if we get another 2007/2008.

How to make money in realestate if the bubble bursts?

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