There are people who believe that a real estate market crash is coming. However, there is never a time when there aren’t people who believe that a real estate market crash is coming. Unfortunately, predicting real estate market crashes is much easier said than done, meaning that interested individuals can never be sure about whether such occurrences will happen or not. Never mind the even more daunting challenge of predicting their exact timing.
Still, the potential for a real estate market crash exists. For that matter, even if a real estate market crash fails to materialize, there is still the potential for a real estate market downturn, which might be milder but will nonetheless have a negative impact on real estate investors as well as other people with a stake in the real estate market. As such, interested individuals might want to read up on various ways to reduce the impact on themselves in case such an event happens, which can be very useful information to have if they fear that bad economic times are coming from over the horizon. Here are some examples of how real estate investors can protect themselves from the real estate market crash:
Don’t Rely on a Single Source
Generally speaking, real estate investors should never concentrate their real estate investments in a single real estate market that is reliant on a single source of employment. Detroit is perhaps the single best example of why this is so important. In short, when Detroit deindustrialized, that caused a massive decline in its population, which in turn, had a horrendous impact on the revenues needed to pay for its public services. However, while Detroit is perhaps the single best example, it is far from being the sole real estate market that is reliant on a single source of employment, meaning that interested individuals will want to watch out. There is nothing wrong with investing in these real estate markets, just that real estate investors shouldn’t put all of their investments in them because that could gut their investment portfolios if that single source of employment dries up.
Stick to C Class Neighborhoods and Up
Some real estate investors sort neighborhoods into four classes, which are called A class, B class, C class, and D class. Generally speaking, A class neighborhoods are the very best neighborhoods that can be found in the region, while B class neighborhoods are the places where the upper middle class live. Meanwhile, C class neighborhoods are very average, with the result that they are home to a mix of both owners and renters. Finally, D class neighborhoods are what most real estate investors would see as serious problems, seeing as how they often boast both high crime rates and high vacancy rates. As such, there are a lot of real estate investors who choose to avoid D class neighborhoods, though there others who are less hesitant in that regard. Anyways, someone who is concerned that a real estate market crash is coming should stick to C class neighborhoods and up. This is because people who are well-off tend to have a much easier time weathering bad economic times, meaning that the real estate properties aimed at them tend to be somewhat more resilient than the real estate properties aimed at those who are less fortunate. Such an investment choice won’t provide real estate investors with perfect protection, but it should still be much better than nothing at all.
Focus On Cash Flow
Finally, it can be worthwhile for real estate investors to focus on the cash flow of the real estate properties that they invest in rather than the changes in fair market value. Such real estate properties will still see significant changes in their fair market value in the event of a real estate market crash because of changing demand and supply, but those changes won’t be relevant to real estate investors who are planning to use them to earn rental revenues rather than sell them off. As such, while there will still be an impact, that impact won’t matter as much to a real estate investor who is focused on rental revenues.