The Crash Will Be WORSE Than 1929 | Robert Kiyosaki's Warning

“Our economy is in a precarious position today.”

Let’s talk about Robert Kiyosaki and his comments about the stock market going into a depression. He said that our economy is in a precarious position today. Equities dropping and we're losing 80% of the value of our investment. Somewhat ludicrous but, has some rationale on why he thinks that the market is going to crash. There could possibly be some sensationalism that's going on with that - that it's not a good time to be in the market.

I don't invest in the stock market. But I'm bullish on real estate. I think a correction is part of what we're going through. Looking at the great depression and where things were at with history.

Great Depression: Wall Street Crash of 1929

It all kicked off with the stock market crash in 1929. It wasn't the single sole responsibility of causing the crash. But it did help to accelerate the overall global economic collapse, which was also caused by a lot of other factors of what is going on in individual economies around the world. We weren't as connected as we are today, as we were back then.

Unfortunately, by 1933, nearly half of the American banks had failed. Unemployment was approaching 15 million people or 30% of the workforce. Can you imagine it? 30% unemployment!

We were teetering at those numbers with the pandemic. The government stepped in and printed a lot of money. They gave free money out to people who weren't working. Which most thought could be the cause of the massive inflation that we're seeing. We just deployed that much capital into the economy. At the same time, vendors and companies are not being able to increase supply in order to meet all the demands of people.

We know the #1 output, if that affects our GDP, 70% of it is consumer spending. So if people have all this free money to spend, and there's not enough inventory or supply. Then, when we see inflation, prices go up across the board. From houses to cars, and everything in between. That's where we are right now, looking at the real estate market.

As Real Estate Investors

‘Will the market crash?” - I don't think we know for sure.

“Is it going to continue to go up?” - Probably not in the near term.

But 10 years from now, “Will real estate be more expensive than it is today?” - I'm pretty bullish on the answer, that would be a definite yes.

As real estate investors, we have to take all this information in. Account for the risk of what we're doing in order to make sure that we're successful.

I've been investing in real estate now for a little bit over 15 years. I'm still on active duty in the Air Force, and have a really diverse portfolio across multiple states across the southeast, in different asset classes - single-family homes, some duplexes, and apartment buildings. Working on some larger units that we have under contract. I'm also part of multiple mastermind groups, where to access a diverse train of thought from other people. To see other businesses, successful real estate investors, and how they're navigating the space in the individual markets to compare notes.

Market Quadrants Cycle

The biggest thing is understanding that real estate consists of multiple cycles. It is cyclical. When it comes down to the real estate market there are actually four different market cycles. The first phase is “recovery”, and the second phase is “expansion”. Then, we move into phase three, which is “hyper supply”, and then the dreaded phase is phase four “recession”.

Seller’s Market

2009 - 2013

The most recent recovery phase that we were in was from 2009 to 2013 timeframe. It is when we recently came out of the last big recession. During the financial recession, we saw a lot large drop in home values, lending, and credit dried up. Most weren't able to get loans and credit to buy properties. There was an extended period where inventory was extremely high because there weren't a lot of buyers in the market.

The Sweet Spot

Over time, we move up, as the trend line goes up to the expansion phase. We approach that position of equilibrium where have as many buyers in the market as sellers. Six months is usually the window that a lot of experts say is the sweet spot. It is the equilibrium in the real estate market with a good balance of supply and demand. In this phase transitioning to expansion is where we come out of the bottom of the recession.

2012 - 2018

From the 2012 to 2018 timeframe, there was a balance between supply and demand. There were new constructions that were coming online with a lot of people buying in the market.

In 2017, we started seeing that there were more and more millennials started buying. They were at that age by starting families and at the peak of their careers. Then, we started running up into a supply issue. We were coming out of the last recession, and going into that recovery phase. However, the construction didn't catch up resulting in a low inventory level across the United States.

2015 - 2020

On a national level, there wasn't a lot of construction going on from 2009 to 2015. Until we start seeing a lot of new building permits and new constructions, then we could say that from expansion we hit the next phase which is hyper supply. We know there was a drastic deal with the pandemic. Then it bounced back towards the third to the fourth quarter of 2020.

We had a low supply and there was a lot of inventory across the board. The interest rates were low. There were a lot of people who would have had credit and could qualify for loans. They had money because of the stimulus that was going on. Some were trying to buy a home. Some were relocating out of major cities and moving down south. They know the areas where they can have more space. Thus we ran up into the hyper-supply, the third phase, we have more demand.

Buyer’s Market

Construction companies started building more leading to more inventory. They see the opportunity to make a lot more profit going forward. We started seeing the pendulum swinging now that we have inflation going on, at an extremely high rate. Now we're talking about a recession.

Looking back to 2008

We know that in real estate when we have a recession, there are more complications that are going on. There are more people going into default because they're losing jobs. The inventory is spiking because fewer people are able to afford mortgages. At the same time rates are going high. It exacerbates the problem when fewer people are able to qualify. However, looking back over 2008 when we went through the last recession, where rates were stagnant. There were more and more people who can't afford a house. They have to stay somewhere and usually, choose to rent over buy. So that does well for investors that are able to buy assets and predict cash flow, and not just necessarily buying for long-term appreciation.

2021-2023

Looking at where we're at now and where Robert was getting at, it is that we're heading into a recession. We’re going into this phase, but it's the end. Some people may have some losses. However, now everything is going on sale. So, if you're able to buy things on sale, then you can make a lot of money. The biggest takeaway from all this is what Robert Kiyosaki was talking about. As we are going into a potential depression, there is going to be some changes in asset. These asset bubbles with the stock market and real estate in certain areas like Austin, Boise, Idaho, Salt Lake City, and San Francisco, are some of the areas that expanded outside of the reach of those working in the local economy. It drastically outpaced earnings and we are likely to see a correction. We’ve seen house prices have gone up 40%, in the last two years. Is there really a crash, if they lose 20-25% of value? I don't think so.

That's my perspective. I have my Buy Box and my rationale for the areas that I'm focusing on. That is to hedge my bets against our risk and be able to manage our portfolio successfully into the future. There is definitely a time to be cautious about going through.

Market Psychology

When we look at fear however it is good to know what's going on in the market in order to be able to navigate successfully. Market psychology is going to be one of the biggest things. If everybody's believing that there's going to be a recession and he stopped spending money, then there's going to be a recession. A recession happens if we are forcing the economy to slow down. If it's overheating and is getting too hot, now we have to push interest rates up and slow down everything in order for things to normalize across the board in the economy.

It's going to be almost a self-fulfilling prophecy when it comes to the recession. Everybody's thinking is doom and gloom, triggered to start spending money, and contracts. Then the economy will slow down and inflation will get under control.

We’re going in cycles!

After all that happens, we'll start going back to the expansion phase again and going back through the real estate cycle. One of the great things that Robert Kiyosaki says is everyone can tell you the risks, but an entrepreneur can see the reward. As a real estate investor and entrepreneur, that definitely resonates as I can see the reward. I know how to navigate this space by following the knowledge of the people with gray hair. They, who have been around for decades and decades and have been through multiple cycles, give us the blueprint for how we can navigate.

Do you think are we headed to a depression or expanded recession?

Do you think the vague and have a little soft landing where we may see one or two quarters of depression or recession?

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