Managing Your Real Estate in a Falling Market

Hold, Fold or Swap? — Playing Your Hand in a Down Market.
By Stephen A. Wayner, Esq., CES
[Please check out this link to the full article… it’s worth reading.]

SUMMARY: How do you manage your real estate investments when the market is falling?

The evidence is clear that the market is well below its peak: foreclosures are at a ten-year high, and there is a glut of new properties entering the market, just as the market is softening.

The people in the market who are suffering the most are the so-called “flippers”, the speculators, the overextended buyers, and those investors who took advantage of the no-money-down offers and 125% financing deals that were plentiful when the market was peaking.

INVESTOR STRATEGIES:

1. SELL quickly… if your monthly payments are a stretch; if you bought to flip; if you want to protect your gains. Here are some selling tips:

a. Keep Emotional Balance – Today’s market prices are what they are. Don’t become paralyzed by the hope that prices will recover in a falling market.

b. Set Price Aggressively - If you want your property to move quickly, price your property at a bargain level from the start.

c. Spruce Up the Property - You cannot afford to see your property fall in price for several months just because you will not spend the money to fix all of its defects and detractions.

d. Research, Research, Research - In falling markets, buyers will be meticulous and they will comparison shop. Look hard at recent sales for pricing… and do your own property inspection to ensure buyer satisfaction.

e. Offer Buyer Incentives - You can offer to pay the buyer’s points on a new mortgage… or offer partial seller financing.

2. HOLD until market turns back up… if you can afford the cash-flow costs of your properties… lock in a fixed mortgage rate. Here are some holding tips:

a. Lock in Credit-Worthy Tenants - Stable tenants will protect your monthly cash-flow… offer incentives to sign a longer-term lease.

b. Look Hard at New Tenants - Make sure that they are credit-worthy… get a background check, as well as a reference check.

c. Structure Leases Carefully - Have an attorney draft or review your lease with your tenants.

d. Make Those Long Put-Off Improvements - Making improvements will bring increased value long term and construction labor is cheaper in a down market.

3. EXCHANGE high-risk for low-risk properties… if you can find overextended speculators and negotiate a deep-discount transaction. Here’s where to look:

a. Commercial Property already under lease with stable tenants. The income protects you from downturns by guaranteeing a predictable return.

b. Foreclosure Property - Sell your high-risk property and go bargain hunting… use your own appraiser and inspector.

c. Deeply Discounted Property - Search for properties that have been discounted several times… and still haven’t sold.

d. Properties in Other States - Consider exchanging into properties located in areas where growth has been steady and modest… and are less likely to suffer dramatic losses in a market downturn.

4. BUY when prices are falling. A declining market gives a potential buyer plenty of time to shop for the “perfect” investment, a luxury not available in a bull market. Taking your time and doing your homework has the added benefit of mitigating the emotional impact of your real estate investments.

For more information on 1031 tax exchange strategies, contact Barbara Chartier at 843-902-0204.