Heading for a Correction?
A BisNow article from earlier this year directly asks the question on everyone’s mind: “When is the correction going to hit?” In “From Bullish To Bearish: Tips To Prepare For The Inevitable Real Estate Downturn,” the author says not to worry so much about when it hits, but more so with how prepared you will be when it does.
The article offers these four tips:
- Negotiate long-term leases
- Pursue Rehabs and Upgrades
- Stop Putting Off Maintenance
- Embrace Technology
For the most part, I agree with this article. I would add that the strategy for a given property really depends on the property’s current status. That status will dictate whether to sell (if a key lease has just been extended), upgrade (a longer-hold strategy) or refinance.
I would caution this: If an owner is looking at new financing, the debt/value ratio and debt service coverage should be conservative rather than aggressive. In a downturn, rents tend to go down, which will put stress on the debt if it is too high. No need to be greedy.