Real Estate Investing Basics

Comparative Recessions And The Real Estate Investor

Expertise: Personal Development, Personal Finance, Mortgages & Creative Financing, Real Estate News & Commentary, Business Management, Real Estate Investing Basics, Flipping Houses
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When I was first licensed, back when I knew everything about everything, 1969, it was a recession. Thing is, I was blissfully unaware. At 18, all I knew was that carrying 15 units in college while workin’ real estate part time was the perfect recipe for not havin’ a life. Fast forward to 1974ish and we’re in another recession. Then there was ’81, ’91ish, ’00, and now. ‘Course now, there are those who tell us we’re not in recession, that recovery has been under way for some time. I’ll leave that for you to decide. Frankly, with double digit unemployment and real estate down for five years now, somehow the concept of recovery seems something to be hoped for, not current reality.

But I digress.

Though admittedly our current quagmire could turn into something worse, so far, it’s a picnic compared to both the early 80’s and 90’s recessions. In fact, it’s not even a close call.

The 80’s Recession

How ’bout 14% inflation — 20+% prime rate. FHA? Try 16.5%. No, really. All that AND unemployment in double digit territory. For regular folk, just who do ya think was investing in real estate in that atmosphere? Don’t answer, it was a rhetorical question. 🙂

There wasn’t nearly the level of bank owned properties available. Short sales? If you’d asked me about them back then you’d of received my best RCA Dog impression as a response. This went on through 1983.

How bad was it?

I recall with bittersweet memories, a transaction that closed in December of ’83, a sale of a seven unit apartment building. My client thought I walked on water cuz the interest rate, one of the first generation adjustables, began under 12%! He thought he’d been given the key to the mint for Heaven’s sake. When rates finally fell to the mid-8’s we were convinced, once and for all that there was indeed a God, and that He loved us.

Compare that to today.

How ’bout the early 90’s recession?

It was, in many ways, even worse than the 80’s version. How so? Prices fell significantly, while rents did the same. Meanwhile, vacancies took the express elevator up. It was classic blood in the streets. One minute you owned a fourplex at $550/mo. rent per unit — the next you had three rented at $475/mo. with a vacancy that took three months and some free rent to fill.

If all that wasn’t enough fun, this time around we were dealing with 17 wrenches thrown into the real estate lending system at once. We called it the ‘S & L Crisis’. Crisis? It’s the only time in my 41 year career in which I literally to just short of two years off. Closed my office doors, and goofed around for a couple years — literally. Never did that before or since. Hope I never see times like that again.

But what about our current mess?

Look, it’s terrible for lots a people, I get it. But if you’re a real estate investor, you spend much of your time tryin’ not to grin in public. In the last two weeks I’ve locked many clients into 5% fixed, 30 year investment loans. That’s roughly 12-14% less than could’ve been had in the early 80’s. It’s barely over half the rate available in the early 90’s — that is, IF lenders had been, you know, lending.

I repeat — our current atmosphere could worsen. In fact it has in the last few months. Unemployment is up to double digits again. Real estate values trending down again — or is it still? Oil stubbornly insists on hovering around $90-110 a barrel.

Yet in spite of all that bad news, real estate investors are acquiring income property like pancakes at a Boy Scout breakfast. Lenders who know what they’re doin’ are hiring new assistants just to keep their heads above water, they’re so busy. Problem is, when it comes to investment property, most lenders don’t have a clue. But then that’s another story altogether. 🙂

More superbly located income property, with 1958 price/rent ratios are  being acquired during this ‘down time’ than in any period of it’s kind in my 41+ years.

It’s been the economic downturn with the most opportunities for the Mom ‘n Pop investors I’ve ever experienced. When it’s finally over, and we’re all tellin’ our stories, there’s gonna be two kinds of people in the room:

Those who believed their lyin’ eyes and jumped in, and those who’ll be tellin’ their grandkids the best ‘Woulda, Coulda, Shoulda’ stories of all time.

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As I now consciously channel Captain Obvious, I implore you to be the former, not the latter. This ain’t gonna last forever. Be prudent and have a plan, but jump in.

Shoulda, Woulda, Coulda stories are entertaining, but they’re never fun for the storyteller. ‘Nuff said.

Licensed since 1969, broker/owner since 1977. Extensively trained and experienced in tax deferred exchanges, and long term retirement planning.
    Nate Santillanes
    Replied almost 9 years ago
    I both laugh out loud and cringe at the thought of some of your points in this post, great stuff as usual Jeff!
    Mike Z
    Replied almost 9 years ago
    Couldn’t have said it better myself!!! No Could of, Would of, Should of for my family. We jumped in with both feet and having fun
    Jeff Brown
    Replied almost 9 years ago
    Nate — Mike, Though the numbers and facts speak for themselves, it never ceases to amaze me how the general public perception sometimes veers into false memories.
    Kyle Hipp
    Replied almost 9 years ago
    At 25, I only know the market in rral life detail for the past 5 years. Although I can read stats and see individual parts of past recessions it is truly insightful to see your point of view having lived through it. I have great confidence going forward and hopefully after a long career I will too be able to paint a personal picture of years past. Thanks for your perspective, great article.
    Jeff Brown
    Replied almost 9 years ago
    Much appreciated, Kyle.
    Replied almost 9 years ago
    Jeff, You don’t look old enough to be 18 in 69 but I have to believe you. Great article. The perspective is enlighting and encouraging. I am actively looking for an investment and you words inspire me more. Thank you. Steve
    Jeff Brown
    Replied almost 9 years ago
    Hey Steve — You’re now my favorite commenter. 🙂 Born in 1951. Thanks for the kind words.
    Replied almost 9 years ago
    Great read as always. I luckily was to young to feel the 16% inflation and unemployment in the double digit territory. This is one of those things that makes you feel like you don’t know how well you have it until you see that it could be worse. Interest rates on mortgages are fortunately lower than I’ve seen them since I started working in real estate investing but in Michigan there is still plenty of uncertainty on how things may turn around.
    Jeff Brown
    Replied almost 9 years ago
    Hey Sebastian — This downturn will act as the ’74 recession did for me, which was a wakeup call. You hit the nail on the head when you mentioned the uncertainty in Michigan. What you’ve experienced there could credibly be described as more depression than recession in many respects.
    Replied almost 9 years ago
    Looks like there is always opportunity to be had, even during the bad times and the recession. The challenge is to be prepared (financially) so that you can strike while the iron is still hot. Another important factor is knowledge; it won’t do you any good if you’re in the right place at the right time if you don’t know how to invest, what to invest in or which properties to acquire.
    terry tynan
    Replied over 7 years ago
    I agree with you, Jeff, but my question is “when?” I think that astute investors never try to buy at the very bottom of the market–rather, they jump in when they feel a recovery is really underway and they are content to pay a little higher price for the assurance that the upturn is a real one.