Is the Economy Going to Collapse? What Should Real Estate Investors Do
So will it? And what should real estate investors do in the meantime? Go big? Twiddle your thumbs?
The economy, as you have probably noticed, is a mess right now:
- *The unemployment rate topped out at 14.7% is still at a very high level of 7.9%.
- *Many states have an eviction moratorium.
- *The government brought in $2.82 trillion in revenue while spending almost twice that much ($5.63 trillion) for a record-setting deficit.
- *Delinquency is up and several studies predict a major increase in evictions soon.
Yet the real estate is doing quite well. Real estate prices are up over 4% from the beginning of the year and, as anyone looking to buy a home has seen, inventory is extremely low; only 3.1 months of inventory (six months is balanced). Does that mean real estate will ride this recession out as it did in the 2001 recession or is a 2008-like financial crisis yet to come?
What Should Real Estate Investors Do?
I would never say there is a time to simply sit back and do nothing. That being said, I would also say that there are times when one needs to be very, very cautious.
This is one of those times.
This is probably not the best time for new investors to jump in. And even seasoned investors should be very careful. We are demanding better deals than before (we normally aim for 75% of ARV and are now looking for 70% ARV). We also are avoiding huge rehab projects.
I would not simply sit on the sidelines. But we are in a bad recession and housing is becoming more unaffordable. That doesn’t bode well. No one can predict with 100% certainty what will happen. But a correction is likely. So being careful and restricting your criteria is the way to go in my humble opinion.
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