How did investors and landlords survive the downturn in 08/09?

Question

This question lingers in my mind and I'd love to hear from investors/ landlords who survived the 08/09 market downturn. I invest in my backyard and it hasn't taken as big a hit as other coastal cities did. But I've heard investors mention losing millions of net worth overnight  (even the ones who bought at 70% ARV) just because the property comps dropped instantly and they were over-leveraged and were underwater on mortgages.

But I haven't heard much about whether the rents and cash flow helped them ride it out until things got better or did their rentals go vacant because people were losing jobs? Even the folks who get fired must need a place, right?

When there's a downturn in the market and values go down, are buy and hold folks, BRRR folks screwed?

Any thoughts from folks who went  through this experience?

Joe Villeneuve · Answer

I survived by cashing my rent checks...just like I did before and after.

Russell Brazil · Answer

This is incredibly market specific.  Some places had rents drop to zero, as literally there were not enough renters to fill them (parts of Florida this happened).  Other places rent increased significantly like they did in my market (DC), with a ton of homeowners moving over to becoming renters, and their previous homes being in tied up in foreclosure for years, decreasing the available amount of housing.

The market crash was what made me go all in on real estate. I was a part time agent and flipped a few homes in the bubble, but the crash is where I saw opportunity to jump in full time.  I purchased homes at 50-75% of the value they had been just a few years before, but with stronger rents than they had previously had.

Marelyn Valdes · Answer

My mother had a lot of single family rentals and taught me the lower end rentals (C-D) will always have a lot of people wanting to rent.  I don't have the high dollar homes with HOA's and never had any problem getting tenants or keeping them.  No matter how the economy is doing, it only affects me if I try to sell, not rent.  Keeping up the maintenance and treating tenants fairly keeps places rented long after the initial 1 year lease is up, regardless of the market.  I also don't get myself into a lot of debt buying places - I buy ugly with good bones and rehab.

Frank Wong · Answer

I had a multi-units in Ft Worth that was not really affected.  They were all rented out and I was still cash flowing.  I sold all the homes I had in CA in 2005.  Something didn't sit right with me with the loans that were being written.  I also saw the buying frenzy with people buying 2-3 investment homes that sat empty or had huge negative cash flow.

Right before I sold I actually went to a Rich Dad event in San Jose.  Robert Kiyosaki said that people who were buying on pure appreciation and taking large negative cash flow were just gambling.   Right there it clicked confirmation on my intuition.  I listed everything for sale the following week.  A little dumb luck.   Better to sell a year early than a year late.

Gary Floring · Answer

In the Pacific Northwest, rents stayed steady or actually increased steadily. Even while the properties were losing 30, 40, or 50% in value. But many people who lost their homes became renters, thus landlords did quite well. Yes, it took almost a decade for those investment properties to return to their original market values, but in the meantime, rents have continued a slow but steady increase. Thus, buy and hold investors did well, but anyone looking to sell their rentals took huge losses in 2008 and the years immediately after.

Mike Flora · Answer

@Mihir Bhimaraju for SFR rehab properties. If your market area has been decreasing, don’t run your comps on recent sales, look at everything listed in the area, look at pending sales, on the market and look at pictures to see what you will need to do to be the best property at the lowest price. Recent sales mean almost nothing when SFR’s for sale, in a neighborhood, are getting price cuts. I have one property left to get rid of from the summer when things started to go down here in Southern California, but I adjusted my ARV prices and started looking at the listings in the area and pending sales. Takes me a lot longer to come now and I lowered my ARV that’s for sure, but now there is less competition so I’m getting some great deals. YES this is sketchy but good investors make money in any market. I didn’t have a ton of inventory when the market turned out here either, which helped some compared to other investors flipping homes, but if looking to flip and worried about market drops, this is a strategy that works out here.

Tim Johnson · Answer

I honestly made more money than I do now in the crash.  I'm a contractor by trade and I got hooked up with a bank doing Hazard claims work for them.  We did all the really bad jobs and the pay was insane.  We did like the Dead body jobs, Meth lab, house burned down, and my favorite was code violations.  You could charge whatever you wanted and the bank didn't care they just wanted it fixed now and they where extremely gratefully for the job completed in a fast paced manner.

I always tell my wife at least once a week, I hope the housing market tanks again, because we have the in still and the money will follow like water again.

Scott Morongell · Answer

Well the bank or Fannie/Freddie will come in around 1.25 for your DSCR. We have been underwriting to 1.30-1.35 for extra protection. We also raise all capex funds when possible to have more cash incase something were to happen in the market. Underwrite off historical and not the last 5 years for rent and expense growth as the last 5-8 years are a bit flawed and are unlikely to hold through the life of your project. If you doing a value add play, make sure your being realistic about pops in rent when you turn a unit. If you apply all of these you will be on the right path to success. Oh and if your not doing in house property mgmt, please hire the best company possible in your area! Mgmt companies can make or brake deals.

Scott Morongell · Answer

@Mihir Bhimaraju I'm assuming your referencing flips or wholesales? I haven't been through a recession but this is what I do to avoid losing my shirt and investor money. I buy B/C class 50+ unit apartment complexes. If you buy right your able to ride out the storm. Where operators get into trouble in larger MF is lavish assumptions going in, placing the wrong debt on the deal, and not stress testing the deal/market.

How did investors and landlords survive the downturn in 08/09?

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