Many experts contest we’re experiencing a housing bubble. We all know what comes next—we just don’t know when.
So, let’s do a deep dive to really understand the fundamentals of success in any kind of market.
1. Establish Structure & Policies
Number one, you are running a business. I don't care if you're a buy and hold investor, you're flipping, wholesaling, investing in mobile home parks—it doesn't matter. You are running a business.
A business has policies—its procedures and its structure. The definition of a business is doing the same repetitive tasks over and over again to perfection. You have to make sure that when you are running a business that you are treating it that way, and you are making sure that everything is done in order as much as possible.
The more you can have done without you, the more it will be a business. So, you have to ask yourself, if you cannot step away from your business for a certain amount of time, then you don’t have a business, you have a job. (Not that there’s anything wrong with that.)
Make sure you understand that you’re running a business with policies, procedures, and structure, and you’re treating it that way.
2. Respect the Numbers
Second, make sure the numbers are dictating the story when you are in a bubble market. The numbers that you’re seeing today may be unsustainable.
If you're buying and holding and you own a piece of property, the numbers associated with the deal may be an indication that it's time to sell. Because when the crash happens—and understand that real estate goes in cycles, every seven years, it is a cycle—you want to make sure that you have got as much out of it as you can. If the market does go down, you want to be able to re-purchase properties. And now you have the capital to do it.
3. Set Aside Reserves
Number three, make sure that you have reserves and you have capital and you have access to these things. When times are good, that’s when money is easy to get. When times are bad, that is when it is difficult to get financing. So, make sure you are preparing yourself.
When a real estate crash happens or a bubble bursts, that could be the time that you make a decision to buy more real estate. But you can only do so when you have access to capital and you’re able to make those purchases with speed. Then, you will be able to take advantage of this situation to get better prices.
Again, make sure that you’re focused on getting your capital and getting your reserves in line. That way, you are not putting yourself in a bad position by not having any money if the market takes a turn.
The Bottom Line
To recap, there are three things you’ve got to do to survive regardless of what the market is doing.
You’ve got to operate like a business with policies, procedures, and structure.
Do so with no emotions involved. Let the data dictate your deal analysis.
And make sure you have access to capital and you are getting your reserves ready so that if you want to take advantage of great deals, you can.
By Steve Rozenberg, Bigger Pockets