Investor · WI · Member since 2020 · 32 posts · 15 votes
Hello, I am a young real estate agent from the Midwest. I’m my opinion, I foresee some huge shifts in the nation wide real estate market (and not for the better) coming likely around the beginning of the year. Remember, this is just my opinion. That being said, I just have some questions I want to get answered on how to leverage a market crash in real estate:
1. How exactly would I go about “shorting” real estate stocks and trust funds? Is that legal? Are there other real estate trading options that leverage a crash?
2. How much different is selling foreclosures as an agent from selling regular residential homes?
3. Are there any other ways I could leverage a crash and help clients/people I know during that time?
Thanks for all your tips and info. Again, this is just hypothetical, but I would rather be prepared and help others be prepared, than wander into a crash with blindfolds on!
In order to short stocks or trade options you just need to open up a brokerage account with margin. It’s very easy to open at any brokerage firm. The difficult part is figuring out what part of the industry will be hit the hardest, and when. These are a few of the past bear markets that have had different effects on Real Estate in recent history:
The Saving and Loan Crisis of the late 1980s was caused by outright fraud in the Saving and Loan industry. Friends were buying and selling the same property 10 times raising the value from $500k to $10m on condos or office buildings that were never meant to be occupied. The land where the Denver Airport would end up traded over 30 times by a group of the very politicians that had a say in the location. Because the Savings and Loan firms weren’t public traded over 1/3 just closed and the US absorbed the bad debt. Their wasn’t too much opportunity to short the market here.
I’m sure you’ve seen the big short to see what happened in 2008. Michael Burry would have made more money had he shorted the companies taking on all the bad debt than he did by shorting the bad RE debt.
In 2020 panic hit the hotel industry. I heard reports that occupancy dipped from 80% to near zero in less than a week. Hotels my firm owned had laid off nearly 50% of their staff within 2 weeks. Stock prices of most publicly traded hotel REITs fell around 80% in a few weeks.
1. You can short REITs - but I would HIGHLY advise against it.
REITs are known for their high dividend distributions. By shorting a REIT, you are borrowing and selling it at today's price and hoping to return it by buying it for a lower price later on. In the interim, you will be responsible to deliver the dividends to the person you borrowed these from.
2. More red tape - bank by bank specific
3. If you are confident a crash is coming, why not just hoard cash and be able to make deals when prices are attractive.
Generally, I would avoid trying to "time" the market. More money has been lost waiting for corrections than in any correction. Just keep doing deals, so long as they are good deals. It is always a good time to buy if you buy right.