Real Estate Industry Crash

[Mitchell Chingay]

Good afternoon!

We all have seen what has happened in the past like what happened in 2008. Do you predict what happened then to happen again soon? If so what is your back up plan?

[Erik W.]

Since I first joined BP (3 years ago?) there have been 2-3 posts every week about the impending real estate crash and the doom of the US economy.  In that same time, I have bought and rehabbed 15 properties, all of which are cash flowing nicely and have actually appreciated around 30%, which is saying something considering they are Class C.

I am currently under contract to purchase a residential 4-plex and a 10,000 sq ft commercial warehouse.  I made an offer on a $1.9 million, 32-unit, off-market apartment complex yesterday.  We'll see if that goes anywhere.

My back up plan is the same as my primary plan: keep buying property in markets that have a diverse economic base, in an underserved market (i.e. upper end of low income/bottom end of middle income rentals, small commercial properties), for around 70%-80% of what I could sell it for today, and using the 2% rule of rent to purchase price ratio to ensure there is plenty of cash flow where I can handle vacancies, maintenance, capital expenditures, and still cash flow positive.

Cars crash far more often than markets, but you still drive, right?

My 2 cents....  ;-)