How To Invest In An Up, Down, Or Sideways Real Estate Market
We know that there will be some correction or crash in the real estate market, and it's coming soon. It might be six months from now, or perhaps it might be in a year, but it's coming.
We know what's going to happen, so we want to be 100% ready and have the means to invest and capitalize on this market.
I am going to share how you can invest now and after the crash and how to make even more money after the crash. I started investing in 2006, way before the 2009 crash, and have invested ever since.
Here's the trick, I made money when the market went up, and when it went down. I made money when it was neutral. When it's a sideways market, I made money every month in passive income, and the minimum was $250.
Even though I started investing in 2006, I made money in the up, down, and sideways market because I did it the right way. I am going to share my tips for investors to invest in the right way.
How You Can Invest Now
We know that there will be a correction or a crash coming soon. When you plan on investing, you have to know it's coming and get your plan ready before you start.
As always, if you're going to invest right now or in any market, make sure you are investing for passive income.
I will give you all investing principles but not just in a down market or in an up or sideways market. They are principles for all types of investing.
Principle #1: Invest for Passive Income
Do not invest in just any passive income, but specifically $250. Every month make sure your net income, income minus your expenses, is covered from the rents that your properties bring in.
In 2006, I started buying properties, but I didn't think about appreciation. Appreciation is where the property is worth more than when you purchased it.
I have to consider what income I bring in to feed my family since I don't have a regular job. I am successfully unemployed and rely on only my 30+ rental properties.
If I had invested just for appreciation or accounted for that appreciation, I would have been so mad.
When I bought properties in 2006, by 2009, when the market crashed down, the properties would be half the value. Now it's right back up and nearly 20% above the value of when I first bought the properties.
As you're looking at passive income, I encourage you to look for properties that will consistently make you money.
Once you have considered all of that, make sure your rental property makes you $250 in addition to your expenses.
For example, let's say all of your property costs add up to $1,000 a month. You have to make sure you rent that property for $1250 a month. That's where you will get a passive income of $250.
Your $250 a month is $3,000 a year in passive income to protect you from any potential property problems.
Consider that you may need a new furnace in one place. That furnace might cost around $2,000. That eats your passive income, which is fine, but it's not coming out of your pocket.
You're not digging your pocket to pay for that expense. You can do this by padding your expenses.
Padding your expenses means you're planning for future repairs so that you have enough money to pay for them with passive income and not out of your pocket.
As you are building up your business, find properties that make you passive income.
Principle #2: Get Equity Capture
Equity capture is fantastic in that you make money as you buy the property. For example, a property's worth is $100,000.
Yes, there are properties worth $100,000 worth buying, and people love living in them. I purchase them all the time, and my students in the real estate wealth builders community buy those also because they make them money.
They even buy $50,000 or $60,000 houses and still make $250 a month in passive income.
How this works is if the home is worth $100,000, they make sure that they're only going to be spending maybe $85,000 at most because they want to capture equity.
Equity is value in the property. For example, you owe $80,000, but it's worth $100,000. If the seller is listing for $100,000, you want to negotiate them down to where you get the value of the price down.
Hopefully, you can get them down to about $95,000.
If you get $95,000 down from $100,000, that’s $5,000 that you just made.
If you remember the saying, “A penny saved is a penny earned.” You just earned $5,000 if you can get them down to $95,000. You can also try to get it down at $80,000.
You're not twisting their arm and forcing them to sell it to you, you are negotiating.
The seller might not have any mortgage on the property. They would still be happy to get $80,000. You are going to be pocketing $20,000 in equity.
Not just that, since you're paying lower, your mortgage is lower, which increases your passive income.
Don't worry if this gets a little confusing; I cover all of this in my free real estate investing course. If you want to get the free real estate investing course go to masterpassiveincome.com/freecourse.
I give you the free course which walks you through all the numbers, how to calculate everything, how to find properties, how to fund properties, how to make sure you're doing it right, and how to make it automatic so that it runs itself and how to quit your job by investing in real estate.
Principle #3: Have a Business That Runs Itself
Before you even buy the property, you have to make sure that you have everything set up.
You have property managers, realtors, wholesalers, inspectors, roofers, plumbers, electricians, handymen, anybody and everybody that’s going to be working in your business.
You want to have that business built way before you buy the property.
Pro Tip #1: Do Not Buy A Property Unless The Property Manager Signs Off First
You want to make sure you have someone in place before purchasing not to have the liability. When I first started investing, I lived in California but bought properties in Ohio, Texas, and Arizona.
As I was building my business, I flew into Chicago and then drove to Springfield, Illinois. The sad thing was, I could not find a good property manager for the properties that I wanted to buy.
So I didn't purchase properties in that area.
Imagine you buy a property, and you could not find somebody to manage that property.
You have a dead liability because it's not going to make you money. Ensure that you're going to be making money every month in passive income from the rents you receive and have somebody else making money for you.
Principle #4: Get Forced Appreciation
You want to make sure that you will have forced appreciation. Ensure that you can fix up the property and make more money on that property in rents and equity.
The last thing you want is to have the best house on the block. You would be paying top dollar for that property, and you may not be able to fix it up.
For example, a property is worth $100,000; you put $5,000 into fixing it up and now have $105,000 total out of your pocket. I think you should pay the $5,000 to fix it up because then the property is worth $125,000.
After that, you have pocketed another $20,000 in equity because you put a little bit of money into it to fix it up.
Principle #5: Consider Cash On Cash Return
Ensure that you're buying properties with little money coming out of your pocket and as much money coming back in. Now here's the principle that you want.
Let's say you're buying properties, and you're making $250 a month in passive income, which is excellent. You want to do that, however, think to yourself which is the better return.
A $350,000 house with a mortgage payment of $2,000 may make you $250 a month, but a $60,000 with a mortgage payment of maybe $300 a month also makes you $250 a month.
Consider that a tenant moves out of the $350,000 home, and you don't have rent coming in for the month.
You may use up your entire year of savings or your whole year's profits just because one tenant moved out.
With a $60,000 house, you would only be using a little bit of money out of your pocket to make up the difference or losing all of your passive income.
What you want to do is invest with cash on cash return strategy. You want to have as little money coming out of your pocket as possible but as much money coming in, in the form of rents and passive income.
Don't be discouraged. There are plenty of excellent properties for $60,000 out there. I have a video where I show you where you should invest.
A great example is Indianapolis, Indiana. Indianapolis is an excellent city to start investing in. You can buy homes for $60,000- $80,000 and make a minimum of $250 a month in passive income.
What To Do When The Market Corrects Or Crashes
Principle #6: Make Sure Your Money Goes As Far As Possible
When the market does correct when the market crashes, make sure that your money goes as far as possible. Now that you have money saved up, you want to make that money go very, very far.
Consider this scenario: you have $30,000 saved up to invest once the crash happens, you want to decide how to make your money go the furthest and get the most properties.
When the crash comes, people will be practically giving away these properties at seriously discounted prices. Houses that may have once sold for $350,000 may sell for $160,000. This happened in 2009, remember!
My brother-in-law bought a house that could sell for $350,000 and bought it for only $125,000 a year later.
I believe you can do this, and I am super excited that these prices will come down when there is a correction. I plan on buying many properties when this happens.
Using Leverage to Buy Your Properties
When you are spreading out your money, make sure you use leverage. Leverage is using other people's money or OPM. It is a great term to remember. Some ways to utilize other people's money could be:
- Bank financing, making down payments,
- Using hard money
- Private financings, like your friends and family members
- Signature loans (Home equity line of credit, home equity loans, or cash-out refinance)
There are so many great options for you to be able to buy properties with very little money of your own coming out of your pocket. Make sure you are using them.
When there is a correction, the critical thing that I want you to remember is if things are going up, there is the top; then, there is the crash.
Once it starts coming down, you want to wait until it hits bottom instead of trying to grab properties before it entirely crashes.
You don't want to be buying houses on the way down. It's like the saying that you don't want to catch a falling knife. If you attempt this, you may catch the blade.
Consider the $350,000 house again. You see that the market is crashing, and the price comes down to $225,000.
Don't assume that is the bottom. It could very well go down even further.
Investing With A Potential Crash
Pro Tip # 2: Don't Buy at the Top or as It’s Falling, Buy at the Bottom
The trick is that you buy before it starts going back up. In preparation for this, you should be watching the news and watching the market come down.
Please watch as many things as possible that could contribute to the crash. However, hearing that the market is crashing isn't a buzz word to buy.
That means that the crash is still happening. It is essential to wait until it is at the bottom.
The great thing about real estate is it moves so slow, unlike stocks where a $100 share could fall to $2 a share in one day. In real estate, it takes months to go from $350,000 down to $150,000.
Pro Tip #3: Watch For What Everybody Else is Saying
Many people who don't know a thing about real estate urge me to invest in a particular place. Specifically, I remember a time when a relative told me if I wanted to move to Idaho, I should jump in now.
They said the prices are high and soon I won't be able to buy them. I knew that there was a bubble and that there was likely a crash coming. I want you to do the opposite.
Pro Tip #4: When People Are Buying, You Want To Be Selling, and When People Are Selling, You Want To Be Buying
As soon as you start hearing that, it’s a crash, or it’s crashing, you know, it’s going to happen.
There are two different indicators to watch:
The Residential Market
The residential market will start first. It's the single-family homes to four-plexes. Those prices will begin coming down first really, really sharply because this happens all the time.
The Commercial Market
When you start hearing that commercial sales, commercial leases, and commercial property prices are down, that should indicate when the crash is getting closer to the bottom for the residential market.
If the commercial market is beginning to get into trouble, that's when you should start watching the single-family homes to see what those prices are doing.
When you start hearing that the commercial market is doing poorly, you need to be watching as that may indicate the bottom for single-family homes.
Here's the thing, you do not want to grab that falling knife. You want to wait until there is a bottom. Even if prices are at the bottom and start ticking back up, don't worry about being at the bottom.
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