Hey look another market crash post!
Boston, MA · Member since 2017 · 40 posts · 12 votes
Hey look another market crash post!
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Lender · Oklahoma City, OK · Member since 2017 · 138 posts · 130 votes
9yI've been in the business since 2003. I had about 50 rentals in 2008 when things "got bad". The only thing that affected my business was the availability of funds. Banks freaked out and borrowing became more difficult so flipping and wholesaling slowed way down. Rents weren't affected. We were able to pick up some better deals but nothing crazy like 50 cents on the dollar. Overall I say buy buy buy no matter what the market is doing.
15 Replies
- Minneapolis, MN · Member since 2016 · 51 posts · 19 votes9y
In my mind, it depends on what the nature of the crash is - for example, if the crash is due to a contraction in the job market, pretty much every segment suffers (renters can't afford rents, people don't have free money to buy flipped homes, etc.). If the crash has to do with some specific industry segment (for example, subprime auto loans), you could see rents in certain market segments get worse, where some rents stay stable.
I don't think "unload it all!" is a viable exit strategy - real estate is an illiquid asset, so one should be clear-headed about the risk of being unable to go with their plan A exit strategy (particularly if that strategy is not "buy and hold"). In fact, "buy and hold" seems to be one of the few popular REI strategies where the exit strategy is sort of built in (hold until you're back on even footing).
Assuming I'm following correctly, this is dollar cost averaging - essentially, we should all admit to ourselves that we don't understand macroeconomic cycles, and just focus on investing in real estate in the moment, if it makes sense to buy it in that moment, rather than say "I'm at a market high - I shouldn't buy" or "I'm at a market low, I should buy everything." It's part psychological, but also part mathematical in nature.
- Boston, MA · Member since 2017 · 40 posts · 12 votes9yJordan Grimstad makes a lot of sense the built in exit strategy of holding on. Guess we it goes awry is not being able to afford the difference between rent income and mortgage/bills after an extended period of time. That's probably what's meant by unloading because it's not necessarily unloading everything but just enough to stay afloat. Ok so that sounds like the notion of "wait until the crash" isn't really an actual strategy?
- Real Estate Broker · Yorba Linda, CA · Member since 2017 · 154 posts · 114 votes9y
@Jordan Grimstad I've been in the real estate business since 2003 and some markets are hit more by a "correction" than others. I live in CA, so when there is a "correction" (not a crash) we feel it harder than say Indiana or Ohio or Oklahoma, etc. Regardless of the type of market, I will always look to BUY, so long as I am buying at the RIGHT PRICE going in and it makes sense for my END GAME investment strategy. I WILL NOT buy on speculation of appreciation. That's a recipe for disaster!
Real estate is 'cyclical' and will always have the UPS and DOWNS. The key is not so much buying at the right time, it's buying at the right price! You make your money going into the deal more so than when coming out.
You need to look at your end game as well. If my strategy is to own buy/hold properties that cash flow, and I'm holding them for 20+ years, then I don't care what happens to the market in the short term because historically the real estate market has yielded a 8%+ return each year. If you go into a deal with speculation of "appreciation" and that's your focus, then you are gambling IMHO. Go for the properties that CASH FLOW!
IMHO, if you are in the WHOLESALE and FLIPPING game, you run a bigger risk during a downturn "correction" than someone who is in the BUY/HOLD game where they are holding their properties for 10, 15, 20+ years.
For me, it's all about CASH FLOWING, PASSIVE INCOME and acquiring ASSETS, so as long as I get a deal at the RIGHT PRICE going in, and I'm holding that asset for 20+ years, I don't care so much about appreciation.
- Minneapolis, MN · Member since 2016 · 51 posts · 19 votes9y
Yes and no. I would suggest a nuanced approach - like Jeff said, you should just focus on paying the right price for a property.
- Bloomington, IN · Member since 2017 · 53 posts · 37 votes9y
I'm a newbie, but from what I've gathered the idea of waiting until the crash is sort of baked into what people mean when they say "the right price." They're using a calculation in their strategy that is accounting for potential bad times. So they aren't buying properties that will suddenly be underwater if property values or rents start to drop. If the market is inflated and people are buying everything up, then their right price isn't going to come around very often. That may mean that they're holding onto their money until a more favorable market arrives.
However, I've got an amazing knack for buying into things at exactly the wrong time. I bought my first home December '07. I sold two beat up old vehicles two weeks before the cash for clunkers thing was announced and the list goes on. I'm now looking into real estate investing, so that probably means the next crash is just waiting for me to write a check. - Lender · Oklahoma City, OK · Member since 2017 · 138 posts · 130 votes9y
I've been in the business since 2003. I had about 50 rentals in 2008 when things "got bad". The only thing that affected my business was the availability of funds. Banks freaked out and borrowing became more difficult so flipping and wholesaling slowed way down. Rents weren't affected. We were able to pick up some better deals but nothing crazy like 50 cents on the dollar. Overall I say buy buy buy no matter what the market is doing.
- Boston, MA · Member since 2017 · 40 posts · 12 votes9y@Rodney Jordan Grimstad Jeff Petsche that really does explain things. The deal truly is the only thing that matters. Cash flow matters. what does that say about the ROI? It seems to range anywhere from 1% to 8% at least where I'm at and even then that hasn't been entirely accurate with my analysis of deals being so dependent on what financing or true rehab costs I'll have. But some keep saying they don't want anything under 10-12% ROI so which is more important? Cash flow vs ROI?
- Boston, MA · Member since 2017 · 40 posts · 12 votes9y@clayton I'm sorry to hear about such tough timing. What is the Indiana market like for you?
- Lender · Oklahoma City, OK · Member since 2017 · 138 posts · 130 votes9y
Originally posted by @Alex Jean Baptiste:
@Rodney Jordan Grimstad Jeff Petsche that really does explain things. The deal truly is the only thing that matters. Cash flow matters. what does that say about the ROI? It seems to range anywhere from 1% to 8% at least where I'm at and even then that hasn't been entirely accurate with my analysis of deals being so dependent on what financing or true rehab costs I'll have. But some keep saying they don't want anything under 10-12% ROI so which is more important? Cash flow vs ROI?
- Rental Property Investor · Charlotte, NC · Member since 2017 · 298 posts · 232 votes9yClayton Barnes I think maybe you have the wrong mindset. Yes, sometimes we find ourselves in a tough spot because of bad timing; however, we more often make things worse by following up our "bad luck" with a worse decision rooted in emotions. For example, you bought at the peak of the market and feel that you were unlucky; however, many markets are now at much higher prices than they were at the peak. Had you had the wherewithal to hold and wait you wouldn't feel so unlucky. That's not to say that holding a bad investment in the hopes that it will somehow turn into a good one is a good idea. I'm just saying that if you take a step back when it feels like things aren't going right, think about what led you to where you are and what your reasons for making the decisions you made were, you can often find the best strategy moving forward. That's why it's good to have multiple exit strategies and understand how to recognize which one to use in the moment. Sometimes the best exit strategy is to not exit at all but wait for the panicked crowd to finish their exit and then collect the treasure they left behind.
- Bloomington, IN · Member since 2017 · 53 posts · 37 votes9y
Originally posted by @Jeshua Patrick:
Clayton Barnes I think maybe you have the wrong mindset. Yes, sometimes we find ourselves in a tough spot because of bad timing; however, we more often make things worse by following up our "bad luck" with a worse decision rooted in emotions. For example, you bought at the peak of the market and feel that you were unlucky; however, many markets are now at much higher prices than they were at the peak. Had you had the wherewithal to hold and wait you wouldn't feel so unlucky. That's not to say that holding a bad investment in the hopes that it will somehow turn into a good one is a good idea. I'm just saying that if you take a step back when it feels like things aren't going right, think about what led you to where you are and what your reasons for making the decisions you made were, you can often find the best strategy moving forward. That's why it's good to have multiple exit strategies and understand how to recognize which one to use in the moment. Sometimes the best exit strategy is to not exit at all but wait for the panicked crowd to finish their exit and then collect the treasure they left behind.
It was more said in jest, than any feeling of actually being upset. The home buy wasn't really an issue. We had hit a point financially where we wanted to buy a home to live in. We bought and value dropped slightly, but I still had a home that was well within our budget and a great interest rate on the mortgage. The value has recovered and we've got about 60%+ equity in the home. It'll make a great rental when we decide to move. So I'm in a good spot. It just made me a bit jealous seeing other folks buy a year later at better prices and get an $8k tax credit etc.
- Rental Property Investor · Charlotte, NC · Member since 2017 · 298 posts · 232 votes9yClayton Barnes glad to hear everything worked out for you. We were more on the hard knocks without a clue side. We lost 50% of our income a couple years after the market crashed close to the bottom of the market, had one house purchased at the peak of the market, and a second purchased a little before bottom. We were over leveraged, terrified of additional risk, and had no one who understood the rental market. In hindsight, we could have probably gotten creative and made it work but I had just rebuilt my credit from a bad situation and didn't feel I could afford to destroy it again. We definitely learned a lot and now we are trying to learn some more in preparation for an aggressive entry into REI in about 12 months.
- Bloomington, IN · Member since 2017 · 53 posts · 37 votes9y
Originally posted by @Jeshua Patrick:
Clayton Barnes glad to hear everything worked out for you. We were more on the hard knocks without a clue side. We lost 50% of our income a couple years after the market crashed close to the bottom of the market, had one house purchased at the peak of the market, and a second purchased a little before bottom. We were over leveraged, terrified of additional risk, and had no one who understood the rental market. In hindsight, we could have probably gotten creative and made it work but I had just rebuilt my credit from a bad situation and didn't feel I could afford to destroy it again. We definitely learned a lot and now we are trying to learn some more in preparation for an aggressive entry into REI in about 12 months.
Shoulda, coulda, woulda, right! Glad you've been able to recover and I hope your REI career takes off in a big way.
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes6y
3 years later, no crash yet
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