Boom and busts in real estate. Some investors try to anticipate them, some ignore them.
There have been numerous books written by people claiming to have the “magic” formula to sniff out future values. Uh huh. I’ve been at this a Long time, and almost all these people bragging on how they made money anticipating the last crash (or boom) get the next one COMPLETELY WRONG. Personally, I have predicted too many crashes, and hence missed out on the booms when I was wrong. It all seems SO OBVIOUS - in hindsight.

So, how do you invest to (1) take advantage of property price appreciation and/or protect against inflation (devaluation of “fiat” currency) and still protect against a crash? Well, you can’t do it perfectly, you need to give up something to get something. But you can still optimize portfolio performance while still reducing risk.

Here’s how I do it

1- I do not “cross collateralize” assets, i.e., if I default on one asset (god forbid) the lender can not come after any other assets

2 - I do NOT sign personal guarantees - I've got two banks that lend to me without a personal guarantee, but only up to 50% LTV. Likewise, I won't sign personally for owner financing loans, etc.

3 - As a result I'm at an average LTV of less than 40% on my properties. As a result I can suffer severe rent decreases, and still not have to "feed the alligator".

4- I keep a heavy amount of money invested in Vanguard Money Market Fund. Prior, it was in inflation adjusted bonds. While it only returns 5.23% currently, it provides a great cushion allowing sufficient time to wait out a crash without having to resort to selling properties at inopportune times - at fire sale prices.

5- I keep a large part of my portfolio in high yielding notes secured by real property - and while I want every loan to make payments as agreed, my experience indicates that a certain percentage will default with me owning the property during periods of economic contraction. And some of these will end up as large profits in my portfolio. Also, the cash flow of the paying notes will provide enough cushion to allow me to survive almost any crash.

6 - Finally, I have about 10% of my portfolio allocated for investment in high(er) risk property investments - and while there’s no telling how I’ll do on this, in the past I have been able to purchase some volatile assets at very low prices and end up doing pretty well. Of course I had some tough losses, but that why it’s limited to 10% (at my age; for someone younger might want that percentage much higher).

So, I’d be interested in learning how you limit you downside risk while still positioning for appreciation?