3 Important Points to Remember When Considering a Potential Real Estate Crash

3 Important Points to Remember When Considering a Potential Real Estate Crash

2 min read
Matt Faircloth

Matt Faircloth, co-founder and president of the DeRosa Group, is a seasoned real estate investor. The DeRosa Group, based in historic Trenton, N.J., is a developer and owner of commercial and residential property with a mission to “transform lives through real estate.” DeRosa creates partnerships to finance select real estate investments and has a proven track record of providing safe, profitable investment opportunities to their clients.

Matt, along with his wife Liz, started investing in real estate in 2004 with the purchase of a duplex outside of Philadelphia with a $30,000 private loan. They founded DeRosa Group in 2005 and have since grown the company to hundreds of units in residential and commercial assets throughout the East Coast. Under Matt’s leadership, DeRosa has completed tens of millions in real estate transactions involving private capital, including fix and flips, single family home rentals, mixed-use buildings, apartment buildings, and office buildings.

Matt is an active contributor to the BiggerPockets Blog and has been featured on the BiggerPockets Podcast three times (show #88, #203, and #289). He also regularly contributes to BiggerPockets’ Facebook Live sessions and teaches free educational webinars for the BiggerPockets Community.

Matt authored the Amazon Best Seller Raising Private Capital: Building Your Real Estate Empire Using Other People’s Money. The book is a comprehensive roadmap for investors looking to inject more private capital into their real estate investing business and is a must-read for anyone looking to grow their business by using private lenders and equity investors. Kirkus, the No. 1 trade review publication for books, had this to say about Raising Private Capital: “In this impressively accessible introduction to a complex subject, Faircloth covers every aspect of private funding, presuming little knowledge on the part of the reader.”

Matt and his wife Liz live in New Hope, Penn., with their two children.

Matt earned a B.S. in Industrial and Systems Engineering with a minor in Business from Virginia Tech. (Go, Hokies!)

DeRosa Group’s YouTube channel

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There is a lot of chatter out there about a potential real estate market “crash”—what it will look like, when it will happen, and what we should do to prepare. No one has a crystal ball, so it’s all speculation of course. We really don’t know what’s going to happen, as much as we’d like to.

It’s a good conversation to have though, mostly for entertainment but partly so that we can take action to prepare for the future. I have done research on the topic and talked to many other investors and even an economist on the matter. Be sure to watch the video accompanied with this article for a full discussion, but let’s have a brief one here.

3 Important Points to Remember When Considering a Potential Real Estate Crash

Some people think or hope the market is going to crash—but for the wrong reasons.

I have heard several conversations about a pending crash, and most who think we should get ready for a big dip will tell you it’s because we are “due” for one. The market took a huge hit in 2007, but the real estate market historically doesn’t crash every 10 years.

Related: Why Real Estate Beats Stocks During a Recession

The stock market, on the other hand, that’s a different story. Investors should always consider how the stock market could affect their real estate business. Your local area may not be affected by Wall Street, but it would pay to think about what would happen in your area if the Dow Jones went from 26,000 to 10,000.

Related: 4 Actionable Ways to Find Real Estate Deals, Even in a Red Hot Market

Each real estate market is different.

Just because the market in Denver is booming doesn’t mean that the market in New York is doing the same. They are not related, for the most part. And what dragged the whole house of cards down in 2007 was the finance market, which backs real estate loans.

I do not believe that we are looking at the same conditions that created 2007 in the financial sector, so we shouldn’t look for a nationwide real estate crash. Plus, the commercial market, including retail and multifamily, are completely different animals than single-family homes. Some sectors of the commercial market may struggle in the coming weeks and years—values could fall. Meanwhile, a lack of inventory is driving up prices of residential homes currently. Deals can be scarce.

Luxury housing is overbuilt, but middle-market real estate has room to grow.

I have seen this trend specifically in high-end redeveloping urban areas. There are new apartment buildings and condos going up everywhere, all with stainless steel appliances, granite, and lots of amenities. It seems to me that there is a glut of these developments in my markets. I’m in Philadelphia, New Jersey, and NYC, so your areas may be different. (I’m curious to hear what you are seeing in your areas in the comments section below!)

That being said, I also see that middle-priced homes that are affordable to most people in any given area are not overbuilt. If anything, there is not enough of them because too many rehabbers and developers are going for the high-priced, top-of-the-market builds. That goes for home sales and rentals also.

I get into a much longer conversation in the video and hope for an even longer one with you in the comment section on this. Remember, it’s all opinions at this point; no one is right or wrong. But if we can get a discussion going backed by real data, we can help prepare each other for what’s around the corner.

Have a great and profitable week!

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