In Episode #51 I spoke with Carlos Delherra about his real estate portfolio before and after the 2008 housing crisis. How he changed his perspective on real estate was instructive for me and should be educative for anyone getting into real estate investing.
Before 2008, Delherra was over-leveraged in about 25 million dollars of real estate across three states. His strategy was equity appreciation, which would make him money as homes increased in value. At the time, values were going up and up and up and it seemed like he was set for life. Once the market crashed, however, that paper equity of $25 million crashed to a $500,000 debt.
After 2008, he shifted his strategy toward cash-flow generation in the student housing real estate niche. Because students are an inelastic market, with a near constant demand as college attendance rates continue to increase, and because students are often willing to pay a premium for good housing, shifting to this niche allowed him to consider his business in terms of the cash it was bringing in month after month, rather than the paper value it might have at some point in the future.
This kind of stable investing allowed Delharra to rebuild himself and his business to a better position than he had before the crash.
