Most people can make a profit in a bull market. It is the behavior in a bear market that determines long-term returns. Are you in a hurry to sell everything? Or do you do the opposite, holding out for your life and possibly overlooking the fact that one of his assets or stocks has really deteriorated and never recovered?
I tend to lean toward active holding. That means paying close attention to what’s going on with all your investments, rather than selling because the price has fallen. I have a mixed portfolio of equities and real estate, and am aggressively increasing my reserves, analyzing when to sell my investments, and averaging into growth stocks. .
Recently, one of our tenants informed us that he will be moving out in a month. A few weeks later, we were informed that the ceiling had collapsed due to a water leak in the second floor unit. Then, a few thousand dollars and her 7-8 phone calls with the insurance company, I decided to get serious about increasing my cash reserves.
The property will be rent-free for at least a month, possibly more than two months. Vacancy and late or non-paying tenants are the main ways long-term real estate investors are hit by the recession. Banks, local governments, utility companies, and homeowners associations don’t care if the rent isn’t in. Fixed costs must be paid no matter what.
Choose either a fixed amount for each property (such as $5,000 or $10,000) or a number of months (most experts will say 3-6, but more if you’re nervous) and Keep it in your savings account. Or invest in low-risk government bonds. Even in the face of long-term vacancies, we have the cash to continue paying our operating expenses.
2. Sale decision
As a long-term real estate investor, I never buy a home with the intention of selling it. I want to buy a house, rent it out to get some cash flow, and have tenants pay off their mortgages over time to grow my wealth.
Usually my wife and I live in the property for several years before moving out and renting it out. This time, you may choose to sell your home.
The real estate market in Utah, where we live and own four properties, has been extremely overheated over the past few years. A property purchased for $90,000 in 2015 was recently valued at over $250,000. We rarely see this kind of real estate price increase. I would like to diversify a bit, both geographically and from residential to commercial real estate.
Sell your current residence when you move and invest the proceeds in another commercial property or store and rent it and use the other cash for diversification. Start researching local rent statistics and sales figures when your move is near. If the annual cash flow from the house looks like it will be less than 8% of the potential sale (known as the cap rate), we sell and invest elsewhere. In other words, an 8% cap rate equates to a price/earnings ratio of 12.5.
3. Growth stock
For my stock portfolio, I have selected several stocks for the monthly dollar cost average. Dollar cost averaging is when you buy the same amount of stock every month. That could mean trying to buy close to $100, buying 3 shares, or whatever method works best for your portfolio.
I chose growth stocks that have been hit particularly hard this year, but have strong businesses that will undoubtedly survive a prolonged recession. Monthly, I buy about $100 each. This is not close to normal position size for me, but it should be 1 over time.
Growth stocks are volatile, and I believe in long-term business, but stocks could fall another 50%. Averaging ensures that at least part of the position is bought near the bottom.
You have to pay close attention to your business. Once you start averaging, make a note of what you expect to happen to your business in the next few years. How much will your income increase? Do you have debt that needs refinancing? What are management’s forecasts? Track how your company is progressing on your chosen metric quarterly to ensure you have confidence in your business over the long term.
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