Who’s hoarding cash and waiting for the next crash to be here?

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Who’s hoarding cash and waiting for the next crash to be here?

Jian G.
Rental Property Investor · San Diego, CA · Member since 2019 · 102 posts · 43 votes

Anyone preparing for the next crash and strategize on how to maximize return on the next cycle? It's getting harder and harder to find good deals it seems. A lot of sellers are priced at that "perfect" asking price. For those who are hoarding their cash and waiting for that big move, any advice? We are thinking about cash out refin on all of our properties since most of them have very high % equity in them and along with holding off of any investment now so we can have a large sum of capital to buy when the market adjust itself. I know it's hard to speculate in the real estate game and i know when we buy high and have enough CAP EX we can get through the cycle. But the point is maximizing the return and it just so tempting to just hold off. What's everyone's thought on this?

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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
7y

I hope everyone takes your advice.  That way, while I'm still investing in bulk, I have no competition.

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  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    7y

    I hope everyone takes your advice.  That way, while I'm still investing in bulk, I have no competition.

    42Reply
  • Ryan SajderaBusiness Member
    Realtor · Manhattan, KS · Member since 2016 · 170 posts · 89 votes
    7y

    haha @Joe Villeneuve you are seriously my favorite person on this site. 

    [email protected]
    15Reply
  • Anthony Dooley
    Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
    7y

    @Jian G. The "crash" of 2008 was a once is a century event. If you are waiting on that to happen again, it may be a while. Hard to find good deals? You are looking in the wrong market and the wrong sellers. If someone is priced at market value, they are not the target market for an investor. I find more deals than I can buy today, so if there is another crash in my lifetime, I am ready.

    14Reply
  • Ryan SajderaBusiness Member
    Realtor · Manhattan, KS · Member since 2016 · 170 posts · 89 votes
    7y
    Originally posted by @Anthony Dooley:

    @Jian G. The "crash" of 2008 was a once is a century event. If you are waiting on that to happen again, it may be a while. Hard to find good deals? You are looking in the wrong market and the wrong sellers. If someone is priced at market value, they are not the target market for an investor. I find more deals than I can buy today, so if there is another crash in my lifetime, I am read

    This is spot on. 2008 was so unique because there weren't laws that are in place today to protect people. Banks learned a major lesson. IDK if you've borrowed money lately, but I pitched a deal to a bank with a 2.0 DCR and they STILL required 22.5% down!

    [email protected]
    8Reply
  • Matt Ayoub
    Member since 2019 · 65 posts · 48 votes
    7y

    I am currently on the sidelines but then again I live in Southern California where property hasn’t cash flowed in years and invest out of country vs OOS. If rates go up meaningfully or the stock markets plummet I think it’s likely we will see some buying opportunities. 

    But with the economy doing well and mortgage standards tightened we are unlikely to see a major drop. I am now seeking investments outside of real estate to balance my portfolio. Real estate is ultimately local, so if there are opportunities where the numbers pencil out and you have a longer term horizon I would not hesitate too much. But in most major metro markets I would not count on much short term capital appreciation at this stage.

    0Reply
  • Frank Geiger
    Rental Property Investor · NC · Member since 2018 · 776 posts · 776 votes
    7y

    Some of the appreciation markets may bounce around a little bit but like @Anthony Dooley stated 2008 isn't going to happen again. A new variable to the conversation is the amount of student loan debt the average person is carrying for most of their lives. Combine this with a mortgage and it's near impossible to get ahead. How does that effect the housing market? I am not sure. Probably has a bigger impact on government programs and the need to extend social security. 

    0Reply
  • Twana RasoulBusiness Member
    Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
    7y

    I personally can’t understand those that choose to wait on sideline. But I also haven’t been through cycles so I don’t know better. What if this dip you are looking for doesn’t happen for another 5 years? What if the dip is only 10% ish or so?

    Best of luck on whatever route you take!

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    7y

    People are making money in real estate every year throughout history. Even during that last crash, there were people buying properties and they made tons of money because of it. If you're nervous about the market, slow down and educate yourself, look for new avenues, and then jump back in.

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    10Reply
  • Jim D.
    Investor · United States · Member since 2015 · 415 posts · 487 votes
    7y

    Of course none of us know the timing of the next downturn or its severity, but run the numbers on this scenario:

    You buy a property today. It appreciates at 5%/year for two years, and then a downturn occurs which over two years drops prices 15% from their peak (this would be a fairly bad downturn by historical standards). So you end up down 5% on the price. But... you also paid off around 2% of your mortgage each year for 4 years, and collected some amount of cash flow from the property... so you actually came out ahead in this scenario compared to letting the cash wait in a bank account.

    The biggest challenge with waiting for a downturn is when prices are dropping, how will you know that it's time to buy? You might buy and then watch them fall farther, or you might wait too long and not end up buying right at the trough. It's easy to look back and imagine "what if I would have bought 10 houses right at that month" but in the thick of a nasty recession it's a lot harder to know when that moment is. 

    I am buying now and will be buying whenever the next downturn is.

    8Reply
  • Edward Liu
    Palo Alto, CA · Member since 2017 · 230 posts · 200 votes
    7y

    There are still deals to be found, just harder right now.  Key for me is don't compromise my investing standard - don't 'chase' a deal even if everyone else is going crazy in some markets.  As long as every one of my investment is based on good fundamentals and numbers, then even during downturns, I would not be worried.  Even if market falls by 15-20%, as long as my properties are still cash flowing, it is only paper loss.

    I am wrapping up 5 deals in the coming 2-3 weeks.  So definitely not hoarding cash.  However, I don't over stretch my cash, so there is still plenty in reserve if things went south.

    4Reply
  • Jian G.
    OP
    Rental Property Investor · San Diego, CA · Member since 2019 · 102 posts · 43 votes
    7y
    Originally posted by @Edward Liu:

    There are still deals to be found, just harder right now.  Key for me is don't compromise my investing standard - don't 'chase' a deal even if everyone else is going crazy in some markets.  As long as every one of my investment is based on good fundamentals and numbers, then even during downturns, I would not be worried.  Even if market falls by 15-20%, as long as my properties are still cash flowing, it is only paper loss.

    I am wrapping up 5 deals in the coming 2-3 weeks.  So definitely not hoarding cash.  However, I don't over stretch my cash, so there is still plenty in reserve if things went south.

    is your investment in Palo Alto? 

    0Reply
  • Edward Liu
    Palo Alto, CA · Member since 2017 · 230 posts · 200 votes
    7y

    Palo Alto, CA would not meet my/most people investment standard.  5 deals in 4 different cities.  I have investments in those cities already, just expanding portfolio.

    1Reply
  • Jian G.
    OP
    Rental Property Investor · San Diego, CA · Member since 2019 · 102 posts · 43 votes
    7y
    Originally posted by @Matt Ayoub:

    I am currently on the sidelines but then again I live in Southern California where property hasn’t cash flowed in years and invest out of country vs OOS. If rates go up meaningfully or the stock markets plummet I think it’s likely we will see some buying opportunities. 

    But with the economy doing well and mortgage standards tightened we are unlikely to see a major drop. I am now seeking investments outside of real estate to balance my portfolio. Real estate is ultimately local, so if there are opportunities where the numbers pencil out and you have a longer term horizon I would not hesitate too much. But in most major metro markets I would not count on much short term capital appreciation at this stage.

    I am in San Diego and I can still find a lot of deals that can cash flow. The problem is the ROI, getting $500-700 a month on $200k cash is just not meet our investment goal.

    0Reply
  • Jian G.
    OP
    Rental Property Investor · San Diego, CA · Member since 2019 · 102 posts · 43 votes
    7y
    Originally posted by @Edward Liu:

    Palo Alto, CA would not meet my/most people investment standard.  5 deals in 4 different cities.  I have investments in those cities already, just expanding portfolio.

     that's what I figured, median price home is like $3m there

    0Reply
  • Frank Wong
    Real Estate Broker · Bay Area · Member since 2018 · 1k+ posts · 3k+ votes
    7y

    History repeats but rarely so close together. The games are changed to confuse the uninformed and when people are not expecting it that is when it happens. Funny you have this post today, I just found a deal that I am going to acquire.  I have an idea what will happen but its just a guess.  Love seeing things play out because it helps me refine my approach and system.

    Ha! @Joe Villeneuve   seriously there is no competition when you are on top of your game.

    2Reply
  • Jian G.
    OP
    Rental Property Investor · San Diego, CA · Member since 2019 · 102 posts · 43 votes
    7y
    Originally posted by @Jim D.:

    Of course none of us know the timing of the next downturn or its severity, but run the numbers on this scenario:

    You buy a property today. It appreciates at 5%/year for two years, and then a downturn occurs which over two years drops prices 15% from their peak (this would be a fairly bad downturn by historical standards). So you end up down 5% on the price. But... you also paid off around 2% of your mortgage each year for 4 years, and collected some amount of cash flow from the property... so you actually came out ahead in this scenario compared to letting the cash wait in a bank account.

    The biggest challenge with waiting for a downturn is when prices are dropping, how will you know that it's time to buy? You might buy and then watch them fall farther, or you might wait too long and not end up buying right at the trough. It's easy to look back and imagine "what if I would have bought 10 houses right at that month" but in the thick of a nasty recession it's a lot harder to know when that moment is. 

    I am buying now and will be buying whenever the next downturn is.

    The market we had success with have increase value 300-500% in the last 8 years. We are still not comfortable investing in distant market we don't know. Maybe its time to educate myself more like some suggested. :)

    1Reply
  • Daren H.
    Real Estate Investor · Desoto, TX · Member since 2013 · 560 posts · 528 votes
    7y

    The one's waiting are the one's who can predict the future with certainty I guess.....and the one's selling lots of books so you too can get mega rich just like them.

    1Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    7y
    Originally posted by @Frank Wong:

    History repeats but rarely so close together. The games are changed to confuse the uninformed and when people are not expecting it that is when it happens. Funny you have this post today, I just found a deal that I am going to acquire.  I have an idea what will happen but its just a guess.  Love seeing things play out because it helps me refine my approach and system.

    Ha! @Joe Villeneuve   seriously there is no competition when you are on top of your game.

     Very true...but when the timid and unprepared back off (as in this discussion), it just makes it easier.

    0Reply
  • Eric Schultz
    Investor · San Diego, CA · Member since 2016 · 265 posts · 305 votes
    7y
    Jian Guan I recently closed on another investment deal, and now I’m back to accumulating cash. The difference is this cash is earning 10% annualized return in one of my “opportunity funds” and 7% in another.
    0Reply
  • Matt Groth
    Contractor · Grand Marais, MN · Member since 2016 · 249 posts · 417 votes
    7y

    The only thing scarier than buying at the top, is buying at the bottom. Everyone says they will load up when it drops.....they don't. That's why prices drop.

    2Reply
  • Jim K.
    Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    7y

    It's not the crash that kills you, it's the zombie apocalypse. So work on your cardio.

    11Reply
  • Cody L.
    Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
    7y
    Originally posted by @Jian G.:

    Anyone preparing for the next crash and strategize on how to maximize return on the next cycle? It's getting harder and harder to find good deals it seems. A lot of sellers are priced at that "perfect" asking price. For those who are hoarding their cash and waiting for that big move, any advice? We are thinking about cash out refin on all of our properties since most of them have very high % equity in them and along with holding off of any investment now so we can have a large sum of capital to buy when the market adjust itself. I know it's hard to speculate in the real estate game and i know when we buy high and have enough CAP EX we can get through the cycle. But the point is maximizing the return and it just so tempting to just hold off. What's everyone's thought on this?

     I just pulled the trigger on a large set of refinancing. And have put two of my properties under contract to sell (I’m not a seller but I always have a “okay for this you can have it). Once all that happens I’ll be sitting on a lot of dry powder. I don’t think I’ll wait for a “crash” but I hope a large sum of cash will allow me to keep getting good deal (just larger) by being opportunistic (ie going in all cash or aggressive terms to get a discount)

    I can borrow for about 2% less than what I’m paid on my money market funds so it’s not too expensive to stay liquid 

    4Reply
  • Cody L.
    Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
    7y
    Originally posted by @Matt Groth:

    The only thing scarier than buying at the top, is buying at the bottom. Everyone says they will load up when it drops.....they don't. That's why prices drop.

     Not only that but people have short memories. After 2008 things were cheap but you couldn’t get a loan. 

    So when that crash happens you better not just be holding cash but a LOT of cash. Let’s jusf say you’re holding $5m. That’s a lot. So a crash happens. You get a $7m property for $5m and have to be all cash. So that’s it. Your done.  Not exactly life changing. 

    I’d just assume this market. Super easy to buy (financing). Be picky. And know if the right deal comes at least you can buy it. 

    Things were cheaper for me the first 5 years after 2008 than the next 5. But those first 5 I bought 400 units. The next 5 I bought over 1000. 

    5Reply
  • Darien Jacobs
    Member since 2019 · 5 posts · 0 votes
    7y

    @Jian Guan

    I’m stockpiling cash, just because I like money. In all reality it doesn’t matter what the market does as long as you leverage strategically.

    So if your waiting your wasting your time. No time like the present.

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    7y

    The biggest advantage you gain in real estate is time. I know people say you make money buying low, but buying early is more important. 

    Waiting for a crash is a losing game, because a crash isn't something you can see in front of you. There is only prices going down and prices going up. The bottom is only visible once it has passed. A crash is only an event that happened in history. 

    Just like you don't know here the top is, you don't know where the bottom is. So people wait when the market is going up and wait when it is going down. 

    Hardly anyone actually buys at the bottom. That is why it is the bottom. People are too scared to invest when the economy is a disaster. 

    8Reply
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