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.

[Michael Rutkowski]

Originally posted by @Martin L.:

I’ve been a bit concerned about an eventual market correction as well. I’m not a major player but currently all of my eggs are in one basket as it were.

My thoughts have been to look towards emerging markets with high growth potential. Of course, this is a different type of risk and requires a lot more cash (no mortgages) but risk can also be good (ie certain areas of Manila have been growing about 10% a month for the past half year) as well as devastating (Duterte could choose to launch an attack the gaming industry in Manila at any point, and possibly wipe out all of the recent growth and more overnight). I’ve heard some interesting things from India, Vietnam, and Cambodia as well.

I’m currently caught in analysis paralysis as the prices keep moving up lol. But I’m looking more and more towards opportunities in Asia right now for future diversification.

 That's interesting, I admit I have looked overseas as well. I focused more on Latin America, mostly because this is a region of the world I have not explored yet. I found that land ownership was tricky in many countries, with foreign nationals being banned from property ownership outright in a few locations. I would be wary of ownership rights, as well as government stability when investing overseas.