Diversifying your real estate in uncertain times.

[Michael Rutkowski]

So while things are still rosy for real estate markets, I am an investor with multiple backup plans, and would love to hear about how investors here are diversifying their investments, or looking to shelter or hedge their bets in case of a major market correction. I'm interested in both residential and commercial property. Questions I have for other investors: For commercial, what sort of tenants would you target for a bearish market (thrift shops, bill collections, class C PM companies)? For residential (operating as STR's) what are your plans when the tourism dollars drop off?

To add some value to this conversation, I can say that I am re-engineering some of my property with the State, to specify an expanded use on my commercial investment property. I am going from strictly commercial to mixed use res/com, with the idea that the residential side won't necessarily be affected as much as a commercial property alone. For my residential property, I am taking care of deferred maintenance now while the money is still coming in, then plan on switching to LTR as the need arises if business drops off.

While residential real estate has become heavily securitized over the past 10 years, I still see it as a commodity (at least in my market which has very little class A, and mostly class C with plenty of B). So in that sense, I see a balance I can strike, while at the same time, expanding in uncertain futures. I am more concerned with not being able to expand in down times, not so much as being underwater.

I've written about what I think will trigger the next housing crash in previous posts, and if anything, it seems more inevitable to me than when I wrote that post. I understand how (and why) many investors would not want to acknowledge the evolution of the real estate investing market in the past ten years into more of an equity trading platform through 401k's and other new investment products... After all, people are still making money right? But as someone who survived one downturn already, a downturn comes out of nowhere, seemingly, overnight, and is devastating to equity investors (myself). So I would encourage anyone reading this to have at least a plan. There are always warning signs, but an investor shouldn't be so blinded by ROI's to not be able to see those signs.

[Mike Dymski]

I am re-allocating capital out of some value plays into cash flow plays. Add value, cash flow, long-term debt, growing markets, decent locations, reasonable LTV.