How to take advantage and be ready the next crash?

[Travis Hewlett]

Hello BP,

The other day I was watching my favorite show, "The Grand Tour" (a spin-off from Top Gear), which is a hilarious car show where they test many different types of cars and supercars. Jeremy Clarkson, the sarcastic and witty English host, mentioned that in 2017 there were 15-20 new supercar companies that had all built and released a new supercar. Richard Hammond and James May, the other two hosts, bantered on about who are going to buy all these cars and why would people buy a these new supercars over a Ferrari, Lamborghini, or any of the other supercar companies that have heritage and history. As I was sitting on my couch I realized that 3 blocks away from where I live, Calgary's luxury auto mall has rapidly sprung up over the past few years. Serving as my daily dose of motivation and inspiration, I drive by  brand new Lamborghini, Lotus, Ferrari, Alfa Romeo, Porsche, Maserati, Mercedes and BMW dealerships. All of these dealerships have been built in the last 3 years or so. Calgary is very dependent on the Energy market (Oil and Gas) and has really been hit hard over the past few years, but the states and many places around the world seem to have experienced a ton of growth. Who are buying all these cars in Calgary and Worldwide?

Over the past couple of years I've developed a voracious reading habit and started studying/following as many billionaires and successful people as possible. People like Ray Dalio, Warren Buffet, Tony Robbins, Peter Schiff, etc  all seem to be warning us about an impending recession around the corner, one we'll likely experience within the next 1-4 years. The stock market has been experiencing the longest bull market in history over the past 10 years since 2008. This bull run has also been propped up by countries all over the world printing trillions of dollars to stimulate their economies and pull them selves out of the 2008 financial crisis. One of Warren Buffet's famous quotes is "Be Fearful when others are greedy, and greedy when others are fearful", and it really hit home seeing the clips of all these new supercar companies! Is it just me, or do other people think there could be a massive crash in the stock market right around the corner?

I am early in my real estate investing career with a few properties under my belt and gaining some steam as a working partner in Joint Ventures. One of my main goals over the next few years is to raise money from my network in Canada and put together syndication deals in Multi-Families in US markets where the returns are much better than the Canadian markets. I would really like to prepare myself over the next year or two and be well versed in syndication as well have target markets identified. In two years we'll also have some properties that I'll be able to pull equity from to invest in the deals as well.  I've been engulfed in books, podcasts, trainings, and bp over the past few years, and I'm in business development/sales, so raising money is a strength, but I would really like to learn as much as possible about the legal/entity structures of syndication as well as gather information/contacts in U.S. markets that will provide great returns after a market crash.

I'm sorry for the long-winded post, but I was hoping to gather some information to shortlist my market search as well as find some good resources on syndication. 

- What are some of the U.S. markets that were the best to invest in, after the 2008 crash?

- What did other investors learn from the 2008 crash?

- How long on average did it take markets to bottom, before it was a good idea to start buying?

- What were some indicators in markets that helped investors know they would eventually recover?

- What current markets in the US are experiencing massive growth and will likely continue to grow for the next decade or so?

- Does anyone know of any U.S. multi-family or real estate investing meetups, masterminds, or REI's that stream or record their meetings? I'd like to join these groups remotely if possible.

- Any syndication resources would be appreciated. 

- How are other investors preparing for a crash, and how did you benefit from the last crash?

Have a great day and happy investing!

Travis

[Brian Burke]

@Travis Hewlett, here's an interesting thread you might want to check out regarding "waiting for a crash".  https://www.biggerpockets.com/forums/48/topics/620... Some interesting stuff on that thread.  

One thing to keep in mind is that it is easier to raise capital nowadays while everything is going great, and that lulls people into this sense that the same will be true in an adverse market cycle.  Not so, I'm afraid.  Raising money in a down cycle is like pushing a string uphill, unless you have an extensive track record and a large base of loyal investors for whom you have proven performance.  

I'd argue that 2011 was likely the best time in my lifetime and especially in my 29 years in this business to buy real estate, especially in California.  I had my share of investors, and a great and long track record.  But trying to convince my investors that this was a great time to buy homes, fix them up, hold them as rentals and resell them in five years under the thesis that prices would double was a nearly impossible feat.  I was able to convince enough investors to fund $15 million in buy/hold purchases, but I could have easily bought $200 million.  I just couldn't raise the money.  Looking back, I've sold most of those houses and my 2x thesis was incorrect--the prices went closer to 2.5x.  So no matter how good you are, or how right you are, raising money in a down cycle is harder than you'd think.

On to your questions:

- What are some of the U.S. markets that were the best to invest in, after the 2008 crash?

California, by far.  The market started to crash in 2005 but most people didn't recognize it until 2006 or 2007.  By 2009 the market had bottomed then bounced around until 2011 and has been in a steady climb since 2012.  Arizona probably ranks second in my opinion, but the best time to buy was probably 2012.  Florida is probably third in my opinion, but not until 2014 because of judicial foreclosure stalling the recovery.  I have no stats to back this up, this is just my off-the-cuff opinion based on my observations.

- What did other investors learn from the 2008 crash?

Beats me.  I know what I learned, and it completely transformed my opinion about income real estate and my approach to underwriting it.  The biggest lesson was how impactful job losses can be to the real estate market.  I read it in books, but saw it live in 2008-2010.

- How long on average did it take markets to bottom, before it was a good idea to start buying?

My answer to your first question covers it in more detail, but generally 3-5 years.  This last collapse was like none other aside from the great depression.  I don't expect the next down cycle to resemble that at all.  My best guess as of today is that it won't be that impactful.  Minor blips and a faster reversal, if anyone even in the real estate world even notices.  A leveling in prices and rents for a while is most likely, along with a small increase in vacancy.  But I'm no economist--I could be way off.  

- What were some indicators in markets that helped investors know they would eventually recover?

When job growth turns positive.  Texas was one of the first markets to recover and it's no coincidence that Texas had more net job gains than all states combined shortly after the recession.

- What current markets in the US are experiencing massive growth and will likely continue to grow for the next decade or so?

The Southeast.  Most of Florida.  Atlanta GA.  Research triangle area of North Carolina.  Also, Texas,  Phoenix, Denver.

- Does anyone know of any U.S. multi-family or real estate investing meetups, masterminds, or REI's that stream or record their meetings? I'd like to join these groups remotely if possible.

I'm not the best one to answer that question.  I'm sure others will jump in and talk about their meetups.

- Any syndication resources would be appreciated.

Check out Gene Trowbridge's book "It's a Whole New Business".

- How are other investors preparing for a crash, and how did you benefit from the last crash?

My story about the rental homes is one way I benefited.  The other way was by buying & flipping over 100 houses/year in the SF bay area for about 6 years through the entire down cycle.  It was like trying to drink from a fire hose.  That built up my investor base to the point where I was able to grow to raising over $80 million to buy over 2,000 multifamily units and counting.  None of that would have happened had the market been any different than it was.