Looking forward to Real Estate Recession Filtering People Out?

Question

Is it bad that I am kind of hoping for a recession to help filter out some of the poor performers, and in some cases, bad actors in real estate investing? I've grown really tired the 5 years of the :

• 1) "Investors" who think they are geniuses because they have done well in an extended up cycle. Not at all giving credit to market timing.
• 2) AirBnB/Short term rentals rule the world crowd
• 3) Realtors who think they run the show in some markets, and also think they "too good" to hustle for some clients because they have had some success in an extended sellers market
• 4) Contractors that don't return calls or deliver on time/on budget (I will give some slack here because demand has been crushing and skilled labor has been short, but I'm looking forward to a balanced market)

While I don't personally wish financial misfortune on anyone, I am looking forward to watching housing that belongs to overextended short term operators go back on the market at a discount because the "investors" underwrote it to only perform at optimal short term rates/occupancy. I'm looking forward to subpar "investor friendly" realtors washing out of the field. I'm looking forward to "investors" who have insufficient reserves, over extended credit, and poor PM, realizing they aren't the geniuses they thought they were.

Yes, the prices of my portfolio in Denver and Boise may take a hit, but I think it will be a paper hit, and since I'm in this for the long haul, and I'm in it in a position of financial strength, I'll take the short term turbulence if it means less of all the above.

Matt M. · Answer

Yes it's bad. I was in the business in 2008. If you were, then you wouldn't be "hoping" that we'll see it again...

Craig Curelop · Answer

@Mike Stephens and @Jamaal Gibbs - I would be shocked if we saw anything remarkably close to what we saw in 2008 in terms of a recession or drops in real estate prices. Here are my biggest two reasons:

1. 2008 was not a good time and also was not long ago. The government is going to do everything in it's power to stop another '08 from happening. I saw something was passed the other day that they are requiring that banks DO NOT call 3-months of mortgage payments due for those that needed help during these COVID times.

2. There was nothing fundamentally wrong with the housing market in Denver. Prices were (and still are) increasing because there is low inventory and the swarms of millennials who moved out here in 2014 and 2015 are now buying houses.

The people who are going to be hurting the most are people who solely relied on short term rental income to pay their mortgages and were careless with the money they were making. Though, given the harsh rules short term rental laws in Denver, I suspect most people had a plan for what to do if they were to ever be caught renting short term. They are likely executing those strategies now.

I could be wrong... but I wouldn't wait on the sidelines forever for a market dip. It could never happen. Just buy cash flowing deals and it doesn't matter what the market does.

Anthony Simboli · Answer

My personal take on this, I think it's bad to wish upon a recession even if it's to weed out "poor performers". There are so many negatives to a recession including a lot of people losing jobs/homes etc.

I'd say what I'm looking forward to from a recession is us (investors) as a community coming together and helping each other out to find good deals, strategize as a community, and build up the housing market again (assuming it crashes) so people can live comfortably and have places for their families to grow and get back on their feet, find jobs etc.

Alison Bahr · Answer

I liked your answer. I wouldn't wish ill on anyone, and I would like to people act in a community spirit to get people back up on their feet!

Jamaal Gibbs · Answer

@Craig Curelop

I think what we’ll see is going to be a completely different animal. There’s only so many band aids they can put on and they already rolled out the big guns with quantitative easing.

Overall I don’t think the Denver market will be affected as much since so many owners have built serious equity since the last downtown and a lot of people are in a better situation to ride it out. We only have about 6k-7k active homes and you know as well as I do that’s not enough to keep up with our current demand.

Can’t see us tanking like 10 years ago but there could be an opportunity for more creative finance deals, especially with smaller multi family or landlords with problem tenants/poorly run, maybe the STRs.

Still seeing solid deals out there I would jump on. Most of my clients use BRRRR strategy so a little cautious with potential refinance difficulties.

Jamaal Gibbs · Answer

@Mike Stephens I’m looking forward to the increased opportunities to use creative financing with some of the foreclosure and eviction issues. I wasn’t in RE during the financial collapse but like the idea of a more challenging market. A lot of people have gotten soft!

Do you think we will see any major price drops in the Denver metro?

Looking forward to Real Estate Recession Filtering People Out?

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