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If you own risky real estate investments, you might have concerns about what the future holds. In such an unpredictable market, real estate investors must protect themselves. If you’ve been worried about a potential real estate market crash, you’ll find it valuable to know what steps you can take to protect your investments and make smart decisions moving forward. With these tips, you can be prepared no matter what happens in the market.

Key Takeaways

  • The real estate market can be unpredictable, but regional analysis can help guide your decisions.
  • You can diversify your real estate investments to reduce risk in today’s market.
  • You can’t “set and forget” real estate investments.
  • Flipping a home comes with its own risks, though many are avoidable.
  • You can protect yourself with a solid rental strategy.

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In this FREE event you’ll discover how the top 1% use little-known “compounders” to grow & protect their reserves. Our Infinity team of experts show you how to be the best possible steward of your finances and how to make your money and investments work for you instead of you working for them. Regardless of your financial situation today, you’ll have a road map to get to where you want to be.

Spot the Signs of a Crash on a Local Level

Many investors are unfamiliar with the signs of a potential real estate market crash on a national level. The signs of an impending crash are not as predictable as many people believe. For instance, expensive real estate in some regions is not indicative of an inevitable market crash.

To gauge the local real estate market’s health, ask yourself these questions: Are developers in the region building new homes? Who is getting loans, and what are the guidelines from lenders? Are people moving to or fleeing from the area? How do employment rates look for the area? You can avoid risky real estate investments by analyzing the quality of the market on a regional level, and asking questions specific to the area where you own or are considering buying properties. The market can be unpredictable, but data provide helpful insight.

Diversify Real Estate Investments

One way smart investors protect themselves is by diversifying their real estate holdings. With this strategy, you’re less likely to be hit by major losses across the board. Chances are, an economic downturn will not impact every type of property in every region the same way.

One way to diversify is to buy properties in different geographic regions. If most of your properties are in one town, you might suffer serious losses if the market there goes south. Or, if a local factory or warehouse closes, it might have a major impact on the local economy, including your investments. Instead, consider buying homes in several states.

Another method is to diversify the risk level of your investments. You might purchase one risky property for every two or three investments to ensure your real estate portfolio remains balanced.

You can also diversify your real estate options by property type. For example, you might decide you own too many small residential properties and want to purchase a few commercial or multifamily properties. Holding a variety of property types will help you avoid significant losses when the economy takes a downturn and fewer people are moving to the area. 

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Don’t Let Real Estate Sit Stagnant

Good investors protect themselves by remembering that real estate investing is not about setting and forgetting. You’ll see better results if you’re proactive with your holdings. Many new investors get tricked by the notion that holding a property for the long haul means you don’t have to actively manage it.

Ensure you’re keeping up with each property, performing research and maintenance so it’s ready for any decision you might make in the future. Good investors don’t neglect long-term real estate holdings. You’ll find that keeping an eye on market volatility will help you build a strong real estate strategy that’s not based on emotion or fear.

Flippers Shouldn’t Make Assumptions

If you prefer to fix and flip homes, take advantage of price drops when the market isn’t great. You might even find it’s a better idea to rent the property for a small amount of time to recoup some losses before selling. Bottom line: Making assumptions can be a major mistake.

Many things can change in the midst of flipping a home. When you analyze what to do with the property you purchased to flip, consider how long the fixes are going to take. Assess this information reasonably, especially if you’re working on several projects at once. While some flippers might perform extensive remodels with the assumption that home prices will rise soon, don’t bank on it. Before you put a lot of work and money into the home, consider the possibility that the market will not change or, worse, might decline.

Additionally, you might want to invest in starter homes rather than more expensive properties. These homes are often affected less by market changes, which means you’re still protected if the market takes a turn for the worse.

Keep Your Vacancy Rate Low

One of the biggest threats in today’s market is not maintaining positive cash flow, which is the money left over after you’ve paid expenses such as taxes and your mortgage. If your properties aren’t rented out, they aren’t generating income. They become risky real estate investments because they’re only causing you to have a negative cash flow.

If you want to keep your vacancy rate low, try to choose properties in great locations. Also ensure you’re pricing your rentals within the appropriate market range and taking steps to keep tenants happy so they won’t consider vacating. If tenants do express an interest in leaving, start looking for new tenants as soon as possible. In the meantime, you’ll attract high-quality renters by maintaining the property and promoting it online. This rental strategy can help you develop a solid reputation in your area.

Long-Term Strategy Protects Real Estate Investors

When you develop a long-term strategy, you avoid risky real estate investments and decisions. You can make a huge difference in your earnings as your investments grow over time. While you can’t feasibly avoid risks altogether, developing a sound strategy ensures you are proactive in planning for an unstable market.

Infinity Investing Featured Event

In this FREE event you’ll discover how the top 1% use little-known “compounders” to grow & protect their reserves. Our Infinity team of experts show you how to be the best possible steward of your finances and how to make your money and investments work for you instead of you working for them. Regardless of your financial situation today, you’ll have a road map to get to where you want to be.