If the Market is Crashing, Then Why Aren't You Selling?

Buying & Selling Real Estate
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If the Market is Crashing, Then Why Aren't You Selling?

Joseph CacciapagliaBusiness Member
Lender · San Antonio, TX · Member since 2020 · 1k+ posts · 1k+ votes

If you are one of the people on here posting about the market crashing, and expecting deep discounts some time in the not so distant future, then are you selling your portfolio today? If not, why not? Things are still selling at pretty much pre Covid-19 prices right now. A lot of people are talking about waiting for these "deep discounts" to make their next purchase, but I haven't heard about a single investor liquidating their portfolio today. OK, I did have one client ask about it, but then he decided against it. This seems like a pretty big disconnect.

I know I'm not selling anything, and I'm also still trying to pick up my next deal. That seems to be the same position that most of my experienced clients are taking as well. Maybe most of the people talking about waiting for some crash are people that don't actually have portfolios to liquidate. Otherwise, I would think we'd see a lot more properties hitting the market. Is there some other explanation that I'm missing? Am I just in a market where people happen to be less scared? Are there portfolios hitting the market in other locations?

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Bill Goodland
Rental Property Investor · Allentown PA, United States · Member since 2016 · 567 posts · 442 votes
6y

I'm not selling because even if property values dropped 30%, my deal would still make sense. I didn't buy real estate to be a liquid asset

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  • Account Closed
    San Jose, CA · Member since 2015 · 4k+ posts · 3k+ votes
    6y

    Why sell an investment that's working?  Just like a stock that's still paying you dividends.  You hold onto that one, and you buy more stocks when the prices are low, right?

    32Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y

    I did just sell one property. The low inventory created by coronavirus allowed me to sell at a price that wasnt close to achievable 3 months ago, and it allowed me to increase my cash cushion in case my income drops off a cliff.

    however I am also putting in an offer this week on another property.

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  • Account Closed
    Specialist · OverTheRainbow · Member since 2020 · 607 posts · 909 votes
    6y
    Originally posted by @Joseph Cacciapaglia:

    If you are one of the people on here posting about the market crashing, and expecting deep discounts some time in the not so distant future, then are you selling your portfolio today? If not, why not? Things are still selling at pretty much pre Covid-19 prices right now. A lot of people are talking about waiting for these "deep discounts" to make their next purchase, but I haven't heard about a single investor liquidating their portfolio today. OK, I did have one client ask about it, but then he decided against it. This seems like a pretty big disconnect.

    I know I'm not selling anything, and I'm also still trying to pick up my next deal. That seems to be the same position that most of my experienced clients are taking as well. Maybe most of the people talking about waiting for some crash are people that don't actually have portfolios to liquidate. Otherwise, I would think we'd see a lot more properties hitting the market. Is there some other explanation that I'm missing? Am I just in a market where people happen to be less scared? Are there portfolios hitting the market in other locations?

     I'm selling off my properties and hoarding cash to buy cheaply in a few months. It takes time to sell real estate, that's why you sell before everyone else thinks of it. You can sell stocks in a matter of minutes, for real estate it takes months.

    19Reply
  • Bill Goodland
    Rental Property Investor · Allentown PA, United States · Member since 2016 · 567 posts · 442 votes
    6y

    I'm not selling because even if property values dropped 30%, my deal would still make sense. I didn't buy real estate to be a liquid asset

    52Reply
  • John Teachout
    Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes
    6y
    I'm not in the camp of believing there will be a big price drop. We've not even considered liquidating anything.
    14Reply
  • Allan C.
    Rental Property Investor · Member since 2018 · 828 posts · 811 votes
    6y

    @John Farady are your transaction inefficiencies (commission, depreciation recapture, cap gains tax) significantly lower than your anticipated market decline expectations?

    10Reply
  • Account Closed
    Specialist · OverTheRainbow · Member since 2020 · 607 posts · 909 votes
    6y
    Originally posted by @Allan C.:

    @John Farady are your transaction inefficiencies (commission, depreciation recapture, cap gains tax) significantly lower than your anticipated market decline expectations?

     Well, I don't usually use real estate agents. I find that the 6% on $300,000 properties is about $18,000. I've been at this for a while and I can sell most of my properties using simple techniques that don't include real estate agents.

    Also, I buy "off market" using subject To and Wraps so I don't have competition when I'm buying plus I'm buying $250,000 houses for $170,000 and giving the seller $15,000 to $20,000 for their equity. Heck, they would have had to pay a realtor that much anyway. And, I don't make them fix the place up before they list. It gets pretty simple.

    Real estate agents are usually good for people who only buy one home or the occasional property, but if you're doing this full time you already know the marketing, opening escrow, title reports, closing, etc, etc.

    I have significant equity in most of my properties and I want that equity now as cash and I anticipate chaos in the real estate market when all the people who think they didn't have to pay their rent/mortgage have a come to Jesus moment and are struck with reality. They will have to bring all debts current or lose their homes. That's where I come in. It's only that I recognize what is happening and I take action. Nothing more than that.

    29Reply
  • Account Closed
    Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
    6y

    I don't know if the market is crashing. But I sold over half my C class properties last year because the price growth outstripped the rent growth. Certainly happy about that now. Want to sell the rest this year too. But not at fire sale prices because they do cash flow nicely (assuming tenants pay rent of course)

    6Reply
  • Amy Heitner
    Specialist · Huntingdon, PA · Member since 2018 · 162 posts · 147 votes
    6y

    According to billionaire investor Sam Zell (Chairman of Equity Group Investments), the sellers are remembering the prices of two months ago, and the buyers are looking at a very different world now and expecting "deep discounts." When you get that big a gap in the way sellers and buyers are thinking then nothing much happens.

    He likens the current situation to a game of musical chairs...at the moment the music is still playing. When the music stops there will be one less chair to grab.

    25Reply
  • George W.
    Investor · NJ · Member since 2018 · 869 posts · 921 votes
    6y

    People Who are speculating are the ones who panic and sell at a discount when things dont look good. If your property cashflow and your in it for the longterm then why would a crash for a small period of time matter? As long as you still have tenants your okay. 

    13Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    6y

    Hey Joseph.  Real estate prices remain high and the stock market is only down 15% from the peak.  The posts you mention are in the minority...people seem to be hanging on to assets rather than selling, stay-at-home means stay at home depot, and 80% of people filing for unemployment think they will return to work soon.  All of this in spite of skyrocketing unemployment and limited traction on the virus in six months.

    10Reply
  • Joseph CacciapagliaBusiness Member
    OP
    Lender · San Antonio, TX · Member since 2020 · 1k+ posts · 1k+ votes
    6y

    @Account Closed that's certainly not how they taught investing in any of my finance classes. It's not how I handle my own investments either. I sold 100% of my stocks in January, and luckily avoided a steep decline. It allowed me to buy back my same dividend stocks at a 20% discount (yes I missed the bottom. I also decided to keep most in cash, because I believe there will be further declines in the stock market).

    @Russell Brazil I've read enough of your posts to know you're outlook is similar to most of the similar investors I know. Sure you might make an opportunistic sale, but certainly not liquidating the portfolio.

    @Account Closed you are the first investor that I've heard from that is liquidating. Is most of your portfolio in California? That might change my outlook some.

    @Bill Goodland do you believe prices will drop 30%? I understand that real estate isn't terribly liquid, but it's easy enough to sell if you really believe that large of a dip is coming. Then you can buy back your cash flow for a big discount. 

    @John Teachout this is my position as well.

    @Allan C. this is such a good question. If people believe the discount won't cover their transaction costs, then sitting and doing nothing makes perfect sense. However, this isn't what I've been hearing from the "waiting" crowd.

    @Account Closed are you just sitting in cash until some future date?

    @Amy Heitner this would make sense if people were only on one side of the trade, but how can you have one outlook on the properties you hold, and a completely different one on the ones you're thinking of buying? 

    @George W. a crash would matter, because if you were sure it was coming, you could sell today and buy back at a discount. This would maximize your ROE.

    @Mike Dymski I guess that's what I was wondering. Is it really just a minority that is expecting a big drop in real estate prices. I see so many posts about it, but that sentiment doesn't match what most of my experienced clients are saying.

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  • Michael Noto
    Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
    6y

    My best guess is people who are waiting for the "deep discounts" are in two camps:

    1. They are not really plugged into their markets on a day in, day out basis and think their market is changing when it really hasn't and they are basing their opinions on 2nd hand knowledge or headlines they read about the economy and assume the same applies for housing. For instance, there has been no changes in my market pre and post in  terms of supply and demand. There is still a shortage of inventory as compared to the people actively looking. 

    2. They have done their research and feel in the next 12-18 months there is going to be a significant market drop. The people in this camp tend to be people who are speculating just like we all are right now as to the long term ramifications of all this. 

    5Reply
  • Whitney HuttenPro Member
    Investor · Boulder, CO · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    @Joseph Cacciapaglia  I might sell 1-2 out of my portfolio this year to harvest equity to reinvest later in the year, not to "run from COVID".  I think the panic selling will come in Q3/Q4 and be from those people who have no reserves to weather the storm.

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    12Reply
  • Lee Yoder
    Rental Property Investor · Lebanon, OH · Member since 2016 · 224 posts · 228 votes
    6y

    I'm considering selling a multifamily property because I do think prices for commercial RE will fall by the end of this year and I don't think they'll return to early 2020 levels for a few years. I could be totally wrong, but I do think we have been "topping" for a year or so now. However, I do agree with others that have said they don't see a reason for selling when their investment will still cash-flow even if values drop 30%. The value of your property only matters when you're trying to buy or sell. In my case, I am trying to buy bigger multifamily properties, so I'm hoping to sell my smaller apartments while prices are high and buy when prices are low. I know it's basically impossible to time the market, but like I said, I think this is the top, so I believe it's a good time to sell. 

    4Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y
    Originally posted by @Whitney Hutten:

    @Joseph Cacciapaglia  I might sell 1-2 out of my portfolio this year to harvest equity to reinvest later in the year, not to "run from COVID".  I think the panic selling will come in Q3/Q4 and be from those people who have no reserves to weather the storm.

    as i think this through..  those without reserves are probably the ones who put as much debt as humanly possible on their properties.

    and if they don't have reserves to pay mortgages and prices come down.. then we are right back into 2010 short sale land.. I mean these folks wont have money to bring to closing and all their so called equity is gone right. ?   20 to 25% equity in a falling market with normal sales transaction cost is NO or negative equity..  

    And the banks got rid of their short sale departments years ago.. I wonder if they are starting to staff up for that or will continue to try to help those struggling to pay mortgages out in a different manner like we saw last month with payment deferrals or take 3 payments add it to the end of the loan type of thing.

    Plus homeowners tend to stay as long as they can.. and of course many of them will need short sales if they are FHA or VA or whatever low down situation they used to get into the home..

    I have no answer just my thoughts on the matter as i think it through.

    those that own them free and clear or little debt.. I guess you could see some of them saying hey i will reposition . But if you don't 1031 a rental then as was pointed out above recapture and sales load are real costs so the new deal has to be pretty good.

    Lastly for those that are waiting if they don't have cash and experience might have a tough time buying with credit much tighter.. 

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  • Marcus Johnson
    Investor · Saint Paul, MN · Member since 2015 · 663 posts · 512 votes
    6y

    @Joseph Cacciapaglia

    We are selling/closing this Friday on our vacation/Airbnb lake home. We bought this property with it being our vacation home/potential to convert it from a 3 season to 4 season and for Airbnb. We did successfully converted to a Fourseason did some nice upgrades and we’re selling it at list. The Airbnb business was truly wonderful and profitable but too time-consuming for me. Plus we never vacation there is much as we thought. So yes I do want to liquidate, because I think a vacation home will be harder to sell should prices dropped drastically. I’d rather take the capital gains right now and apply toward something else. 

    1Reply
  • Jill F.
    Investor · Akron, OH · Member since 2016 · 2k+ posts · 4k+ votes
    6y

    I have a 10-unit under contract right now. Still buying cash-flowing deals that look good. (And...there were three other offers on the property by day 2 on the market)

    2Reply
  • Daniel McNulty
    Financial Advisor · Indianapolis, IN · Member since 2018 · 294 posts · 165 votes
    6y

    @Joseph Cacciapaglia

    Simple supply / demand economics. There is still an imbalance, lack of supply. Speculators are quite sure that Covid 19 will create a wave of supply in the next 12 months. With the government intent on intervening in all facets of the economy, I am not so convinced. 

    In the end, speculators will live or die by it. Most people would be better suited planning for what they can control (in their real estate portfolio or otherwise) than speculating on that which they have none. 

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    Financial Advisor

    3Reply
  • Joseph CacciapagliaBusiness Member
    OP
    Lender · San Antonio, TX · Member since 2020 · 1k+ posts · 1k+ votes
    6y

    @Michael Noto it seems to me there are a lot in camp #1 that are talking about this. I've been curious about how many are in #2, hence this post.

    @Whitney Hutten that's in line with what a lot of experienced investors seem to be doing.

    @Lee Yoder I've been curious how many people like you there are out there. So far I've only heard from a couple now. The small multifamily market is the only segment of residential in San Antonio that seems to be showing a tiny bit of softness so far. I'm curious if that's the beginning of a trend.

    @Jay Hinrichs I'm always happy to hear your thoughts. This forum is great because there are so many experienced investors willing to share their insights.

    @Marcus Johnson it sounds like you have plenty of reasons beyond just "the market is crashing" to want to sell. I do think we'll see more vacation rentals put up for sale than regular rentals or multifamily.

    @Jill F. that's great to hear, and in line with what I see a lot of experienced investors doing today.

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  • Allan C.
    Rental Property Investor · Member since 2018 · 828 posts · 811 votes
    6y

    @John Faraday it seems that you have great experience and a system worked out to capture value/minimize cost along the transaction process. I also suspect that you have a solution to the other costs (i.e. depreciation recapture), but you didn't mention it.  If you have a fair amount of equity in the properties as you suggest, then it seems that you may have held these assets for a period of time, by which depreciation may have accumulated to a large extent. 

    If you have a plan to manage dep. recapture and cap gains then i'm interested to hear. Many folks don't factor these impacts properly, so we can all benefit from tips on how others manage. 

    2Reply
  • Account Closed
    Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
    6y
    Originally posted by @Joseph Cacciapaglia:

    @Account Closed are you just sitting in cash until some future date


    I am a bit cash heavy. But I also moved cash into Syndications, some private loans and traditional stock/bond portfolio as well.

    0Reply
  • Bill Goodland
    Rental Property Investor · Allentown PA, United States · Member since 2016 · 567 posts · 442 votes
    6y

    @Joseph Cacciapaglia you are far more likely to miss out on gains by pulling out of the market than you are to lose money on the market dropping. There are mountains of research on this in the stock market displaying this and the same applies to real estate. If you wanna try to time the market, just stop buying and stock pile cash to pick properties up at a discount

    1Reply
  • Jeff CopelandBusiness Member
    Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes
    6y

    Buy and Hold is a very different mentality from Buy Low and Sell High. 

    Those of us in the former camp aren't freaked out or excited by a market cycle (whether pandemic-related or not, we all knew the market would not just keep going up forever).

    Buy and Hold investors aren't as concerned with prices 1, 2, or 3 years from now. We have good reason to be confident that 10 or 20 years from now, the market will have recovered and exceeded recent peak values (perhaps more than once). 

    There is obviously a lot of money to be made (and possibly lost) in speculating (the Buy Low, Sell High camp), but that is a fundamentally different investor mindset from Buy and Hold. 

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  • Owen DashnerPro Member
    Lender · Omaha, NE · Member since 2008 · 1k+ posts · 1k+ votes
    6y

    I have put the word out to a few brokers that I would consider selling some of my stuff because I do believe we are going to see a substantial retreat in pricing in the upcoming months.  When the music stops on eviction/foreclosure moratoriums, and when we start to see all the businesses who can't make it or are not reopening, it is going to get ugly - starting with travel, hospitality and retail. I think commercial RE is going to be the canary in the coalmine for the sector.

    However, I also am not crazy about getting hammered with capital gains taxes if I don't have anything to 1031 into.  So, I would sell for the right price, but I'm not in a hurry to firesale anything, since most properties in my portfolio are solid cashflowing assets. Cash will be nice to have stockpiled if the goal is to scoop up properties as the dip takes hold. 

    It's a tough call overall, but one thing we know for certain - the printing press is going to stop at some point, and nonpayments of rents and mortgages are not going to last forever.  You gotta pay the piper at some point. 

    2Reply
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