Hi there, I'm a longtime lurker and investor who has gotten tremendous value from this website, the podcast, and the books. After bailing out of buying two duplexes last week and speaking to several RE veterans, I came here tonight wondering what Brandon and David have to say about what might happen to the real estate market when nearly every factory, brick and mortar storefront, office, and business in this country shuts its doors. I was pretty surprised to discover that it was -- nothing!
Am I missing something?? I can imagine that the podcasts are recorded in advance, but I wonder why our fearless leaders haven't yet addressed the single most important -- by leaps and bounds -- situation that we're all facing right now. I'm incredibly grateful for all their insight and experience over the years, and am curious (and in need of guidance) about WTF to do with the insanity unfolding around us.
Maybe they don't think what's happening is a big deal. Maybe you don't either. Maybe you're sitting on a mountain of cash and you know you can cover every expense until 2026. If so, good for you. But the whole emphasis of this website (rightfully, in my opinion) is **leverage. Which means some of us who made proper cash-flowing deals will be twisting in the wind if our tenants can't actually pay their rent just 'cause the company they work for is gone and no one else is hiring.
Anyway, I'm of the opinion that this is in fact a big deal. I really, really, really hope I'm wrong. But this is what I wrote in response to a question about the impact of the coronavirus in real estate:
"A lot of these answers sound unrealistic. The economy is going to come to a near standstill, with people hiding in their homes. Most businesses have no more than 30 days of cash saved, and most individuals have less than that. Businesses won't be able to pay workers. Workers won't be able to pay rents. What are you going to do, throw your renters out that can't pay? Do you really think there are lots of other well-paid workers out there waiting to rent your place? This crisis hasn't even arrived, economically speaking. I don't mean to sound cruel, but millions of people are going to die, creating significant inventory. Millions of others are going to move in with their friends and family. This is going to be a bigger crash than 2008. Businesses are going to crater. Bankruptcies are going to skyrocket. Banks are going to have to decide whether to foreclose on the majority of their holdings for nonpayment. All us landlords are going to have to decide at what point do we evict non-paying tenants. All that cash we've been saving up for the correction is going to get eaten up by months of net losses. I know this website is all about encouraging each other, but it's time to put down the pom poms and get hardcore realistic. Batten down the hatches –– it's about to hit the fan!"
This disease is going to take months and months to work its way through the population. It's going to be a year or more before there is any kind of vaccine. People are going to be scared -- for their elderly relatives and friends if not for themselves. Airlines are going to be grounded for months. Airbnb/hotel/restaurant/bar/coffee shop activity is going to evaporate. No more massages, chiropractic appointments, movie theaters or malls. Maybe Amazon shipping warehouses won't shutter. Maybe UPS will keep running. Will you be able to get a plumber to come out? How will utilities keep water and power up when people can't work together in offices?
I dunno. But the logical conclusion of this is a massive, months-long, world-wide economic crash. I thought real estate was bullet-proof, that the games that made it vulnerable in 2008 had been cleaned up. But a pandemic which kills millions and shuts off the majority of economic activity is the kind of black swan event that no one predicted and no one can respond to with 100% accuracy.
I think, though, that it's time we started trying.
