Is BP too risky for 2018?

[Zachary Sexton]

Since getting a W2 job two months ago, I've focused my spare time (and mental energy) on managing and investing my fixed income. 

The two biggest sources of information/inspiration have been Bigger Pockets (BP) and a financial blog called Mr Money Mustache (MMM). On whole, BP is more about growth and opportunity. MMM has a more conservative live below your means approach. Both appeal to me. This morning I read a MMM forum post that I think gives a fair critique to BP: 

https://forum.mrmoneymustache.com/real-estate-and-...

Personally, I love the podcast and feel like the hosts do a great job selecting and interviewing guests. I also know it's not going to be easy to find deals in the current market. I want to take action. But I'm also okay spending the next year or two learning, networking and saving for the next market correction.

Does anyone else resonate with the 'slow your role BP' MMM folks?

[Russell Brazil]

Originally posted by @Zachary Sexton:

 But I'm also okay spending the next year or two learning, networking and saving for the next market correction.

See this is the bad assumption that everyone makes on Bigger Pockets...that some market correction is coming.  Since World War II, home prices have only declined in 2 instances. Once during the early 90's recession, and the drop was a few thousand dollars on the median, and the housing collapse from a decade ago.  Because of what was an abnormal market from 2004-2010, with an incredibly high rise and fall, people now think that that is what is to be expected from the market. It is not. 

Now do certain sub markets of the national market go down more often. Absolutely.  I believe Phoenix is known as a very much cyclical market. The luxury market of San Francisco is also known as a boom and bust cyclical market.  So yes, always rely on prevailing local market conditions....but expecting some huge correction, they simply do not happen very often.

And looking at simply the price of a property is a mistake. Borrowing costs are as important if not more important.  Would you rather buy a $200k house are 4%, or a $185k house at 6.5%? 

And perhaps the most overlooked aspect of real estate investing is that time is the greatest ally of the real estate investor.  I dont know about you, but Im not going to live forever.  I probably have 30 more years left on this earth.  I dont have time to wait for a downturn that very well may never come.  The people who got burned 10 years ago got burned because they sold in a down market (or got foreclosed on).  You know what the solution to that problem is....dont sell in a down market.  There were people who bought at the height of the market who are doing just fine, it's just their stories are not as sexy. Their value went down, then it went back up to par, and now they have had 10 years of debt reduction on that loan to build 10 years of equity. 

Buy when prices are high....just buy a lot more when prices are low.  Our investing horizon is simply too short to only buy in  bear markets and sell in bull markets.