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Surviving a Market Crash: Tips For Real Estate Investors

Sep 12, 2008
Real estate market crashes are scary times for investors. A good market makes for happy times but a sliding market reveals the fragility of some investments. New investors in particular are prone to great stress during a market crash but experienced investors can assist by assuring them that the market will bounce back eventually and that damage can be minimal.

Successful real estate investors get through the rough times by not jumping to conclusions and taking drastic actions. The question remains, what to do when there is a downturn in the market and what is the best way to make it through a crash to come through the others side and reap the benefits of a recovering market.

Good investors will avoid selling at all costs in a market crash. The ideal way is to hold the property until the market down turn passes and the property regains its value. Although these can be stressful and uncertain times, by studying the past cycles of real estate your will notice that real estate does usually recover and bounce back from a crash. It can take varying amounts of time but there usually is light at the end of the tunnel.

Some people sell in a down turning market for fear that prices will drop further. This may indeed happen, but there is a great chance prices will climb back at some point. Emotional decisions to sell should be thought about carefully as statistics should be the factor that you pay most attention to, not emotions.

Although you are concerned that the market will get worse before it recovers, selling a property for much less than you paid for it can spell disaster in the long run. Whoever buys the property will gain the upper hand as they wait for a market recovery and reap enormous profits. Rather than putting someone else in that position, do your best to hold on to the property, even if it means renting it out at a lower rate for a period of time.

A down turned market will generally attract more renters so you should not have a problem finding tenants. This is because first home buyers and low income earners can not buy or hold a house during a crash and as such they most rent. This can be to your advantage.

Consider offering your income properties on a rent-to-own basis. As was just mentioned, the number of renters in a down market tends to increase, so finding tenants shouldn't be too difficult, especially when you offer them a house on a rent-to-own. The new tenants will give you a non-refundable option consideration, plus pay you your monthly rent. At the end of the lease (typically 12 to 24 months) the tenants will have the option to purchase the house at a pre-arranged price, minus the option money they gave you at the start of the lease. If they exercise that option, you generate a hefty profit at closing. If they don't exercise the option, you keep the option money and begin the process again with new tenants.

Having cash put aside for a market crash is ideal. This can be your cushion and your savior and will leave you with more options than simply just to sell when the market turns bad.
About the Author
Adem runs the real estate investing site ProfitPiggy.com where you can find detailed examples of the most popular real estate investing methods, real estate investing articles, courses, and more. Visit ProfitPiggy.com now to get started!
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