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Locking in Profit During a Real Estate Downturn

With Percy Nikora, Co-Founder

When I was in financial services, one of the things I also used to trade were options. I would do covered calls and all sorts of different trading strategies on stocks to make sure that once you start getting profit on a particular piece of equity, you can put a limit, and if it goes ... If the market, for whatever reason, starts to change direction, you at least are not losing that entire gain that you have.

So, similar philosophy in real estate. When we had some of those properties in Florida, and they started to appreciate quite a bit, I would keep an eye on the market and make sure that ... We'll ride the market as long as we can, but if the market starts to go down, we'll essentially execute what we call a stop-limit order, or a stop order. So, it goes down to a particular threshold, and then we start seriously looking at selling it.

Luckily, this was early on, and I didn't wait until we were right in the middle of the cycle. As I started to see the number of short sales start to rise, to me, that was an early warning sign; when people were selling the properties with more than what they had in terms of a mortgage on the property. Really, that was the sign, and I said, okay, let's start selling some of these out.

That's what we did, knowing that, at some point ... Again, every market has a cycle, so the market will come back up. It was just a matter of managing the portfolio and saying, "Where do we put your money today?" I think even within real estate, there's- every asset class or every asset type within real estate also has its cycle. So, you could very successfully do multifamily; you could do hotels, retail ... There are just cycles.

 

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