Is this the BEST investment strategy in a market downturn?

[Engelo Rumora]

G'Day everyone,

I hope you're all off to a great start in 2019.

Over the past 10 years we have gotten used to an expanding economy and marketplace where we have forgotten that down and negative exist.

When everyone is making money hand over fist nearly all of us forget that we should be diversifying along the way. I’m not really sure why human behavior is so predictable, but looking over the past several decades we have seen tidal waves crest and collapse leaving anything and everything in its path wiped out.

Below are a couple of "bias" tips that I have learned over my years of investing through uncertain times that hopefully can be implemented in your investment narrative.

Focus on Single Family Homes

During periods of market recession, a basket of single family homes tends to be more diversified than one or two larger multi family buildings. The reason being is that you have the flexibility to geographically spread out your risk. Sometimes recessions are market specific and other times they are systemic. With a geographically diverse portfolio at least you have the chance of avoiding pockets of the country that suffer far greater than others. Think Las Vegas versus New York City during the 2008 global financial crisis.

Focus on Cash Flowing Properties

At the end of the day regardless of how bad the economy is people need a place to live. What tends to happen is people move down the chain of class levels in order to afford the home with their newly adjusted budget. Class A down to B, etc. In order to de-risk your portfolio, monthly cashflow is tantamount to having dry powder in order to take advantage of opportunities that may arise during a recessionary time. The Midwest has always been more focused as a whole on cashflow, where as the East and West Coasts are more about capital appreciation. Pivot your focus towards the Midwest especially during times of uncertainty in the overall global capital markets.

Focus on Reducing Leverage

The more leverage someone has in their portfolio the greater the effect will be during uncertain times. Make sure that when you are collecting income whether it be from dividends or rental payments that it is actually going into your pocket, instead of out the door and into the banks pocket. If that is the case you are really just acting as “the middle man” for risk. Why is it ok that we are fine with assuming risk, but never really that ok with being compensated for it?

Do you agree with me?

Thanks for reading and I'm looking forward to your replies.

[Jay Hinrichs]

part of the issue I see many face is they want to super size and do it now.. and the only way they can do that is to take on massive debt..  sometimes they will call it good debt because that's what is talked about on investing sites. 

and of course there is the mathematical part of this .. there is no arguing leverage increases yield you cant change math. 

However there is very flawed thinking that all rentals in all market will ALWAYS cash flow.. 

right now that's a pretty accurate statement with some exceptions..  however in the Great GFC ( and I am not predicting one in the future at least I hope not I may not survive another one).. no asset class in any city was total immune .

those with max leverage lost properties its a fact.. some big established REITS multi billion dollar companies went bank O and lost their entire portfolios..  Think OPUS out of Minneapolis that's just one that pops into my mind.

those though that had no debt unless they simply could not pay their property taxs their properties might have been vacant but they did not lose them.

In my mind goal number one should be getting some sort of your portfolio paid for as quick as possible.. I mean

who wants 100 doors making 150 a door.. when you can have maybe 10 or 15 houses paid for making the same ? no massive debt and same cash flow and no worries.