My REI 2020 Prediction

Here’s a question I get a lot these days and that is what is my prediction for real estate as we head into 2020? If you’ve been following my content for any length of time, it’s pretty clear where we’re at right now. I think we’re at the top of the market in most markets. There’s a pretty good chance that the high price markets are going to be in for a downfall and I feel pretty confident about that. But the question I keep getting is what do you think about 2020 and should I be waiting on the sidelines to buy and all of these various things. So I thought I would just do a quick article and share with you how I think about a changing market and the things that I look for.

What is first and foremost going to happen to owner-occupant buyers? The reason I start there is owner-occupant buyers really dominate the market from a transaction perspective and if they’re excited then we’re entering a seller's market where anything will sell but if they’re afraid then they disappear and they disappear in droves. When that happens, you really can make some significant headway as an investor. So the first thing to watch for is owner-occupant buyers. I do believe we’re in for a bump in the economic cycle, I just can’t see how this 10 or 11-year boom can keep going much longer. So when that turns, I do think owner-occupants are going to get nervous. I think they’re going to be reading about layoffs and all of these things and I don’t think interest rates being lower is going to help. I think it will help to refinance.

Next, is what about investors? There is some talk or there might be some thinking that “hey, great, the owner-occupants disappear can’t investors just come in and soak up the demand and everything keeps going?”

I think a couple of things are going to happen to investors. First, there’s a lot of investors who have been in the market for less than five years that have only known the best of times. Some of them today are overpaying and they are too levered and they are going to start losing right there. They’re going to start taking losses. They’re going to start not being able to pay back hard money lenders and it is going to be painful for some of them. Some of them will be washed out of the business. This happens at every turn. People get a little overconfident and they just try to squeak out one or two more deals. They add inventory at the wrong time and it just blows up. So I believe some investors, some of the people on Youtube and Facebook that look like they’ve got it solved or they got it made, they won’t be around in 18 months in my opinion. They’re going to have to look up, lick their wounds and start over. I think they’ll be better for it because going through a down cycle and surviving is hard to do and we have done that because we’re so conservative. So I think there are some people that today are successful, that won’t be thought of as successful in another year.

The other thing that happens to investors is, I don’t know what percentage of them, but let’s just say half of the people today that tell me they’re going to buy when the market turns, just simply won’t and I saw that last time and they won’t for lots of probably valid reasons. Some of them will lose their jobs and what they had is a nest egg set aside to buy an investment they’ll need or to feel comfortable.

Others will be so frightened by the daily headlines that they just decide not to invest because it’s like catching a falling knife and all of those things that you will hear. There will be a lot fewer investors and there’s a lot less owner-occupant buyers. And again, I say this with some history and experience.

Then what about lending? I think lending will both get easier and harder. This is what I mean. Today, a lot of the buyers out there are getting 90% or 100% financing on their fix and flips and their wholesale deals. I believe hard money is probably easiest to get today, but once they start suffering losses next year they are going to be a lot less. I’m interested in feeding that and they’re going to start requiring real down payments and they’re going to require equity to get some of their cash.

Getting hard money is going to be a lot more challenging. You’re going to need a track record but I do think banks are going to start being very aggressive and doing more things, especially as interest rates fall, they’re going to want to buy the business. So guys like myself perhaps who has a lot of units, who has really been turned off to bank lending because they don’t want to lend to people that have a fair amount of units, maybe they come back to us. They’ll lock in 30-year money at 2.8 or 3.1 or whatever it is. So I do see some upside for lending, but lending is something you’re going to have to watch because if lending dries up, then this thing gets really bad. I don’t believe that’s going to happen. I think lending will be fine at least on assets with down payments.

In the end, I think high price markets, especially if we see unemployment go from four to six or four to eight are in trouble and the bay area being one of them for sure.

I think 2020 is going to be a great time to really be an investor because you’re going to have less competition and money will be available for quality deals. I look forward to 2020 and what I would be doing now if I was just starting out is I would be researching my market.

You need to figure out what the average deal produces in your market so that you can find good and great deals. Saying that you’re going to buy when something is on sale, but you can’t tell me when it’s on sale, doesn’t make sense. So if you don’t know how to do that, you can continue to look at Youtube University. I would ask you to look in the description below cause I do have an online course that is solely focused on helping people understand what a bad, average, good and great deals are in your local market. I teach this because I think it’s a skill. It’s not something you’re born with. I think it’s a skill and you can learn how to do it. I also wrote a book, “One Rental At A Time” that you can get on Amazon that tells our entire story, 15-year journey through, up, down and back again and everything we do in that book, I still use the same spreadsheet to compare deals today. Thanks for reading and have yourself a wonderful journey to financial freedom!

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