Just an observation, warning pessimistic

[Jonathan David]

I know other people have posted speculating about the next downturn in real estate. After 2008, people are understandably still shellshocked. However I have noticed a disturbing trend in conversations amongst friends and family, and I thought I would share.

That is, everybody and their brother owns rental properties these days. My sister, who is a disaster with finances, who could not even pass “math for every day living” the most basic math class our high school offered, Has six. My cousin has 12. My other cousin has several. Numbers of people at the office have rentals. I think these TV shows have made people believe that it is a hidden goldmine.

CNBC had an article this week discussing how first time homebuyers are competing with investors, who snap up entry level houses. All that is good of course until there is a downturn. And they happen, always, and of course our economy is on borrowed time If history is any

Indication.

It kind of reminds me of the late 90s when taxicab drivers were daytrading in between fares. If you say something cautionary, you sound pessimistic. Of course in the rearview mirror it becomes obvious to everybody that something was askew. The bottom line, it is alarming to me how many people own rental properties.

So what happens when a recession hits? Well the first thing is people lose their jobs, and people tend in the lower economic categories get hit hardest. So they stop paying rent. Then all these amateur investors start saying, we can’t afford the mortgages, or things have tightened down for us to, we need to unload the rentals.

So I predict, when the next recession hits, there will be a glut of entry-level single-family homes for sale, which will push values and prices down disproportionately.

I don’t believe there will be a systemic real estate meltdown like last time, but even then 25% of foreclosures were of investor properties. I do think many people dabbling in real estate, and I know the people I mentioned are not doing their homework or buying right— will be in for a rude awakening.

Put differently, I think the single-family home segment is in a bitcoin moment, where prices are skyrocketing because of demand that will vanish and become a rush to the exit. That said, money can always be made in real estate when you do it right. I sold my first flip in 2010, the first day it hit the market.