crash proof portfolio

The Crash Proof Portfolio…..

Everyone looks like a genius during the good times. When markets are soaring, everyone’s an expert. But what separates the true professionals from the amateurs is when portfolios continue to grow even as markets are tanking.

crash proof portfolio

We’ve all heard stories of how supposedly professionally managed retirement accounts sank 30% or more during the last crash. The only advice given was to ride out the storm. Not so easy when you’re a retiree forced to liquidate your portfolio at a loss just to survive. That can make riding out the storm impossible.

The problem with most buy and hold investing, whether it be in mutual funds or ETFs, is that when the market tanks, diversification is limited in its ability to protect you. In 2008, the bond market declined at the same time the stock market did. Even gold didn’t start rallying significantly until about a year after the crash had occurred. So that means that riding out the wave is your only option.


Why Real Estate Investors do better in crashes…..

There are actually several reasons real estate investors tend to flourish in crashes while most buy and hold stock market investors are left waiting for a recovery.

The first reason is that crashes actually increase the number of deals that hit the market. Crashes mean housing prices drop, and more importantly, property owners often have financial reasons to sell their homes quickly or at a discount. This means that investors are ok investing in a market that’s 30% declined when they find properties at a 60% discount. They can still make money because they’ve carved out their profit margin.

Don’t get me wrong, a stock market crash means stocks go on sale too. However, you still have to wait for the entire market to recover to capture your profit. Meanwhile, a real estate investor who’s locked in their profit margin doesn’t have the same waiting period. It’s just a matter of fixing up the property, and flipping or renting it depending on how the math looks.

This brings me to my next point. The manner in which real estate investors lock in their profits is an advantage in itself. CONTRACTS and LEVERAGE are a way to limit one’s downside if the market continues to decline.


Contracts and Leverage….

I’ll discuss leverage first. Most people think leverage exposes investors to more risk. But that’s not necessarily the case in real estate. When a real estate investor obtains leverage for a property, they put the lender as a lien holder on the title. The house becomes collateral.

What this means is when an investor finds a deal, rather than putting all of their capital at risk, they simply put a small percentage at risk and they borrow the rest. If the deal goes bad, they only lose the limited amount of capital they invested. The lender is the biggest risk taker, as they have to foreclose on the house if the investor defaults. As an investor, you can make large profits on leverage when you win, and you limit your loss when you lose.

As a real estate wholesaler, you take even less risk. The only money you put down is the earnest money deposit to get the property under contract. The idea is you’re trying to pass the deal along to another investor for a cut of the profit. Either you find an investor who will pay you thousands for your contract, or you stand to lose the $500.00 or $1000.00 deposit you put at risk.

In both cases, it’s about big upside potential, and limited downside.


Real Estate Investing from your laptop.

We take what works in real estate, and implement those strategies into far more efficient publicly traded assets. That means stocks, bonds, REITs, etc. Why would we put all of our portfolio at risk, when we can limit our downside, and increase our profit potential with the use of contracts?

Just as traditional real estate investing gains an edge through contracts and leverage, so does the investor who understands how to implement real estate strategies in public exchanges.  The difference is that identifying and acquiring deals is far more efficient when compared to traditional real estate markets.

About The Author


I am a college drop out who found my passion as an investor. I love the many facets of finance, investing, and business. But even more than that, I love sharing what I learn with others.

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