Recession-Proofing Your Investment Portfolio

Since 1950, the US economy has suffered 9 major recessions. All recessions were preceded with an inversion of the yield curve for the US treasury bonds.  The yield curve is the spread between short and long-dated treasury bonds. An inverted yield curve is an indication that the short term rates are higher than long term rates. It is also the first sign of a shrinking economy and a reliable recession indicator.

This inversion recently took place on August 27, 2019. It may take up to 34 months for a recession to hit. 

What does this mean for real estate investors?

An economic slowdown is a natural process of any market cycle. Active real estate investors during the last recession benefited phenomenally. There were discounted properties everywhere with potential for huge profit margins.

Consider the following steps today and prepare for the expected market shifts.

• Get access to funds

If you have risky investments, this is the time to sell and have more liquidity. Do not over-leverage as you may need access to funds. Make sure you are in a capacity to buy properties to add to your rental portfolio when the time and the price are right.

• Buy right

See that you invest in properties that allow cash to flow regardless of the market. Rental properties are good long term investments. They can survive a recession because there is always an influx of renters.

You should avoid buying properties that need fixing during this period. You may end up spending money fixing a property that will attract less return.

• Build financial relations

During a recession, banks and lenders are not enthusiastic about giving out loans. You should start to build financial trust early to gain an advantage when you need a line of credit. If you are a real estate investor, now is the time to look for connections with long term lenders.

Recession Proofing 101

Introduction

Recession occurs in a business when there is a decline in economic activity. It causes a decrease in incomes, sales, and production. Due to these reasons, it is important to come up with strategies to prevent and solve recession in order to retain and attract more investors. These strategies are called recession proofing strategies. An asset, industry or company is said to be recession-proof it does not decline in value during the recession.

Possibility of recession

It is inevitable, therefore, there is a possibility that most businesses stand a chance of a recession in the next twelve months. It therefore advisable to come up with strategies to help prevent as well as solve recession before and after it occurs.

As a real estate investors, one has to have knowledge of recession proofing as well as prepare to prevent making a bad decisions which may lead to losses. Some businesses stand a higher risk of recession than others. For those that experience high recession, the impact is faster and lasts longer or even leads to permanent financial damage.

Strategies

Recession proofing involves preparation. This ensures that in case of a recession one enjoys financial stability. This can be done through the following:

1. Coming up with an emergency savings plan. These ensure one is able to run their daily activities, for instance, enough money for house utilities. One should have a backup saving account for expenses.

2. Avoid or pay off high-interest loans as well as minimize on debt. It is important to avoid unnecessary debts which are overwhelming tiring during payment. Work within your budget.

Investment is a process that involves making of financial decisions. At times one tends to avoid some decisions that may lead to recession. It is therefore important to weigh the available options in order to come up with the best solutions for recession proofing.

How Much Contingency Expense Should Real Estate Investors Add to Their Budgets?

New real estate investors frequently neglect a critical element on their budgets. It's the contingency expense. A contingency is the amount of money set aside for unplanned expenses. While it's important to include a contingency in the budget before purchasing any investment property, adding a contingency expense is crucial before starting a major construction or home improvement project.

It's risky to purchase a home as an investment without budgeting for unexpected costs. It could become necessary to find additional funding to complete its renovation. Worse, the home could fail to net a positive return on investment. Experienced real estate investors typically use a percentage of the overall rehab budget to set the amount of the contingency fund. The number they choose for the percentage depends on whether the renovation project is minor, moderate, or major.

Minor Improvements

The contingency fund can be set from 5 to 7 percent if the property only needs minor improvements. Such homes are in good condition but could benefit from cosmetic improvements. Minor repairs do not require a licensed professional or permits. Interior painting, new faucets, planting flowers, or replacing the carpet are examples of what sort of improvements most investors would consider minor. An increase in the cost of materials or a need for additional materials are frequent reasons investors need to tap their contingency during a minor renovation.

Moderate Repairs

Adding 10 percent for contingency is typical for properties requiring moderate repairs. These types of repairs require permits and licensed contractors. Homes in this category need at least one substantial upgrade like a completely renovated kitchen or bathroom. Discovering an unforeseen problem when the walls open up is common with these homes.

A Major Rehab

Budgeting 15 percent for contingency is traditional when the home needs major improvements. These homes require extensive repairs such as addressing foundation problems, rewiring the house, or replacing the roof. Also, these properties are likely to have problems that were not visible before purchase.

The Takeaway

Budgeting a contingency expense of 5 to 15 percent is prudent before buying an investment property. No matter how well an investor estimates repair costs, unexpected expenses can arise during minor, moderate, or major improvement projects.

Pros / Cons of Financing New Properties by Refinancing Others

Credit is the lifeblood of modern society. Wise real estate investors know how to make the most of available credit, and they know when not to put their assets at too high a risk. Lenders use the term "cash-out refinance" when an owner uses equity in a property to invest in a new acquisition.

The Pros of Refinancing

The main reason for a cash-out refinance is to add to your portfolio. In most cases the longer you have owned a property, the greater the equity. Rental income will have reduced the principal balance and market forces will have increased the property's value. Together, the rental unit is worth more than the unpaid principal, so that equity can be used to invest in another unit to rent out. That new unit will generate rental income and, all being well, will increase in market value.

Two units generating income, and appreciating in value, together, will enable a third to be purchased.

The Cons of Refinancing

The cons of growing an investment portfolio by refinancing are three-fold:

• The initial costs may be too high. The new loan to provide the cash to reinvest, and the closing costs on the new investment may negatively affect cash availability. Unanticipated major repairs on existing properties added to the refi and acquisition costs may create an immediate problem.
• The market may drop as it did in the 2000s. Falling market values may result in a lender calling in a portion of outstanding loans in order to keep the loan to value (LTV) percentage at the original level.
• Vacancy rates may increase, resulting in poor cash flow compared to the ongoing fixed costs which still have to be paid.

Working the Strategy

If the current and potential income plus the likely market value make refinancing to reinvest a sound idea, then working the strategy is fairly straightforward. Know the rules and the project should succeed.

• Underwriting is more stringent for a cash-out, re-investment, so it pays to understand the basics, and it also pays to shop around. Some lenders work to Fannie May or Freddie Mac standards, and some maintain in-house loan portfolios.
• Lenders may require a higher FICO score, depending on the amount of the cash-out refi.
• Know the cash reserves your chosen lender may require, excluding anything received from the transaction. Some lenders may want a cash reserve equal to up to 12 months of the new repayment figure.
• Depending on how many other properties are owned, both primary residence and investment properties, the lender may want an amount of the unpaid existing loan balances held in reserve.
• Any existing properties currently for sale, may have to be taken off the market if their equity is being used as collateral against the new loan.
• If the property being used for the refi was a fixer-upper, and the work done has generated the increased value that will act as collateral for the new loan, a lender may require a waiting period before releasing the loan, so committing to a purchase before the loan has been approved may be a mistake. There are exceptions to this, for example, if the fixer-upper was inherited, not purchased.

Final Comment

Using current equity to grow an investment portfolio may make sound business sense. Consider the pros and cons, the know the standards lenders work to, and shop around. Get the financing in place before making an offer to avoid finance delays and an unhappy seller.

How to Calculate Turnover Expense

What is Turnover Expense?

Basically, it is the cost landlords incur during the period when one tenant moves out, post- and pre-tenancy work is done, and the new tenant moves in. Knowing how to calculate turnover expense helps you to plan a long way ahead. Simple economics says that the higher the turnover rate in any given period (e.g. one year, two years, five years) the higher the overall turnover expense will be.

In addition, there are specific factors that can reduce or increase turnover expense.

What May Be Included in Turnover Expense?

Basic Turnover Expenses

• Deep cleaning the property, so it is attractive to potential tenants.
• General maintenance work on fixtures and fittings, paint touch-up, etc.
• Marketing the property to find a new tenant.
• Interviewing potential tenants.
• Carrying out all the credit and other checks on potential tenants.
• Drawing up the new lease agreement.

Other Turnover Expenses

• Delayed maintenance work. This may be a big job that the previous tenant did not want to have done while they lived there, but should be done before a new tenant moves in. E.g. roof repair, replacing the A/C or furnace units, refurbishing the kitchen or bathroom, repainting walls.
• Unexpected repairs and maintenance. These could be normal wear and tear not reported, or accidental or intentional damage caused during the move-out.
• Optional upgrades to add market value and to enable higher rent to be charged.
• Eviction and other legal expenses.

How to Calculate Turnover Expenses

Turnover expenses boil down to three main factors. Landlords who plan ahead, who specifically choose their rental market and take such expenses into account, can keep them as low as possible.

Factor #1: Age and condition of the property. Older and lower quality properties may be purchased for less money, but, without improvements being done, a landlord will only be able to charge a lower rent, may find the tenants are unhappy and move out sooner than expected resulting in loss of rental income.

Factor #2: The chosen market. Every rental property competes with comparable properties in comparable areas for tenants. Short-term and long-term rental markets have their own market forces.

Factor #3: Choosing tenants wisely. Some tenants will be perfect, others may cause damage, fail to pay their rent on time, or disturb the neighborhood.

The Bottom Line

The longer an ideal tenant stays, the lower the turnover expenses. Taking potential turnover expenses into account before buying an investment property will help to keep them at a minimum. Choosing repair and replacement items which are "good enough" to attract the right new tenants will also keep turnover expenses down. A landlord who is fully hands-on should use the factors listed above to plan ahead to maximize their profit. The alternative is to use a well-respected management company which has:

• A supply of good potential tenants on their books.
• Work with real estate lawyers to ensure landlord-positive leases are drawn up.
• Work with contractors to handle maintenance, repair and refurbishment jobs quickly and less expensively.

Precautions to Take When Your Rental Property has a Pool

Having a swimming pool can make your rental home more enticing than others on the market. At the same time, it also comes with a few challenges. Here are 4 precautions every landlord should take when renting out property that features a swimming pool.

#1. Fencing in the pool

As a landlord, you could be held responsible if tenants or their guests become injured in their pool. You might also be liable for anyone who is hurt while trespassing on your property. The best way to protect yourself is with childproof fencing that contains a self-closing, lockable gate.

#2. Anti-Skid Decking

Wet concrete increases the risk of slip-and-fall accidents. For added safety, install a non-skid coating to the surrounding patio, and reapply on an annual basis or as needed.

#3. Check Local Building Permits

If renters will be occupying your property, you need to make doubly sure that your swimming pool meets all local building codes. The best way to do this is to check the original permit to ensure it was installed correctly. Check with your county's building inspector to see if there have been any updates to the code, and then make improvements if needed.

#4. Have an Inspection

Ensure your fence and gate are in good condition and inspected on a regular basis for any necessary repairs. You should also have your swimming pool inspected at the beginning of each season to see that its working components are operating as they should.

Keeping your pool in great condition will help you attract better quality tenants. As such, the extra effort that comes with managing a rental property that has a swimming pool could be well worth it in the long run. For help with real estate investments, including how to manage properties that have swimming pools, please feel free to contact us.

Your Checklist for Buying Rental Properties

You've found a property you like after a hectic house hunting process. You're excited; it is time to put an offer on the table, and you reach an agreement with the seller. All's not done.

Due diligence forms the vital part of the property purchasing, whether it's buying a single-family home or that 100-unit apartment building. The process is tiring, intimidating, and stressful, especially if you haven't done it before.

This is the opportunity to decide if exactly this the kind of property you want to buy.

What is Due Diligence?

In real estate, due diligence is the buyer's obligation to do an in-depth analysis of the property. The buyer needs to establish whether she/he is satisfied with the conditions of the property before entering a transaction.

Why is Due Diligence Essential?

Purchasing and owning real estate is a risky business; you have to make sure you get the value for your money. During this time, you review documents, investigate possible neighborhood downfalls.

In many states, you get the chance to back out of the deal if you find too many issues with the property. If you feel there are too many potential risks and costs, you get to cancel the agreement and go back to happy hunting.

Keep reading to get the essential due diligence to-do's tips. These tips will ensure you get the kind of real estate property you wanted.

Here's a checklist of what you need to do that ensures you get the kind of real estate property you need before closing the deal.

 

1. Have the Property Inspected

Hire a property inspector to scrutinize the property from top to bottom.

The inspector is looking for crumbling foundations, leaking roofs, faulty HVAC systems, termites, use of lead-based paint, presence of radon gas, and other problems. These kinds of repairs are sometimes very costly.

You should also check if the area has issues that could affect your property. This includes if your property lies in a flood zone, or whether it's exposed to any environmental hazards.

These are good reasons to ask for a renegotiation with the seller.

2. Do a Title Search

Purchasing a property is a legal process that involves a change of ownership. It's fundamentally important to do a title search. Get an owner's title insurance to protect you from any issue that might arise or that wasn't detected during the title search.

Doing a title search will ensure you're protected in case of a legal issue arises.

3. Check Whether the Property is Eligible for Insurance

While searching for property insurance, ensure the property meets the minimum requirements. The property may be ineligible for insurance if it doesn't meet the minimum standards.

Some insurance plans might be costly than you bargained for if the property is in fire-prone and hurricane-prone areas. Sometimes, you might not get a policy for these places. Thus, it's important to ask.

When purchasing real estate, it's fundamentally important to get property worth the money you're paying. Make it a habit to have a to-do list when conducting due diligence.

What Are Acceptable Hazards to Look for When Buying Flips

Amid the excitement of finding your first home to flip, it's important to remember selecting your flip is a business decision. As such, research should guide your choice rather than emotions. For instance, the general school of thought is move-in ready houses aren't good choices for flips. The house must need improvement if the flip is going to be profitable. However, acceptable hazards for your flip needs should be easy repairs for a new investor to deal with. Some repairs are unacceptable hazards that may become too much in terms of expense or complexity for a first-time investor to handle.

Acceptable Hazards

1. Old Carpeting. Dealing with old carpeting may be as simple as removing it to reveal the original flooring. If the flooring underneath is not in good condition, new carpeting is very inexpensive and may come with free installation with qualified purchases.

2. Dim Lighting. Well-planned lighting upgrades can help you stage the home to sell.

3. Leaking Faucets. Replacing faucets resolves the leaks and updates the home's look.

4. Overgrown Yard. Planting and trimming are easy enough to be a DIY project. If you're not interested in doing the work yourself, you should be able to hire a landscaper who can work within your budget.

5. Broken or Missing Hardware. Replacing door knobs and cabinet pulls is another way to modernize the look of the home. Also, it's a simple project you may want to do yourself. 

Unacceptable Hazards

1. Foundation Problems. Structural problems tend to be complicated, stressful, and expensive.

2. Major Roof Issues. A new roof is costly. Also, water damage inside the home often accompanies a compromised roof. 

4. Outdated Wiring. Bringing old electrical work up to code is a major undertaking for a new investor.

4. Mold Growth. Excessive mold growth requires expensive professional remediation. 

5. Collapsed Main Sewer Line. Sometimes, a blocked sewer line can be cleared for a reasonable cost. When the line has collapsed, a costly replacement is usually required. 

Why You Should Walk Through a New Property Before a Written Estimate

Purchasing a new property is a big decision--and it involves many steps. You know that, before you purchase a property, you need to get written estimates concerning what it will take to fix up the property. Before you do that, however, you should take the time to walk through the property yourself. Why walk through the new property before getting written estimates? Consider these key reasons. 

1. You can save yourself time and money by looking over the property yourself first.

If you send in the contractors first, before you have a chance to look over the property, you may spend money for their estimates. Many of them will inspect the property for you, but they do expect to be compensated for their time. You'll also waste your own time by investing heavily in a property that simply won't fit your needs. If you walk through the property yourself first, on the other hand, you'll get a better chance to decide whether the property will fit your needs.

2. When you walk through the property yourself, you'll get a better idea of what the property really needs.

Even the most trusted contractor may make errors in judgment--or may not have a full understanding of your specific budget and other needs. Different contractors may also focus on specific areas, which means they may not get an idea of the full picture of what the property needs. Instead, walk through the property yourself and make written notes of what improvements you think will be necessary before you bring in the property inspectors. 

3. Walking through the property will give you a better feel for the property as a whole.

Whether you're planning to become a landlord or to fix and flip a property, you want to be sure you're making a sound investment. Taking the time to walk through the property yourself will give you a better feel for it--and help you better decide whether this property will be an effective addition to your financial portfolio.

Are you in the process of choosing a new property? Consider walking through it yourself first, rather than sending in the contractors for their written estimates. Ultimately, you'll get a much better feel for the property, which will ultimately help you make better choices about the right property for you. 

Using Average Rental Prices to Figure Out Your Renovation Budget

 Preparing a Renovation Plan

Investors own rental properties for several reasons, but the two common ones are:

• Generate income by making a profit.
• Increase a property's value during ownership.

Financially, they are the two factors that successful investors use to test ideas and decisions about possible renovations. They work to a plan based on budgets. The budgets are tied to those two factors. By using those factors, it is fairly easy to move to the next step in the decision process:

• What are sensible things in this property to renovate?
• How much should be budgeted for each renovation?
• What is a sensible time frame to begin and complete each renovation?

Preparing a Renovation Budget

Go back to the two prime factors – profitable income and wealth creation. Income comes from the rent a tenant pays. This rent (plus tax deductions for business expenses) fund the renovations. It makes sense, therefore, to look at the renovation work from the point of view of, "How will this improvement generate rental income?" Answer the question like this:

• How much rent will the improved property bring in? You know what other, similar properties in the area are being rented for, and you know how big an impact the renovation is likely to have on market rent.
• How much of the expected rent will go in fixed costs? (Property taxes, HOA fees, etc.)
• How much of the remaining rent will be allocated for other costs? (Possible repairs, etc.)
• How much of the remainder does it make sense to invest in the renovation? This helps to calculate how long it will take to recover the expenditure.
• How attractive will the renovation be in encouraging immediate occupancy? Other investment properties are competing for good tenants. Vacancies are anathema to annual profit, so the quicker a property is rented out to an "ideal" tenant the better.

 The Takeaway

Renovation decisions are all part of successful property investment. Simply deciding to renovate a bathroom or kitchen or to replace the windows "to make the property look more attractive" can result in annual losses instead of profit on that property. If the likely market rent amount cannot contribute quickly enough to paying for the work, then where is the real value in doing that work?

By beginning with what a renovation will do to annual rental income, and then how it will affect an increase in property value a landlord can make the right decisions about a renovation budget.

The Best Way to Handle Annual Maintenance with a Long-Term Tenant

Property Maintenance

Properly maintaining investment properties has two main benefits:

• Good tenants value the care and consideration, so are more likely to re-sign a lease and stay.
• Well-maintained properties keep their value better, and are less likely to suffer electrical, plumbing, or appliance failure that demand emergency repairs and unexpected costs.

Good maintenance, therefore, has a number of benefits. Keeping everything in good condition takes some simple planning and setting sensible standards. In this article we will walk you through the why, what, and how of the topic.

A Landlord's Legal Responsibilities

Firstly, every state has legal requirements that landlords must follow. Investment properties must be habitable. Basically, that means the property must meet certain standards for a tenant's safety and health. As well as state regulations, each municipality may add their own standards, so it pays landlords to know what is required, and to stay on top of making sure their properties meet the standards.

Lease agreements cannot change standards or legal responsibilities, but they can state what the landlord or the tenant will deal with. Will the landlord replace light bulbs, for example, or will the tenant? The important thing is that, in this case, the electrical supply is safe and functional.

Maintenance Inspections

Because landlords have legal responsibilities, the lease agreement should:

• Refer to those responsibilities.
• State there will be periodic maintenance inspections. You may inspect quarterly, for example, but generally carry out routine maintenance annually or semi-annually. The inspections should forewarn of possible repairs that are due.
• How much notice the tenant will get before an inspection. Entry into a tenanted property will be governed by local regulations, so it may be a minimum of 24 or 48 hours.
• Who will notify the tenant, and how - email, letter, phone call, etc?
• What will happen if, for good reason, the inspection cannot be performed.
• Outline what will be inspected, how it will be inspected, and by whom. This stops a tenant from objecting to how long an inspection takes or which rooms will be included/excluded for, and who can enter their home to do the inspection.

Property Managers and Professional Inspectors

Some landlords have a total hands-on approach. Others hire a professional property manager and licensed contractors. The advantages of using professionals is that they are experts, they have their routines in place, and will have a good working relationship with licensed and experienced contractors.

Everyone will be used to handling actual and potential problems. On top of everything else, everyone involved will know the standards, rules, and the expected degree of formality and etiquette when going into properties and dealing with tenants.

The Takeaway

Routine maintenance is a great way to adhere to legal requirements of habitability and safety, and should keep unexpected repairs to a minimum. By including the details in the lease, it implies both good customer care, and avoids any conflict or misunderstanding. By hiring a property manager, the landlord can leave the hassles to an expert.

Why Investors Should Use a Home Inspector Who Works to ASHI Standards

Introduction

To an investor, a residential property is a source of wealth creation, revenue, and profit. It is also someone's home and an obvious part of a community or neighborhood. Most investors want to buy a property at the lowest possible price to maximize immediate equity ownership and potentially maximize their capital gain when they sell. Buying a low-cost property that then presents enough serious safety or functional problems for an investor to regret the purchase should obviously be avoided. For that reason, investors should give serious consideration to using a home inspector who works to ASHI Standards.

ASHI: The American Society of Home Inspectors

ASHI was founded in 1976 by a group of home inspectors who wanted to build consumer awareness and enhance professional standards. These standards are, according to ASHI, the most rigorous standards set by any home inspection organization and have been made part of many states' legislation.

ASHI Inspectors

In many states someone can become a licensed home inspector after successfully completing an online course. Completing a course is not the same as having personal inspection experience and does not imply keeping up with code changes or other matters that may affect a building. This is not to be critical - everyone must begin a career with little or no practical experience. The underlying point is that if an inspector is linked with ASHI it says a lot about their intention, abilities and experience. For example:

• An ASHI Associate Inspector will have passed ASHI's Standards of Practice and Ethics module, must agree to work to those standards, and must complete 20 hours of continuing education.
• An ASHI Inspector must have passed the National Home Inspector Exam or other approved state exam and must have completed at least 75 home inspections that meet or exceed ASHI standards (submitted via authorized and notarized affidavit) and complete 20 hours of continuing ed.
• An ASHI Certified Inspector must have passed the exam, completed at least 250 inspections to ASHI standards and complete 20 hours of continuing ed.

 The Takeaway

Protecting oneself from unexpected costs resulting from current or potential future functional or safety defects is part of making a sound investment decision. Having a property thoroughly inspected to approved standards by a dedicated and experienced home inspector is part of it. There are many highly competent home inspectors who are not ASHI members, and many investors have built a good working relationship with them over the years. If someone is new to real estate investing, it makes sense for them to use a home inspector who you know works to ASHI standards.

Investing Part Four: The 1% and 2% Tool

The 1% and 2% Rule

Many investors use these quick calculations when they first see a potential property. We explained the rule and the calculations in one of our previous blogs, "Should you Follow the 1% or the 2% Rule?" In this blog we will broaden the discussion. Successful investors work to a longer-term game plan, and they bring other factors into the purchase decisions. The 1% and 2% rule delivers a sort of "screenshot" – the purchase price and initial renovation costs times 1% or 2% equals monthly rent to charge. This rental figure can be compared to how much competitor landlords are charging for a similar property, and how the current market is responding to those rent levels.

9 Additional Factors to Consider

These additional issues help an investor to make a sound purchase decision:

1. Will this property support, strengthen or weaken the total portfolio in terms of clear equity, future equity growth, and monthly cash flow?
2. How will buying this property impact, say, sleeping partners or other financial commitments?
3. Has the property inspection been done and, if so, has it exposed future maintenance or replacement costs that are not part of the initial repair/renovation expense used in the 1%/2% calculation?
4. If the property has current tenants, what is their on-time rent payment and care-of-the-property track record?
5. When do current leases expire, and how likely are they to renew or move out?
6. Have current tenants made any unapproved or "unique" alterations that may need "correcting" should they not renew their lease?
7. How is the neighborhood changing? Will future tenants be able to pay higher rents or expect to pay lower rents than current lessees?
8. When are sitting tenants likely to vacate in the context of neighborhood changes and changes to market rent levels?
9. Are current local employers moving into or out of the neighborhood, increasing or decreasing productivity and hiring practices? How will those economic shifts impact future rental levels and potential vacancy rates?

Summary Comments

The 1% and 2% calculations are valuable for "right-now" decisions and to get an immediate screenshot of an investment opportunity, but they are just that. They do not, and are not intended to, enable a broad-based final decision to buy-and-hold or to pass. Investors who plan their investment strategy several transactions ahead, factor in some or all of the above nine points.

The one possible exception to just using the 1%/2% rule may be where an investor is nearing the 45 day deadline to name potential acquisitions in a deferred 1031 Exchange. When you are under the gun and must choose something to roll capital gains into, knowing you will flip it as soon as the time is right, the simple rule may be good enough.

Creating a Real Estate Investment Plan

Two Common Investment Strategies

Many real estate investors adopt one of two common strategies – the dynamic or the planned. Both offer success but one tends to deliver higher profit in the longer term. New investors are often assume that "It's a numbers game – win some, lose some" or "If it's a good price buy it, if it isn't the right "buy-and-hold" property, you can always sell it." This can be profitable but often not as profitable as the less dynamic forward-planned approach.

Have a Clear End Goal and Know the Trends

The foundation for forward-planning is to set an ultimate End Goal, clarify a process, and build a trusted team. By basing all decisions on the End Goal, every investment opportunity can be tested, the process followed, and results delivered by the team.

Current and future market trends support the decision to invest in, or to pass on, a particular investment property. Each market – local and general - is affected by economic forces, current and possible future mortgage interest rates, age-range of potential buyers and tenants moving into or out of the area, and overall affordability, to take some examples.

Fix-and-flip or buy-and-hold decisions are affected by these trends in slightly different ways. Keeping your eye on the "market trends ball" and the End Goal enables the right "buy it," "hold it" or "pass it by" decision to be made.

An End Goal of $X,000 in pure equity, $Y,000 in monthly income, etc. means an investor will know when to buy-and-flip or buy-and-hold or hold-then-sell. Getting it right demands making decisions several transactions in advance. How many transactions is guided by the market and the End Goal.

An Example of Forward-Planning

A neighborhood shows signs of improvement – infrastructure, greater retail and other commercial investment, etc. – and has some repossessed properties or older, unimproved properties for sale. An investor can buy and renovate two, then rent them out. As more potential tenants move into the neighborhood and new investors who want to buy appear, one or both investments could be sold – with good sitting tenants in place. This enables a bigger investment in, say, a multi-family property that will both provide high rental income, lower management costs, higher profitability, and faster equity growth.

The monthly rental profit from that multi-family property will enable, say, a fix-and-flip investment to generate future profit and thus enable another buy-and-hold investment in a year's time. In this way, the investor builds both equity and monthly profit.

Each decision takes both current market trends and the End Goal into account rather than treating each investment separately as part of the "numbers game."

Final Comment

Long term, maximum success for investors means integrating goal, process and teamwork – and making current decisions that support future decisions.

Investing Options Including Via 1031 Exchange

Expand Your Options

In a previous blog we explained the basics of buying and selling investment properties via a 1031 Tax Deferred Exchange. In this one we discuss how, by using a 1031 Exchange, investors can expand their options.

Many people who are new to real estate investment define the meaning of "like-kind" too narrowly. They also assume there is only one "route" – sell and buy (relinquish and acquire) in a simultaneous transaction. Let us begin with what the IRS means by "like-kind" and then look at the three routes investors have available.

"Like-Kind" Property

The IRS defines the term rather vaguely. Like-kind property is real estate held for trade, business or investment. Investors who have a desire to improve the world may, for example, want to buy low quality residential property, renovate it and sell it, then use the profit to repeat the process. Others want to buy, renovate, and rent the property out to tenants. At some point, they will sell that property and use the proceeds to buy more expensive property and, again, repeat the process.

Some investors inherit property. It may be a relative's home or some farmland, just to take two examples. Some investors may have owned a commercial business such as storage units, parking lots, a small manufacturing plant, or a retail store for example. The IRS allows any of them to be "exchanged" for "fix-and-flip" or "fix-and-rent out" residential property. The residences can be single- or multi-family.

This means an investor's options for what can be "exchanged" expands quite considerably, thus deferring all capital gains tax (CGT) due, to roll into the new investment.

The Three 1031 Exchange Routes

1. One or more properties may be relinquished and other property(ies) acquired in a simultaneous transaction. But that is not the only route.
2. A deferred exchange transaction is one where properties are sold to new owners, but the proceeds are held by the qualified intermediary (QI) for the next step. The investor then has 45 days to name potential new investments. This window enables a thorough search for ideal replacement properties. The investor then has another 135 days to sign contracts and close on the replacements, making 180 days in all. Such flexibility expands the options.
3. A reverse exchange transaction is one where an investor "acquires" new property but does not "relinquish" currently-owned property for a maximum of 180 days. A QI will explain and manage the process. What matters is this process enables the right replacement property to be acquired at the right time and existing properties are sold later, when ready, willing, and able buyers are found.

The Takeaway

When investors understand the flexibility that the IRS has built into 1031 Exchanges, they are able to defer CGT,  maximize profitable sales and purchases, and complete everything in a time frame and sequence that delivers the greatest benefit.

What is a 1031 Tax Deferred Exchange?

Who Should Understand the 1031 Tax Deferred Exchange?

Investors who either flip properties or who decide to sell one or more of their current rental properties to invest in new ones should understand the 1031 Exchange rule. It is also known as a Starker Exchange or a Tax Deferred Exchange.

What is a 1031 Exchange?

It is a transaction covered by Section 1031 of the IRS Tax Code. It allows real estate investors to "exchange" (buy and sell) real estate without paying out capital gains tax (CGT) on the sale. The CGT is used to purchase the new property or properties. The CGT only becomes payable if a property is then sold without the proceeds being reinvested or is invested in a non-qualifying purchase.

Can Any Property Be "Exchanged" to defer CGT?

No. The transactions must all fall within parameters set out in the Tax Code and the approved steps must be followed. By working with a title agent or real estate attorney who is approved to handle 1031 Exchanges, known as a Qualified Intermediary (QI), the process becomes straightforward.

How Does a 1031 Exchange Work?

Like this:

• All properties must be in the USA or an American Territory.
• The purchased property(ies) must be of an equal or greater value than the sold property(ies).
• All properties must be what the IRS calls "like-kind." They must all be either raw land or improved real estate. Zoning and types (residential, commercial, industrial) are unimportant. So, for example, an investor can sell commercially-zoned raw land and buy a multi-family residential building. What matters is all properties must be for investment or business purposes.
• Since the 2017 Tax Cuts and Jobs Act, equipment, trucks, patents, etc. sold or bought with the real estate are no longer considered "like-kind."
• The term "sell" is replaced with "relinquish" and "buy" becomes "acquire." The QI will only use those terms on official paperwork.
• When one or more properties are relinquished, the QI holds the proceeds in an approved account. If it is released to the seller, the IRS considers it a regular sale and any CGT becomes due. When the acquired properties change hands, the QI releases those proceeds to complete the transaction. Technically, therefore, properties were exchanged and not bought and sold.
• There are time limits on a 1031 Exchange which must be adhered to. Properties must be exchanged within a total time frame of 180 days.
• In a "reverse exchange" new properties may be acquired before current properties are relinquished. We do not have the space to go into those details here, but a QI or an experienced Realtor will explain them.

Final Comment

When investors understand the 1031 Exchange process, they defer CGT giving them more liquid capital to reinvest. The 180 day flexibility built into the process enables investors to complete either side of the transaction to suit their own plans or the market cycle.

How to Recession-Proof Your Investment Portfolio

Recessions are a fact of life for investors, but they can still do a lot of damage. Successful investors survive and even thrive during the rough patches because they know how to plan for recessions and keep their portfolio in good shape.

Is a Recession Coming?

Investors are likely to have to deal with a recession during the next twelve months. The state of the bond yield curve indicates a strong risk, and there are also political factors to consider. That is not a guarantee of a recession, but the odds are high enough that it makes sense to start planning for it. Fortunately, there are a few things that most investors can do to reduce their risks.

Avoid Volatile Investments

Some investments lose more value during a recession than others. It can be wise to sell those investments while their price is still high and invest the proceeds into other investments that are less likely to lose value. Every market is unique, but luxury vacation homes, second homes, and other expensive luxury properties are very risky during recessions. Rental properties aimed at the average person and buildings in areas with a low supply of new buildings are much safer.

Plan in Advance

People make stupid decisions when they panic, such as selling their investments are their value plummets. Human instincts simply did not develop to deal with complex markets. The best way to avoid dangerous impulses is to plan ahead. Smart investors know that the may need to tweak the plan as they go, but they should only do so after careful thought.

Aim for Income

Rental properties and others that generate cash are a good choice during recessions. Their value may drop, but their previous income provides insulation from the losses. The added income also makes it easier to invest in new properties when their prices are low from the recession. Those new investments will often regain their value when the recession ends, which can turn the recession into an opportunity for investors who have the cash to make use of it.

Increase Value vs. Improvements to Sell Your Home Faster

When the time comes to make improvements to your rental property, you want to be sure that you're choosing the right improvements. Is your goal to increase the value of your home so that you can increase the selling price, or are you hoping to increase the odds that your home will sell quickly and effectively? Knowing the difference between the two can help you make the right choice about home improvements before you put your home on the market.

Question #1: Is the improvement appropriate for your area?

Take a look at the area around your home. Adding an extra bedroom, for example, can help add square footage and value to your home. It can also make it easier to sell the home if you live in an area dominated by families and you have a small, one or two-bedroom home. On the other hand, adding on an extra room or two might not add value in an area filled with seniors or young families with only a single child. Take a look at property values in the area, too: you don't want to substantially exceed the value of other homes around yours. 

Question #2: Does the improvement genuinely add value?

Fixing up things that are wrong with the house, including updating outdated appliances, can add both substantial value and substantial sellability to your home. On the other hand, some improvements are more a matter of personal preference than value. Upgraded utilities, for example, probably won't add value to your home. If your roof is on its last legs, you might be able to increase sellability by fixing it, but you might not improve its overall value. Carefully consider the benefits of each one before making changes to your home. Improvements that genuinely add value may include:

• Kitchen remodels
• Energy-efficient appliances
• Creating versatile spaces within the home
• Adding a deck

Make sure, before you get started, to calculate the cost of the changes versus the additional selling price you can expect to bring in. It may surprise you what additions, including a swimming pool, might actually cost more than you can make on them.

Question #3: What to buyers really want in your area?

Take a careful look at what buyers are looking for when they buy in your area. Improvements that add sellability might include things like:

• Improving curb appeal
• Updating appliances
• Adding a fresh coat of paint to make the house look its best
• Upgrading the bathroom

Take a look at the market and see what sells. Consider talking with a realtor to discover more about what potential buyers are really looking for. When you know what buyers are looking for, you can add those attributes to your home--and often, that can go a long way toward selling your house quickly and effectively. 

Are you putting your house on the market? Before you sell, consider these key elements of how to upgrade your home--and how to potentially improve your selling price. 

What to do with Lead Paint?

Whether you have just started to look at investment properties or you have finally found the perfect one that you want to buy, if you hear lead paint, you may have to take a step back. Lead paint is harmful and can change the way that you look at a piece of property.

So, what are the dangers of lead paint?

Lead is highly toxic and can cause a range of problems, especially in young children (who are more likely to consume it). These include:

• Overall bad health- headaches, stomachaches, irritability
• Damage to vital organs – kidney, liver, blood
• Brain damage, including seizures
• Behavioral problems
• Learning problems
• Death

Which properties commonly have lead paint?

Homes built before 1978 are more likely to have lead paint in them. Even if your older home has been repainted multiple times, it may still have traces of lead paint in it. It can also have lead pipes in it, poisoning people through the drinking water.

What you should do once you find out a potential property has lead paint?

Move on. Many investors decide that it is not worth their trouble to buy a property that has lead paint. They don't want the hassle of making the property habitable again. It can be too much work (or cost too much for their investment).

Abatement services. There are two options when it comes to dealing with lead paint. You can remove it, or you can paint the wall with special paint and sealants to make the home safe again. Either way, you need to hire a lead-safe certified contractor to do the job. These contractors know exactly what to do to remove the lead paint safely, without harming themselves, their crew, and you.

Though many run from lead paint, you don't have to. By hiring a certified contractor, you can make the home habitable again (and even profitable)!

Rental Home Improvements that Cost too Much to Maintain

Three Rental Home Improvements That Cost Too Much to Maintain

Though you may think about investments when you think about rental properties, the truth is that you have to think about the maintenance of it also. You aren't just going to sit back and make money. You have to care for the property in order to get the most out of it.

That being said, landlords want to give their tenants a home that they can be proud of by updating fixtures and offering extras. However, these improvements can sometimes cost too much to maintain, making them a bad idea.

Here are some rental home improvements that cost too much to maintain.

• Wood floors. Everyone loves the look of hardwood floors. However, they are easily damaged and need to be refinished on a regular basis. This is especially true when the family has children and pets. They can really do damage to your hardwood floors. Because of this, you may want to choose a tile or laminate floor that gives you the same look.
• Pool or hot tub. Many tenants look for extras when choosing where to live. As nice as a pool or hot tub is, you are going to have to find someone to come at least one or two times a week to maintain it. They will need to clean it and keep an eye on the chemicals, which are their own expense. You also have to think about shutting down pools throughout the winter and opening them up in the spring.
• Too much landscaping. Though people love the look of a garden around their home, the truth is that it can be a lot of work to keep up with it. You are going to have to weed it on a regular basis, plus get it ready for the winter and fix it up the following spring.

Though you want your tenants to fall in love with your home or apartment, the truth is that you can waste money trying to make it nice for them. They don't need hardwood floors that they are just going to damage when laminate will do. You might also want to have a swimming pool or a hot tub, but you are going to be spending a lot of money in chemicals. Same with landscaping. Big flower gardens are beautiful but they are also a lot of work to keep them looking that way!

Should Your Properties Have Utilities Included?

The biggest choice that you face as a landlord is how much to charge for rent. That is often determined by the rental market where you live, along with the extras that you include.

Utilities are some things included with rent, while other times tenants get billed individually. There are pros and cons to both.

Here are some reasons to include utilities in the rent.

Many older apartments don't have this option. If you are renting out an old house, your apartments may not have separate utilities.

It isn't very easy to do. If you don't have separate meters, you could spend hours trying to figure out what everyone owes each month. It might not be worth it to you.

You may be able to charge more. Many landlords who offer utilities do so by increasing the cost of rent. You might even up making more money by giving them this option, especially if your utilities aren't going to cost too much.

Here are some reasons not to.

You may notice that your utility bills go up. If they aren't paying the bill,  your tenants have no reason to watch how much electricity and internet they use.

In fact, your utility bill may be higher than expected. If your tenants are overusing the utilities, you are going to have to pay for this. You may not have factored in such high bills when deciding how much to charge for rent and you may be losing money.

You don't have to deal with the utility companies at all. When the tenants are in charge of their own utilities, it takes one thing off of your plate. If you don't want to deal with electricity, internet, and more, make your tenants do it for you (or them)!

While you may not be able to make the decision about utilities (because your apartments aren't set up with individual meters), most landlords can. However, it comes down to whether or not you want to deal with the utility companies or not.

Design Do's and Don't's for Houses with One Bathroom

When you're remodeling homes with just one bathroom, there are certain things that might not be the best upgrades for that home in order to make it work for most families. Remodeling the bathroom properly in a one-bathroom home is vital to making sure that it is appealing to as many possible homeowners as possible. There are also other remodel ideas that will limit the amount of prospective homeowners that are interested in your property and limit the value of the property that you are trying to sell.

The following are some do's and don'ts for remodeling a home that has only one bathroom:

Design DO'S:

• DO budget for the unexpected because problems can occur throughout your bathroom renovation. Issue such as hidden water damage or a leaking shower can cost you a lot more money than you planned to spend on your remodel. Budgeting 10-25% extra for those sorts of issues can help you offset any unexpected costs associated with your remodel.
• DO hide the toilet in as discreet of a place as possible. Whether you make a separate area or room for the toilet or hide it behind the door, it should never be the only thing you see when you walk in. Keeping the most personal part of the bathroom private can pay big dividends, especially if it's the only bathroom in the entire house.
• DO choose appropriate surfaces that are resistant to children and can accommodate the disabled. Remember, you only have one bathroom so you want to make it as usable and appealing to as many potential buyers as possible. Ensuring that it's durable enough for children to use and to withstand the daily use of everyone in the family is key to keeping the bathroom one that will not have to get remodeled again just a few years from now.
• DO splurge on the shower and make the design as tasteful as possible. Upgrading to a Roman style bathtub/shower combo and choosing a shower head with multiple settings can help the only bathroom in the house appeal to as many buyers as possible. It also helps increase water efficiency to help keep the household water bills in check while still providing a great showering/bathing experience to the homeowners.
• DO make sure that there is room on the vanity for people to use to get ready. Whether someone is doing their hair or putting on their makeup, having adequate counter space to store their toiletry and hygiene items is appreciated.
• DO offer drawers and cabinets in the bathroom for additional storage.

Design DON'TS: 

• DON'T simply decide to have either a tub or a shower as families with children will almost always need a combination so the adults can shower and kids can bathe.
• DON'T forget to include appropriate ventilation in the bathroom to prevent mold or mildew growth. That is key especially if the home only has one bathroom. Homeowners do not want or need those issues in the only bathroom in the house. It's also hazardous to health.
• DON'T forget to creative with your storage options, whether it's cabinets, a drawer, a medicine cabinet, or other shelving in the restroom that be both functional and great for decoration.
• DON'T pick design over function. There is one bathroom in the home the family needs it to function over looking like a luxury designer spa space. 
• DON'T design for the future. The family is living in the now and need the bathroom to function for the now and not what someone will want 50 years in the future.

These design DO'S and DON'TS will help you create a bathroom that's functional for the entire family. It's important when the house only has one bathroom to make the most of the design and space you have.

Conclusions:

One bathroom homes can be a challenge to design and sell, but with planning and expertise these DO'S and DON'TS can provide the homeowner with a bathroom that the entire family can use. That makes your single-bathroom homes all the more marketable. 

Sincerely,

Popular Styling Themes for Property Flips

Are you flipping your property or renting a flipped property? If yes, then ensuring that the property has a universal and cohesive design is paramount. You need the theme of the house to adhere to international standards so that any potential client can want to rent your property. Also, you need the design to be consistent throughout the house to ensure the whole property is appealing. As you look to find an attractive theme, here are three popular styling themes for property flipping.

1. Bohemian Style

If you like to exercise freedom in anything you do, especially decorating, then this style is ideal for your property flip. It includes the use of anything that you deem interesting and comfortable for your living space. Great features for this style include floor pillows, collection displays, mid-century chairs, well-worn rugs, and items that you collect during trips.

2. Scandinavian Style

A home with a Scandinavian design is characterized by functional furniture, plenty of natural lighting, minimal accessories, and a lot of space. This design has been borrowed from Nordic nations and represents their simple life. You can use natural elements like enameled aluminum, form-pressed wood, and bright plastics as well as white color pallets for your flip.

3. Modern Rustic Style

This theme consists of a combination of modern and rustic styling themes. It features a rustic design with modern accessories and furnishings. Rustic design is inspired by nature, and it includes unfinished and raw elements of wood and stone. An example of decor with rustic style is a reclaimed wood floor. Furnishings and accessories with a modern style feature steel, glass, and metal. They are normally sleek, simple, and feature minimal clutter.

These three styles will offer a unique design for your home. As you look to find trending themes to use, be sure to check the designs being used in your area.

How to Measure ROI on Home Improvements

Sprucing up your home with a few notable, yet pricey home improvements can be extremely beneficial, but it can also lead to a few unwanted consequences; lucrative home improvements can unfortunately deteriorate over time and ultimately break. However, if the home improvement is done right, it can improve the quality of life for any homeowner or renter. We reveal a myriad of strategies, on specific upgrades, to determine if an expensive home improvement is likely to break at some point, as well as the potential profitability of a few common improvements.

 It's all in the Strategies

Determining if an expensive home improvement will decay over time can often be a difficult task that could cost the homeowner or renter thousands of dollars. Although it can be difficult to judge, there are a few common strategies to determine if your next home improvement could possibly break down in the near future.

 Summertime Fun 

Adding a swimming pool to any home is a common fantasy for many individuals; the ability to cool off on those scorching hot summer days sounds like paradise, right? Well, a swimming pool can cost anywhere from $25,000 to a whopping $100,000 with an additional few thousand dollars to annually maintain the pool.

A pool owner must also be responsible for maintaining the chemical balance of the pool, as well as keeping it properly filtered. If this is ignored, the chemical balance will become unstable, which can ultimately lead to unwanted health impediments.

Raise the Roof

Replacing your roof can be incredibly good, or incredibly bad. If done with absolute perfection, it can raise the value of your home tremendously. If done poorly, it can lead to consistent leaks, drafts of wind, and falling debris that can potentially harm the inhabitants of the home.

 

An External Dilemma

Adding an external garage can offer various issues that can be an absolute headache. For instance, the garage can decay significantly over time due to the various elements that it is exposed to on a daily basis. This can ultimately lead to car damage, as well as costing thousands of dollars to repair.

How Profitable is this Home Improvement?

Increasing the value of your home, whether you rent the property or own it, is beneficial in a variety of ways. With plenty of profitable home improvements on the market, it can be difficult to select the best one.

Remodeling a Bathroom

Remodeling your bathroom has an increasingly high return on investment; dedicated planning, finding the right contractor, and a positive attitude will leave you with an improved and remodeled bathroom that will boost the value of your home.

A Stunning Appearance

Various exterior improvements, such as repainting the property and giving it a refreshed look, can actually entice more individuals to your home and give it an overall increased value. This simple, yet effective insight should not be overlooked and can be the difference of a few thousand dollars.

A Safe and Fun Space

Adding a deck, patio, or porch can lead to a significant increase in the value of your property; creating a safe and fun space in which families can gather around and bond is a valued addition to any home. Although this may be a pricey home improvement, the return on investment is well worth it.

Home Improvements that have a High Return On Investment 

1. Kitchen remodeling 
2. Bathroom remodeling
3. Window replacements
4. Landscaping
5. Siding replacement
6. Adding a porch, deck, or patio

Get Your College Housing Rental-Ready

In many university towns, students are the landlord's financial backbone. With more than half of all college students living in off-campus housing away from parents, this population represents an opportunity for property owners to keep their university-based rental units consistently occupied. But before you hand over the keys, prepare your properties for the upcoming student influx, and protect yourself from legal repercussions with sound lease agreements.

Taking care of renters: six ways to step up your space

Basic safety first

Renters and parents want to know if your place is safe. Assure them it is by installing adequate lighting on the perimeter of the property, in hallways and stairwells. Install new door locks and check window locks to keep trouble out. If the property is fenced, inspect it and make needed repairs.

Safety 2.0: fire alarms, smoke detectors and CO2 monitors

Install or check the batteries in existing alarms and detectors, and show prospective tenants where they are and how they work, and perform an evacuation drill, so everyone knows how to get out.

Privacy matters

Install solid doors between rooms, to guarantee tenants some personal and private space. Good storage is a necessity, whether shelving for textbooks or closets for winter gear or sports paraphernalia. Use every inch of space (under the bed pull out drawers, lift-top tables) to provide extra room and privacy.

Dude, where's my car parked?

Student parking's a huge plus in a college town. Provide clear instructions on where and how to park, any vehicle size restrictions and if guest parking is allowed.

Professional cleaning/pest control

Before the first renter arrives, hire a professional company to deep-clean appliances and bathrooms, and have a pest control pro check for infestation. Nothing's worse than taking the first month's rent, then getting the call that the tenant found dead roaches in the microwave.

Digital done right 

Electrical outlets, power strips and WiFi matter to today's college students; the live on their devices. Check the strength of your properties' WiFi signal, have at least two outlets per room and offer tenants a power strip for a nominal monthly fee.

Six solid lease agreements and marketing tips

Advertise where the students are looking

Wall flyers and posters in the student lounge are inefficient in the digital era. Use social media and know which sites are current with college students. If the university sells advertising space on their website, invest and reach the audience wants your rentals. Include photos of your property and add a "kicker" line to attract attention, such as rent- including utilities or cable TV.

Rent by the bed, not the apartment

This makes it easier to replace a departing tenant without affecting the status of the others living in the apartment.

Invest in background checks

It's uncomfortable to ask for anyone's references and job history, but a collegiate background check is no different from an employment check. Weed out obvious problems before they move into your unit, and save headaches later.

Keep updated contact information on renters

If a renter is missing, ill or fails to pay on time, you may need the assistance of the next-of-kin.

Be date-specific

Know the beginning and end dates of every school semester, and include them in the lease agreement, as part of the move in-move out deadlines. This allows timely turnover of property and avoids the "deadbeat dilemma" of students overstaying their paid welcome.

Put the house rules in writing

Include expectations regarding personal conduct, visitors, pets and basic maintenance in the lease agreement, and renters initial each rule, signifying they have read, understood and will abide by them, or face specified consequences.

Buy or Not to Buy - What if you think a downswing is coming?

Real estate is just like any other investment. There are good times and bad times, meaning times when the housing market is high, and others when it is low. This can make it hard to decide whether or not you should buy property (or an investment) when you are worried about a downswing.

Here are some reasons why you might want to consider buying even with a downswing.

If you are planning on keeping the home or investment for a few years, it won't matter if a downswing is coming. Most investors buy a home to sell it right away. If you do, you face the risk of the market taking a downswing. However, if you are planning on buying it to live in or rent it out for a few years, it isn't necessarily going to make a difference.

Here are some reasons why you might not want to buy property in a downswing.

You may end up losing money if you plan on selling the house right away. If you decide to buy a home, fix it up, and flip it right away, you may want to rethink that plan during a downswing. The home may be worth less after you have spent money on the renovations.

You can't afford to take the risk. There are going to be times when you can't afford to take a risk, just in case a downswing happens. If you aren't struggling financially (and you don't mind taking a risk), you might want to buy it anyway.

It is often a personal decision about whether or not you want to buy a home or investment when you are worried about a downswing. If you are planning on keeping it for a while, it may not make a difference. You can hold on to the home until the market gets better. If not, you are going to have to take a risk. Not everyone is willing to do so.