What Investors Can Do to Help Prevent Another 2008-Style Housing Crisis

What Investors Can Do to Help Prevent Another 2008-Style Housing Crisis

3 min read
Sterling White

Sterling White is a multifamily investor, specializing in value-add apartments in Indianapolis and other Midwestern markets. With just under a decade of experience in the real estate industry, Sterling was involved with the management of over $10MM in capital, which is deployed across a $18.9MM real estate portfolio made up of multifamily apartments. Through the company he founded, Sonder Investment Group, he owns just under 400 units.

Experience
Sterling is a seasoned real estate investor, philanthropist, speaker, host, mentor, and former world record attemptee, who was born and raised in Indianapolis. He is the author of the renowned book From Zero to 400 Units and the host of a phenomenal podcast, which hit the No. 1 spot on The Real Estate Experience Podcast‘s list of best shows in the investing category.

Living and breathing real estate since 2009, Sterling currently owns multiple businesses related to real estate, including Sterling White Enterprises, Sonder Investment Group, and other investment partnerships. Throughout the span of a decade, he has contributed to helping others become successful in the real estate industry. In addition, he has been directly involved with both buying and selling over 100 single family homes.

Sterling’s primary specialities include sales, marketing, crowdfunding, buy and hold investing, investment properties, and many more.

He was featured on the BiggerPockets Podcast episode #308 and has been contributing content to BiggerPockets since 2014, with over 200 posts on topics ranging from single family investing and apartment investing to mindset and scaling a business online. He has been featured on multiple other podcasts, too.

When he isn’t immersed in the real world, Sterling likes reading motivational books, including Maverick Mindset by Doug Hall, As a Man Thinketh by James Allen, and Sell or Be Sold by Grant Cardone.

As a thrill-seeker with an evident fear of heights, he somehow managed to jump off of a 65-foot cliff into deep water without flinching. (Okay, maybe a little bit…) Sterling is also an avid kale-eating traveller, but nothing is more important to him than family. His unusual habit is bird-watching, which he discovered he truly enjoyed during an Ornithology class from his college days.

Education
Sterling attended the University of Indianapolis.

Follow
LinkedIn
Facebook
Instagram @sterlingwhiteofficial
YouTube
SterlingWhite.info

Read More

Join for free and get unlimited access, free digital downloads, and tools to analyze real estate.

Financing for investment properties can be risky, and it can end up costing you BIG if utilized incorrectly.

A whole new generation of real estate investors is being set up to fail — for the benefit of the big banks. Are you falling for the con? How do we beat them?

Battles often rage in the BiggerPockets Forums between those who detest the idea of any debt out of principle versus those who insist that you can’t get ahead financially without using credit and borrowing from big financial institutions — and who see failing to borrow as being small minded and foolish.

So is there some way to find balance in using leverage that will allow individuals to scale their finances quickly? What factors should real estate investors be savvy to now?

The Biggest Scam in History

Looking back at the financial crisis of 2008, many might consider it the most massive con in the history of our planet. Millions lost their homes — and still are losing them. Then the banks that loaned the money to pump up the market (and who simultaneously crashed it) began taking those homes for pennies on the dollar!

Related: New HUD Guideline Warns Landlords Against Denying Housing Due to Criminal Records

Then they began renting and selling them back at higher prices, with new loan fees.

real-estate-market

If you haven’t yet, you’ve got to watch:

This has proven to be a game so profitable that it may prove irresistible not to repeat it.

What to Watch Out For

What I’m watching out for now includes:

  • How affordable properties are for regular people
  • The amount of middlemen adding multiple layers of fees to investments
  • The return of no money down 
  • Home buyers falsely claiming properties to be investments to borrow more money
  • New investors taking out adjustable rate loans and lines of credit in the face of rising interest rates

I’ve seen the aftermath of mass over-leveraging, so I’m carefully watching the data so I am never caught short.

Do You Really Know How Much You’re Paying for That Property?

Conspiracy theories aside, borrowing money from mortgage lenders can be extremely costly. There can be benefits of buying more properties faster. However, investors must be clear on how much of their profits are being lost to the bank when borrowing.

Check out Bankrate’s closing cost calculator to see how much average closing costs are in each state. This is at least a couple thousand dollars straight out of the profit. Then there are normally extra taxes on money borrowed, as well as additional mandatory insurances, which can run into the thousands of dollars range.

Then look at the interest:

On a $250,000 loan, with a 6% interest rate over 30 years, borrowers will pay $289,595.47 in interest alone. That’s enough to buy a second property cash!

market-index

How to Win

Over-leveraging is risky. No question about it. That is true for individuals and countries alike. It’s also true that without any leverage, the average individual and family is going to have an incredibly tough time trying to get ahead and experience growth without taking on too much risk. And clearly borrowing big digs deep into any gains you make. So what’s the solution?

Related: The Real Estate Market: How to Analyze and Predict Cycles

I’ve personally chosen to take a page out of The Intelligent Investor and Warren Buffett’s playbook. That means winning the long game by investing consistently in good properties, in good markets, at fair prices, which are throwing off positive cash flow.

I’ve also watched closely how Buffett has used leverage. This is increasingly through capital partners and by investing alongside others who share his values. He has done this in real estate and for his largest and most profitable deals. In other words, individual investors can get together with those who share their values and investment philosophy to control well diversified portfolios of income-producing properties. That provides strength, reduces risk, and minimizes expenses in order to maximize the bottom line.

Summary

Big banks have one mission. That is to make as much money as possible, at any cost. All too often the small investor is the victim of that. Right now, they appear to be repeating many of the same old moves. Leverage is needed. Even borrowing can sometimes be necessary and beneficial. However, I am afraid that many aren’t doing the math on what they are losing and may be putting themselves at risk.

Investors: How do you ensure you’re using leverage in a safe way to grow your portfolio?

Let me know what you think with a comment!