Real Estate News & Commentary

Should You Wait for the Next Market Crash to Invest in Real Estate?

Expertise: Landlording & Rental Properties, Personal Development, Real Estate News & Commentary, Real Estate Investing Basics, Business Management, Flipping Houses, Mortgages & Creative Financing, Real Estate Deal Analysis & Advice, Real Estate Wholesaling, Personal Finance, Real Estate Marketing, AskBP
532 Articles Written
Brandon Turner

Wow! It’s hot right now! And I’m not talking about this Hawaiian weather.

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I’m talking about the real estate market. It’s crazy competitive, hard to find good deals, and sellers receive multiple offers on a lot of properties. 

All this has many people thinking, “You know what? I think I’ll just wait for the market to drop again, since it goes up and down in cycles, and I’ll jump in next time.”

But this might actually not be a good idea. Here I’ll explain why waiting to invest in real estate now might limit your ability later.

Related: 3 Tips for Recession-Proofing Your Real Estate Investments

Waiting for the Next Market Crash Before Investing?

So, should you wait to invest in real estate until the market crashes again? Probably not.

While I understand and respect the sentiment—wanting to wait for the market to get easier—let me offer a few pieces of advice on why I think that’s a bad idea.

When the market does correct itself again (and it will, real estate is cyclical), you need to be prepared and ready to buy. But if you sit back right now, refusing to partake, you won’t have the confidence, clout, or collateral to invest.

What’s more, there are deals to be found in today’s real estate market. You just have to work harder to get ’em! It requires that you become an expert at finding deals, analyzing deals, and putting together financing.

Is it hard? Yes, often it is!

But have you ever noticed the baseball player taking a few practice swings before stepping up to the plate at a baseball game? Instead of swinging one single bat, he grabs three or four bats, bunches them all together, and swings all of them together. Why? Because his muscles get quickly accustomed to the weight of three bats. When he drops the extras and approaches the plate moments later, the single bat in his hand feels light as a feather, giving him the ability—and confidence—to knock the ball into the left field bleachers!

In the same way, becoming an experienced real estate investor now by developing the skills necessary in today’s market will help you knock it out of the park when the market does decline. Your skills will be sharp, your reputation will be solid, and your finances will be in order. You’ll be ready to dominate.

So, use this time to sharpen your skill. Don’t go jump into a bad deal, but learn how the pros are buying real estate deals in this market. You’ll thank me when the market drops again.

What do you think of this strategy? Do you buy it? Are you partaking in real estate now? Or waiting on the market?

Let’s talk in the comment section!

 

Brandon Turner is an active real estate investor, entrepreneur, writer, and co-host of the BiggerPockets Podcast. He began buying rental properties and flipping houses at age 21, discovering he didn’t need to work 40 years at a corporate job to have “the good life.” Today, with nearly 100 rental units and dozens of rehabs under his belt, he continues to invest in real estate while also showing others the power, and impact, of financial freedom. His writings have been featured on Forbes.com, Entrepreneur.com, FoxNews.com, Money Magazine, and numerous other publications across the web and in print media. He is the author of The Book on Investing in Real Estate with No (and Low) Money Down, The Book on Rental Property Investing, and co-author of The Book on Managing Rental Properties, which he wrote alongside his wife, Heather, and How to Invest in Real Estate, which he wrote alongside Joshua Dorkin. A life-long adventurer, Brandon (along with Heather and daughter Rosie) splits his time between his home in Washington State and various destinations around the globe.

    Christopher Smith investor from brentwood, california
    Replied 6 months ago
    I invested in real estate heavily during the last downturn 2010 to 2013 (all of which I still own), but I am sitting out for the commitment of additional money. I’m not a market timer mind you, but the relationship of current market values to current intrinsic values is almost universally very unfavorable (at least for the time being). This means that if you want to buy now you have to do a massive amount of work to get anything at what amounts to a barely viable price (which then is likely still much much higher than the property’s true intrinsic value). I guess you can hope that time “might” bail you out and make the acquisitive of an overpriced property marginally profitable, but if you buy with substantial leverage as many do even that can be an exceedingly risky proposition. If the next real estate downturn does not come soon, then so be it, even really great properties bought at astronomically high prices are typically a pretty bad investment. As Warren Buffet says identify what you want (something with a durable competitive advantage), and then have the patience to let the market bring it to you at a favorable price. In other words, make the market work for you, and not you for it.
    Ben Sawyer
    Replied 6 months ago
    “Better deals are around the corner”… But are they? How do you know? I’ve been hearing that for two plus years now. Those waiting missed two years of up-cycle that created cushion for the supposed correction. And how bad will that correction be in your invested market? How can you know? How will you know when right time to buy is, even in/after that supposed correction? Are you at the bottom/middle/top of the down curve? And will your local market follow the national trend? You’ve got to be either very tied into all of the impacting metrics and have them right for your market, or very lucky, to get that timing just right. I know I’m not that smart, or lucky. But what I can do is find buys that bring cash flow and principle pay down today, and hope the appreciation comes with it. It will eventually, historically. If it takes ten years to get that appreciation because of a correction, I’ll still have the cash flow and tax/principle benefits. And if you have a short time window, real estate probably isn’t the right spot for your investment. That’s how I see it and why I’m still looking for deals today.
    Andre Chambers rental_property_investor from Saint Louis, MO
    Replied 6 months ago
    Well said Ben. I think most experienced folks see it as an question of capital allocation. Do you want to be more aggressive now or wait until you can potentially get better value later. Personal preference on ones own interpretation of market signals. But the important thing, I think, is to stay active currently at some level at least vs fully sitting out.
    Vaughn K. from Seattle, WA
    Replied 6 months ago
    Well, you hit the nail on the head with the CASHFLOW bit there. The bottom line is if a deal is putting money in your pocket, and you have stable long term financing… It almost doesn’t matter what the market does. It’s nice to always buy at the bottom, and sell at the top, etc but that stuff cannot be timed perfectly. The people who need to really be worried about the timing are the ones running negative cash flow, depending on appreciation, and/or those doing flips who could get killed by a sharp market drop. If you have long term financing and cash flow, it doesn’t matter. That said, the problem is for a lot of people, markets that used to cash flow no longer are… But when the correction comes they will be. Which is a way of saying those entire markets are no longer investment worthy. This means those people should invest outside said markets, but that brings problems too. The funny thing about this all is that in a way nobody should basically ever invest in trendy coastal markets, because they’re just bad markets by a lot of the rules of investing… But because the allure is there people do, and they make money during the up cycle too. But they all get murdered when the down cycle comes. Best of luck to them, but I’m not doing that kinda thing myself, ESPECIALLY not with where things are at now.
    Katie Rogers from Santa Barbara, California
    Replied 6 months ago
    “Better deals are around the corner.” Sure, that’s what they said in 2004. Most deals between 2004 and 2008 were terrible. In my market, sellers are losing money right now because the ARV today is pretty similar to what it was in 2006, when they paid way too much for the property they are trying to sell now.
    Mark Alpert investor from Prescott, Arizona
    Replied 6 months ago
    I agree with what Christopher Smith said. Yes, if you don’t have experience, you might want to gain some, but the reality is we are at or near the top. There is something to be said for preserving your capital for when it can be deployed to better advantage. If you are using other people’s money, it may be less of a concern, but do you really want to put people other people in marginal deals when much better ones may be around the corner?
    Tuan Tran from San Jose, California
    Replied 6 months ago
    I agree with the sentiment as I’ve made a rule to at least purchase a property per year to “continue the business” regardless of the market. The idea is to refine the business in any market conditions and still be profitable, not just most profitable. However, I was still hoping for some analytics… =)
    Nate Richards investor from Tallmadge, Ohio
    Replied 6 months ago
    Agreed! We have to keep doing deals. Have we forgotten how tight lenders were between 08-12? If we don’t have existing relationships, (reps) with lenders and agents before the correction, why would we make it into their “short list” of qualified buyers during the bad times? Anything bought now just has to be well vetted. Consider it “dollar cost averaging” compared to during a correction when the deals have more meat.
    Dev Horn flipper_rehabber from Arlington, TX
    Replied 6 months ago
    I’m going to take the counterpoint position that this may be the absolute worst time for a new investor to try to come into this hot housing market and compete for deals. Many less-experienced investors lost their shirts in 2008-2010 because of this exact issue – buying at the TOP, paying too much amidst high competition. Waiting until the market cools off might be the best possible advice. If you want to learn about real estate, get your license or work in related areas (renovation, etc.). But, to invest your life savings (or your family’s) into real estate deals right now? Be very careful and very selective about any deals you do, especially if you’re new to real estate. And as far as just wholesaling (vs. investing), it’s super hard in a hot market to find deals with enough room to add your profit and still give the cash buyer a deal. In a hot market, wholesalers work their a**es off and often have little to show for all their effort. Wholesaling works a lot better when sellers aren’t getting top dollar and multiple offers.
    James Mattern rental_property_investor from Allentown, PA
    Replied 6 months ago
    I think Brandon is great but I’m going to have to respectfully disagree. Back before the last crash, I was looking at properties but wasn’t able to find anything that would offer a decent cash flow. I had about $100k in available cash and credit back then and thought to myself “great, I can buy approximately $400k of real estate (i.e. 20% down payment and some money for repairs). If I did buy back then, I would have been working very hard, squeaking out a little cash flow, and MAYBE own $400k in real estate today after the crash and subsequent recovery and that would have been the end of my story until I saved more or raised equity capital. Instead, the crash happened and all of a sudden my model made A LOT more sense. I was able to buy undervalued properties that needed work and was able to BRRRR $100k into 28 properties worth $3M with $1.7M in equity. I think there are many ways investors can buy rental property but the problem I have had with other ways outside of BRRRR is that you eventually run out of equity (i. e. $100k to buy $400k of rental property). I feel bad for investors who buy today and cut corners on their assumptions (cap ex, vacancy, etc) to make their numbers work. I do agree with Brandon that there are deals out there (I bought three units in 2018 and one thus far in 2019), but don’t bastardize your assumptions to create a “deal”. For an investor, a deal should just make sense given a fair set of assumptions. Look at Warren Buffet, he recently said (CNBC, I believe) that he is looking forward to the next recession so he can make more acquisitions. Thanks.
    Vaughn K. from Seattle, WA
    Replied 6 months ago
    I think you’re spot on. The thing of it is though is that a LOT of markets are NOT overheated right now. Which means people don’t necessarily have to not invest, they just shouldn’t be investing in the trendy markets. If you live in a pricey coastal city maybe you should be looking at the boring midsized city 1.5 hours away that has had slow but steady population growth. Those will at least be base hits as opposed to striking out by buying completely wrong in your own overpriced market. This should still leave people well enough prepared to make some moves when the drop comes as they’ll have the cashflow and equity to use.
    Benjamin Gallant rental_property_investor from El Segundo, CA
    Replied 6 months ago
    If you think the market is overheated, then you may have a limited view of your market. What about the town over? What another a recession resistant property type, like mobile homes or self storage? If that means there’s no SFR that pencil, maybe you need to look at another property type that does. Brandon says on the podcast all the time you have to get really really good at perfecting your process and the results will come. The great news is that those skills are easily transferable across different property types.
    Katie Rogers from Santa Barbara, California
    Replied 6 months ago
    Sure,look at all the options and genres. However, right now, real estate investors all over America are reporting that the market is overheated. Maybe the rel estate in the next town over is cheaper, but then usually so are the rents. Even mobile homes in my market are over heated when you see listings of $500k for a trailer. Self storage is kinda saturated right now. It’s similar to stock tips in a financial periodical. By the time they are writing about it, you have already missed the best opportunity.
    Deanna Opgenort rental_property_investor from San Diego, CA
    Replied 6 months ago
    There ARE good deals (I just got one), but they are decidedly fewer and further between. My personal opinion, worth TWICE as much as it costs, is that there is a current pressure (and sorry, but especially here on BP), that everyone, especially newbies must something, anything, RIGHT NOW, or they will be left out in the cold forever. Unfortunately, It feels almost exactly like 2004-2008, when especially lower income people were desperate to buy housing at any cost, because they had become convinced that if they did not buy something at that very minute prices were going to continue to go so sky high that they would never in their whole entire LIFETIME be able to own a home. Realtors (and banks!) promoted the idea that it was OK to spend any insane amount of money, because RE prices were going to continue to rise into infinity and for forever. My personal feeling is that right now if there is something that is truly a fantastic deal, & the numbers crunch in either a good OR bad future economy it’s probably OK to go for it. Financing is easier now than it will be when the economy is back, so as long as you aren’t running a negative, If it’s an asset that would be a dog in a bad economy…..probably not.
    Jimmy Hodges from Mesa, AZ
    Replied 6 months ago
    I think that there are valid arguments on both sides of the fence. However, what I keep hearing from BP and what I think Brandon might be saying here is we (especially newbies) need to take action NOW but that doesn’t mean you have to buy anything. What it means is that you need to practice your craft. Analyze deals, network, find your core 4, and be ready because you may come across a deal like Deanna or the market might crash but either way if you are not prepared you will miss the opportunity. Let me give you a non real estate example of what I mean. My daughter came to me yesterday and told me about something that happened to her on her lunch break. She was at a shop ordering a smoothie when one of her friends said someone across the street was hit by a car and that my daughter, a CNA, should go help. At first she hesitated until the door to the smoothie place opened and she could hear a woman screaming for help. My daughter ran across the street where there were eight people standing over this man who was in bad shape and no one new what to do. Her training kicked in and she started tending to the man and directing people what to do until the paramedics arrived. Now I’m super proud of my daughter but my point of sharing that story is not to brag about her its to illustrate that we have to practice our craft so that we are ready for whatever comes our way. If it’s a good market or a bad market doesn’t really make a difference if all you have been doing is sitting on the couch catching up on all your favorite TV shows.
    John K. rental_property_investor from Chino, CA
    Replied 6 months ago
    I would not agree if you’re looking at traditional RE deals. I would strongly not agree if you think outside the box. There are amazing opportunities out there, you just can’t look for them like everyone else is.
    Jim Swanson from Sacramento, California
    Replied 6 months ago
    I agree you should always be “in the market” because deals may present themselves. However, I don’t agree with all this comparison with 2008 – 2010. That was a very unique situation where the fake loans brought down a house of cards. I wish it would happen again so I could buy up a bunch more properties for pennies on the dollar. The value of housing will always trend up, so if you can hold onto it long enough you will always gain capital. The trick is to make sure it will cash flow with enough of a buffer that you will not have to sell when prices are lower. Everybody has to live somewhere and there are more people every day. In the past five recessions, only in 2008 and one other time did real estate prices decline and for that other year, only by 2%. It’s like a dollar-cost-averaging. Buy something whenever you can where it makes sense. If I had a dollar for every time someone told in in the last recession, “I’m waiting for it to hit the bottom before I jump in…” I would have enough to buy another house. As far as I know, anyone who said that ended up with nothing in the end. The key is, “always be a buyer”. Just make sure you have the margins to support it in the long run and don’t count on something happening, like rents going up or interest rates staying low or the ability to refinance out of a bad 5-1 ARM. Those are the things that brought people down last time.
    Jim Swanson from Sacramento, California
    Replied 6 months ago
    One more thing I forgot to bring up: Yes, the market is cyclical in that it does go up and down, but the trend is always UP. The next “down” may still be higher than today. That’s why timing the market is always a bad idea.
    Vaughn K. from Seattle, WA
    Replied 6 months ago
    One thing about RE too is that it doesn’t always have a hard crash like the stock market tends to do during corrections… A lot of the time it may only drop a couple percent, and then stay flat for an extended period of time while inflation and wage growth puts pricing more in line with fundamentals… So if $350K is too expensive in a given market now, it may well STILL be $350K in 8 years, but the math actually makes sense then. This is not at all uncommon for RE corrections historically. The thing is if you buy it at that today, and get cash flow and paydown between now and then, you’ll be much better off unless you have a comparably good investment you can make in something else during the intervening years.
    Katie Rogers from Santa Barbara, California
    Replied 6 months ago
    It is foolhardy to wait for the bottom. Nobody knows where the bottom is until after it passes. On the other hand, appreciation faith-based buying is also foolhardy to buy when there is no cash flow .