July 31, 2020

Insulate vs Market Volatility and Capitalize

Historically the Market has always gone through cycles.  While Real Estate has been more stable, it too has ups and down like the stock market.  There are huge opportunities during changing markets.  Savvy investors insulate themselves from the volatility and position them to capitalize in a big way.

Choose of market – Primary markets such as LA, Chicago, NY, Miami and many of the big markets and coastal markets usually see huge peaks and valleys in values.  They follow the stock market.  Tertiary markets like the MidWest do not see the huge peaks.  Values stay more stable like a wave.  I choose the Indianapolis market which is widely considered the most stable market.

Entry Level Homes – High end homes are beautiful.  They are sexy and fun to show off.  They also are very high risk.  They don’t have multiple exit strategies and the buyer and tenant pool is small.  Entry level homes have the largest buyer and tenant pool.  They are much more affordable and provide many exit strategies.  They are not as sexy, much less risk.

Buy at Huge Discounts – Industry standard is the 70% LTV rule.  Purchase and Rehab should not exceed 70% of the After Repair Value.  Most of our properties are 40-60% LTV.

Stick to Fundamentals – Buy at a discount, add value, higher and better use, pass inspection, increase the buyer and tenant pool, supply and demand in your favor, maximize exposure and profit.

Be Properly Capitalized – Being under capitalized makes it nearly impossible to capitalize on opportunities.  Being over capitalized can make you a motivated buyer and do marginal deals.  Find the happy medium where you are properly capitalized and have abundant funding sources for when opportunities arise.

Multiple Exit Strategies – Selling for retail is one exit strategy, what if that becomes a challenge.  The supply of homes spikes while the demand shrinks.  What to do then?  It is highly advised to have a plan B, C, D, E, etc.  Renting, AirBNB, Lease Option, Land Contract are some of the other exit strategies that protect investors from market changes.

For us at Fall Creek Asset Management, we watch the trends and plan ahead.  These strategies put us in a position of strength.  We are always able to capitalize in up and down markets as we are insulated from the volatility.  The only thing that can hold us back is our attitudes and mindsets.  Happy investing to All!