Did you survive the market crash- What do you do differently now?

Question

I want to hear from investors who got their start long before the infamous housing market crash of '07, '08, '09......

What one or two things do you do differently NOW because of what you learned THEN? Don't hold back... give all the details!

If you were a landlord... What was hard about the crash? What would you advise inexperienced investors starting out in a somewhat similar "hot" and potentially over-inflated market for how to safeguard themselves for when times aren't so rosy?

If you were flipping... did you make it through? Or have to change strategies? What would you advise for individuals just getting in to flipping in order to prepare for the next market correction?

I think about this constantly... I hope you all have some GREAT answers...!

@Joshua Dorkin - you talk about this regularly on podcasts.... almost more than I think about it! I'd love to hear your advice as well. :o)

David Faulkner · Answer

I was fairly new to real estate investing ... when I realized in 2005 that I was making more on my primary residence than I was working, I thought hey this is great, I should go buy some more property. Fortunately for me I was raised to be very conservative financially, so I saved up my down payment before I started looking. Also fortunately I knew enough to know how to run the numbers and see that they made no sense and as result didn't end up buying. So, long story short, because I had saved up to invest and started studying the market already, when it crashed I was sitting on a pile of cash and already educated in the local market. I still fell over the cliff edge price-wise with my primary, but because I had been holding it awhile and didn't buy at the peak, put 20% down when I purchased, and put in some sweat equity fixing it, it never went negative in either equity or cash flow. Yes, a lot of this was dumb beginners luck, I'll admit, but the crash was actually very good to me. Lessons learned:

• As a newbie, understand that your emotions may betray you, and you may get excited about REI at the exact wrong time. 
• Live and invest counter-cyclically. Be fearful when others are greedy and greedy when others are fearful ... easier said than done, but excellent advise none the less. I do the opposite of the crowd and pay off debt and save money in a hot market and lever up and invest like crazy in a crashing market.
• Let the numbers be your guide. If the numbers don't make sense, don't buy, even if that means sitting on the sidelines.
• Looking for properties and not finding one that meets your criteria is frustrating and seems like a waste at the time, but looking back it was not a waste at all, it educated me on the local markets so that when an opportunity did come about I was ready to hit the ground running.
• Don't over leverage. Put some money down, keep cash reserves, and maintain a cushion of equity and cash flow. Yes, your returns may be less, but also less risky and volatile. Consider cash reserves and excess equity as an insurance policy rather than investment vs. "dead equity".
• When the market crashes, cash is king. Credit gets pulled way back, which is part of the reason prices drop in a vicious cycle. Most of the properties I bought for cash on properties the banks wouldn't finance, and this got rid of 90% of my competition resulting in great deals.
• Credit and steady W2 income are important. Most people couldn't refinance, even if they had any equity. I could because I had equity, great credit, and steady income. W2 income also helped get me through some tight spots along the way. So, if you are going to quit your W2, do it just after the bottom of the market when prices are just on the rise again, not at the top.
• The time to prepare for a down turn mentally and financially is years before it happens. By the time it starts to happen, it is too late to prepare. I was lucky in that I accidentally was very well prepared, but this time I'm preparing on purpose. Be sensible and pragmatic about it though, in that your preparations shouldn't put you in a bad spot long term if a downturn does NOT come (e.g. stashing cash under your mattress). Don't fear a downturn ... if you are prepared, a downturn can be your best friend.
• Understand ahead of time how different asset classes behave in different parts of the market cycle. Class C generally gets hit the harder than A or B price wise in a down market, so I like to pick these up and buy-&-hold then and shift to higher quality stuff (with shorter holding periods or as my primary) when the market recovers. Then, really close to the peak, sell off stuff I don't want to hold through the downturn and do more RE services where I'm not deploying my own capital. I've only implemented parts of this strategy, so it is more my current operating philosophy more so than lessons learned.
• Always live well below your means. Keep your expenses to a minimum so you have plenty of cushion. This is true both with business and personal life.

Mark Vejnar · Answer

@David Faulkner that's ok. It's good advice and worth repeating. I have to tell my kids anything at least three times before it even gets their attention.

David Faulkner · Answer

Sorry for the duplicate posts ... I got application error so didn't think they posted. Moderator or BP, please remove.

David Faulkner · Answer

I was fairly new to real estate investing ... when I realized in 2005 that I was making more on my primary residence than I was working, I thought hey this is great, I should go buy some more property. Fortunately for me I was raised to be very conservative financially, so I saved up my down payment before I started looking. Also fortunately I knew enough to know how to run the numbers and see that they made no sense and as result didn't end up buying. So, long story short, because I had saved up to invest and started studying the market already, when it crashed I had was sitting on a pile of cash and educated in the local market. I still fell over the cliff edge price-wise with my primary, but because I had been holding it and didn't buy at the peak, put 20% down when I purchased, and put in some sweat equity fixing it, it never went negative in either equity or cash flow. Yes, a lot of this was dumb beginners luck, I'll admit, but the crash was actually very good to me. Lessons learned:

• As a newbie, understand that your emotions may betray you, and you may get excited about REI at the exact wrong time. 
• Live and invest counter-cyclically. Be fearful when others are greedy and greedy when others are fearful ... easier said than done, but excellent advise none the less. I do the opposite of the crowd and pay off debt and save money in a hot market and lever up and invest like crazy in a crashing market.
• Let the numbers be your guide. If the numbers don't make sense, don't buy, even if that means sitting on the sidelines.
• Looking for properties and not finding one that meets your criteria is frustrating and seems like a waste at the time, but looking back it was not a waste at all, it educated me on the local markets so that when an opportunity did come about I was ready to hit the ground running.
• Don't over leverage. Put some money down, keep cash reserves, and maintain a cushion of equity and cash flow. Yes, your returns may be less, but also less risky and volatile. Consider cash reserves and excess equity as an insurance policy rather than investment vs. "dead equity".
• When the market crashes, cash is king. Credit gets pulled way back, which is part of the reason prices drop in a vicious cycle. Most of the properties I bought for cash on properties the banks wouldn't finance, and this got rid of 90% of my competition resulting in great deals.
• Credit and steady W2 income are important. Most people couldn't refinance, even if they had any equity. I could because I had equity, great credit, and steady income. W2 income also helped get me through some tight spots along the way. So, if you are going to quit your W2, do it just after the bottom of the market when prices are just on the rise again, not at the top.
• The time to prepare for a down turn mentally and financially is years before it happens. By the time it starts to happen, it is too late to prepare. I was lucky in that I accidentally was very well prepared, but this time I'm preparing on purpose. Be sensible and pragmatic about it though, in that your preparations shouldn't put you in a bad spot long term if a downturn does NOT come (e.g. stashing cash under your mattress). Don't fear a downturn ... if you are prepared, a downturn can be your best friend.
• Understand ahead of time how different asset classes behave in different parts of the market cycle. Class C generally gets hit the harder than A or B price wise in a down market, so I like to pick these up and buy-&-hold then and shift to higher quality stuff (with shorter holding periods or as my primary) when the market recovers. Then, really close to the peak, sell off stuff I don't want to hold through the downturn and do more RE services where I'm not deploying my own capital. I've only implemented parts of this strategy, so it is more my current operating philosophy more so than lessons learned.
• Always live well below your means. Keep your expenses to a minimum so you have plenty of cushion. This is true both with business and personal life.

David Faulkner · Answer

I was fairly new to real estate investing ... when I realized in 2005 that I was making more on my primary residence than I was working, I thought hey this is great, I should go buy some more property. Fortunately for me I was raised to be very conservative financially, so I saved up my down payment before I started looking. Also fortunately I knew enough to know how to run the numbers and see that they made no sense and as result didn't end up buying. So, long story short, because I had saved up to invest and started studying the market already, when it crashed I had was sitting on a pile of cash and educated in the local market. I still fell over the cliff edge price-wise with my primary, but because I had been holding it and didn't buy at the peak, put 20% down when I purchased, and put in some sweat equity fixing it, it never went negative in either equity or cash flow. Yes, a lot of this was dumb beginners luck, I'll admit, but the crash was actually very good to me. Lessons learned:

• As a newbie, understand that your emotions may betray you, and you may get excited about REI at the exact wrong time. 
• Live and invest counter-cyclically. Be fearful when others are greedy and greedy when others are fearful ... easier said than done, but excellent advise none the less. I do the opposite of the crowd and pay off debt and save money in a hot market and lever up and invest like crazy in a crashing market.
• Let the numbers be your guide. If the numbers don't make sense, don't buy, even if that means sitting on the sidelines.
• Looking for properties and not finding one that meets your criteria is frustrating and seems like a waste at the time, but looking back it was not a waste at all, it educated me on the local markets so that when an opportunity did come about I was ready to hit the ground running.
• Don't over leverage. Put some money down, keep cash reserves, and maintain a cushion of equity and cash flow. Yes, your returns may be less, but also less risky and volatile. Consider cash reserves and excess equity as an insurance policy rather than investment vs. "dead equity".
• When the market crashes, cash is king. Credit gets pulled way back, which is part of the reason prices drop in a vicious cycle. Most of the properties I bought for cash on properties the banks wouldn't finance, and this got rid of 90% of my competition resulting in great deals.
• Credit and steady W2 income are important. Most people couldn't refinance, even if they had any equity. I could because I had equity, great credit, and steady income. W2 income also helped get me through some tight spots along the way. So, if you are going to quit your W2, do it just after the bottom of the market when prices are just on the rise again, not at the top.
• The time to prepare for a down turn mentally and financially is years before it happens. By the time it starts to happen, it is too late to prepare. I was lucky in that I accidentally was very well prepared, but this time I'm preparing on purpose. Be sensible and pragmatic about it though, in that your preparations shouldn't put you in a bad spot long term if a downturn does NOT come (e.g. stashing cash under your mattress). Don't fear a downturn ... if you are prepared, a downturn can be your best friend.
• Understand ahead of time how different asset classes behave in different parts of the market cycle. Class C generally gets hit the harder than A or B price wise in a down market, so I like to pick these up and buy-&-hold then and shift to higher quality stuff (with shorter holding periods or as my primary) when the market recovers. Then, really close to the peak, sell off stuff I don't want to hold through the downturn and do more RE services where I'm not deploying my own capital. I've only implemented parts of this strategy, so it is more my current operating philosophy more so than lessons learned.
• Always live well below your means. Keep your expenses to a minimum so you have plenty of cushion. This is true both with business and personal life.

David Faulkner · Answer

I was fairly new to real estate investing ... when I realized in 2005 that I was making more on my primary residence than I was working, I thought hey this is great, I should go buy some more property. Fortunately for me I was raised to be very conservative financially, so I saved up my down payment before I started looking. Also fortunately I knew enough to know how to run the numbers and see that they made no sense and as result didn't end up buying. So, long story short, because I had saved up to invest and started studying the market already, when it crashed I had was sitting on a pile of cash and educated in the local market. I still fell over the cliff edge price-wise with my primary, but because I had been holding it and didn't buy at the peak, put 20% down when I purchased, and put in some sweat equity fixing it, it never went negative in either equity or cash flow. Yes, a lot of this was dumb beginners luck, I'll admit, but the crash was actually very good to me. Lessons learned:

• As a newbie, understand that your emotions may betray you, and you may get excited about REI at the exact wrong time. 
• Live and invest counter-cyclically. Be fearful when others are greedy and greedy when others are fearful ... easier said than done, but excellent advise none the less. I do the opposite of the crowd and pay off debt and save money in a hot market and lever up and invest like crazy in a crashing market.
• Let the numbers be your guide. If the numbers don't make sense, don't buy, even if that means sitting on the sidelines.
• Looking for properties and not finding one that meets your criteria is frustrating and seems like a waste at the time, but looking back it was not a waste at all, it educated me on the local markets so that when an opportunity did come about I was ready to hit the ground running.
• Don't over leverage. Put some money down, keep cash reserves, and maintain a cushion of equity and cash flow. Yes, your returns may be less, but also less risky and volatile. Consider cash reserves and excess equity as an insurance policy rather than investment vs. "dead equity".
• When the market crashes, cash is king. Credit gets pulled way back, which is part of the reason prices drop in a vicious cycle. Most of the properties I bought for cash on properties the banks wouldn't finance, and this got rid of 90% of my competition resulting in great deals.
• Credit and steady W2 income are important. Most people couldn't refinance, even if they had any equity. I could because I had equity, great credit, and steady income. W2 income also helped get me through some tight spots along the way. So, if you are going to quit your W2, do it just after the bottom of the market when prices are just on the rise again, not at the top.
• The time to prepare for a down turn mentally and financially is years before it happens. By the time it starts to happen, it is too late to prepare. I was lucky in that I accidentally was very well prepared, but this time I'm preparing on purpose. Be sensible and pragmatic about it though, in that your preparations shouldn't put you in a bad spot long term if a downturn does NOT come (e.g. stashing cash under your mattress). Don't fear a downturn ... if you are prepared, a downturn can be your best friend.
• Understand ahead of time how different asset classes behave in different parts of the market cycle. Class C generally gets hit the harder than A or B price wise in a down market, so I like to pick these up and buy-&-hold then and shift to higher quality stuff (with shorter holding periods or as my primary) when the market recovers. Then, really close to the peak, sell off stuff I don't want to hold through the downturn and do more RE services where I'm not deploying my own capital. I've only implemented parts of this strategy, so it is more my current operating philosophy more so than lessons learned.

Kerry Baird · Answer

Me and my team were rehabbing three flip houses during one particular month, in Arizona, which was definitely frothy.  We are military, and we got orders to leave the country, and I hadn't quite completed the rehab, particularly on our own house.  I took a partner to complete the rehab, and to get the houses listed on the MLS.  The listing Realtor offered on our own house, even though the base boards/trim was not finished.  We went under contract to sell.

Prices started to soften.  We dropped the prices on the other two houses.  My partner ended up taking one off the market and renting it for awhile.  We offered owner financing as incentive to sell the other.  It took a few more months, but house number two went into a contract to sell.  We received income from that note until it was paid off, a few years later.  The third house took some time, but it also produced cash flow until it sold.  We were lucky.  No money lost.  No houses lost.  We bought at prices that would allow cash flow, even as the prices fell.  Rehabbing didn't make sense, but renting did.

We lived overseas for 10 years, with the military.  I felt as if I was in timeout.  Had real estate withdrawals, ha!

This is what we do differently:

-I joined BP and researched turnkey properties. I looked for a mentor, where I did my houses on my own before, and learned the hard way.

-Whereas I built my own team in Arizona, I needed to trust someone else's team. We ended up buying newer cash flow properties in TX and FL.

-We use larger down payments now. 20-25% down, and we buy in areas with strong job growth.  -We rehabbed "distressed" properties then.  The goal is to have cash-flow when we are older, so we buy newer properties now.  I don't want to have the hassles of maintenance as we grow old.

-We snowball the properties to pay them off faster.  My husband says we "killed the golden goose" when we sold houses in the past, so he prefers refinancing to selling.  Then we have some equity and we still have the asset.  And at the moment, I am looking to refinance the package of houses, so we can grow wider.  Then, we will "go deep" by snowballing them, and doing it all over again.

What I still do:  live beneath our means (usually!), so we can set aside funds for investing.  I still read BP regularly, and research the topic de jour.  I still keep on top of my credit score.  I still do marketing, both direct mail and now online.  I still want/look for a bargain.

Did you survive the market crash- What do you do differently now?

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