{"id":129903,"date":"2020-10-02T10:00:11","date_gmt":"2020-10-02T16:00:11","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=129903"},"modified":"2024-01-05T08:52:21","modified_gmt":"2024-01-05T15:52:21","slug":"reasons-stop-buying-real-estate","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/reasons-stop-buying-real-estate","title":{"rendered":"5 Reasons to Stop Buying Real Estate Right Now (&#038; Wait for Better Opportunities Ahead)"},"content":{"rendered":"<p><iframe loading=\"lazy\" src=\"https:\/\/playlist.megaphone.fm?e=BIGPOC4922634731&amp;light=true\" width=\"100%\" height=\"200\" frameborder=\"0\" scrolling=\"no\"><\/iframe><\/p>\n<p>Many investors I know are currently following the advice of\u00a0<a href=\"https:\/\/www.investopedia.com\/articles\/investing\/012116\/warren-buffett-be-fearful-when-others-are-greedy.asp\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Warren Buffett<\/span><\/a><span data-preserver-spaces=\"true\"> to be &#8220;fearful when others are greedy.&#8221; Buffett himself is presently sitting on the sidelines with <a href=\"https:\/\/www.marketwatch.com\/story\/heres-the-real-reason-warren-buffett-is-sitting-on-a-record-128-billion-in-cash-according-to-one-strategist-2020-03-02#:~:text=%E2%80%9CHe%20is%20sitting%20on%20a,yet%20still%20continues%20his%20ways.\" target=\"_blank\" rel=\"noopener\">$128 billion<\/a>.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">You may be thinking that he is a stock guy and does not own real estate. Actually, he<\/span> <span data-preserver-spaces=\"true\">owns quite a bit of it<\/span><span data-preserver-spaces=\"true\">! While Buffett isn&#8217;t counting doors, he is smart enough to hold a substantial amount of hard assets.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Even if you don&#8217;t love the Buffett, there are a substantial number of factors that every investor should be considering in this real estate climate.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Properties currently seem to be selling like hot cakes for ridiculous prices. <\/span><span data-preserver-spaces=\"true\">You may be making a ton of money right now if you are dialed into your niche and are a seasoned flipper. <\/span><\/p>\n<p><span data-preserver-spaces=\"true\">But if you are just getting started or getting the feeling that every property you touch will turn to gold, you may want to read on and reconsider the facts.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">This party, just as all parties, will end. No one knows precisely when or how long it will take, but there are some changes coming ahead.<\/span><\/p>\n<h2>Why You Shouldn&#8217;t Buy<\/h2>\n<h3>1. You don&#8217;t grow wealth by following the herd.<\/h3>\n<p><span data-preserver-spaces=\"true\">Remember real estate rule number one: Buy low and sell high.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">The buyers in this real estate market seem to be in a frenzy. The low interest rates seem too good to be true. People are buying larger homes to create a work-from-home space as a result of COVID-19. Plus, everyone knows cash is protected more in an asset than sitting in the bank earning .002%. <\/span><\/p>\n<p><span data-preserver-spaces=\"true\">All of these are good incentives to buy. But the question remains, how much are you paying for your property? <\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Do you have reserves if you lose your job or business slows down? <\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Are you investing in a property that cashflows now but won&#8217;t if rents decrease when the market corrects by 10-20% in Q1 and Q2, as many predict?<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Knowing that you are buying high at what many consider to be the market&#8217;s peak presents a risk. When following the crowd, the ones at the end of the line never win the prize.<\/span><\/p>\n<p><em><strong>Related:<\/strong> <a href=\"https:\/\/www.biggerpockets.com\/blog\/why-real-estate-beats-stocks-during-a-recession\" target=\"_blank\">Why Real Estate Beats Stocks During a Recession<\/a><\/em><\/p>\n<h3>2. Foreclosures and evictions are on the horizon.<\/h3>\n<p><span data-preserver-spaces=\"true\">The CDC is serious about slowing the pandemic and current laws do not allow eviction or foreclosures until December 31, 2020. Many landlords<\/span><span data-preserver-spaces=\"true\">\u00a0are struggling. They are not receiving rents, can&#8217;t cover the bills, and are now going to banks and requesting <\/span><span data-preserver-spaces=\"true\">forbearances<\/span><span data-preserver-spaces=\"true\">\u00a0to let them have more time to pay the mortgage. <\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Calling a bank and requesting a deferral of payments is currently very easy, but the money is only an extended loan. As of May, <\/span><a href=\"https:\/\/www.cnbc.com\/2020\/05\/07\/4-million-homeowners-in-cares-act-mortgage-forbearance-program.html\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">CNBC<\/span><\/a><span data-preserver-spaces=\"true\"><a href=\"https:\/\/www.cnbc.com\/2020\/05\/07\/4-million-homeowners-in-cares-act-mortgage-forbearance-program.html\" target=\"_blank\" rel=\"noopener\"> reported<\/a> that 4 million homeowners requested mortgage forbearance. While the banks currently are not charging interest for late fees, the unpaid mortgage payments add up every month. The bank will eventually foreclose on the homes when landlords cannot settle their bills on time.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">It is logical to think that some people will not get caught up with their mortgage payments, so they will need to sell properties. The number of forbearances could create a flood of inventory, which would mean more supply. Many predict that when the government ends the moratorium,\u00a0<\/span><a href=\"https:\/\/www.curbed.com\/2020\/7\/23\/21333325\/housing-market-real-estate-prices-coronavirus\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">the fallout will start<\/span><\/a><span data-preserver-spaces=\"true\">.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Part of what has been driving up the housing prices is the low inventory. As long as there are fewer homes available than people who want to buy, prices will remain high, and\u00a0<\/span><a href=\"http:\/\/zillow.mediaroom.com\/2020-08-21-Home-Sellers-Have-the-Upper-Hand-as-High-Demand-Meets-Low-Inventory\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">sellers will have the upper hand<\/span><\/a><span data-preserver-spaces=\"true\"> in transactions with multiple offers. The question is, how high will prices continue to go?<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-114573 size-main-slider\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/08\/distressed-home-exterior-702x336.jpg\" alt=\"Exterior facade on abandoned foreclosed home\" width=\"702\" height=\"336\" title=\"\"><\/p>\n<h3>3. History indicates there will be a correction.<\/h3>\n<p><span data-preserver-spaces=\"true\">Historically, a full <\/span><a href=\"https:\/\/www.reit.com\/news\/blog\/market-commentary\/looking-carefully-current-real-estate-market-cycle#:~:text=The%20complete%20real%20estate%20market,one%20we&#039;re%20in%20now.\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">real estate cycle<\/span><\/a><span data-preserver-spaces=\"true\"> lasts 18 years. It takes time for the market to slow and then rebound. We are around year 13 if you count from 2007. That said, something usually predicates the downturn. With COVID-19, inflated prices, high unemployment, and foreclosure predictions, the turn may be starting sooner than later. <\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Money Instructor <a href=\"http:\/\/content.moneyinstructor.com\/1949\/housingmarket.html\" target=\"_blank\" rel=\"noopener\">explains the reason<\/a> for fluctuations in pricing: &#8220;<\/span><span data-preserver-spaces=\"true\">The<\/span> <span data-preserver-spaces=\"true\">housing market tends to cycle between shortage and surplus.<\/span><span data-preserver-spaces=\"true\">\u00a0Therefore factors that impact supply and demand influence housing market changes. Factors that have a widespread effect include interest rates, economic conditions, and consumer confidence levels.&#8221;<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">In looking at all the variables, it is clear why the real estate market is still booming. <\/span><\/p>\n<p><span data-preserver-spaces=\"true\">With real estate, a great deal can present itself in any market. Given the circumstances, though, a good deal now may be a great deal in the next six to nine months.<\/span><\/p>\n<h3>4. Avoid shiny object syndrome regarding low interest rates.<\/h3>\n<p><a href=\"https:\/\/economics21.org\/will-interest-rates-ever-increase\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Interest rates<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0are at an all-time low, and people don&#8217;t want to miss out on borrowing money for a ridiculously low amount.\u00a0<\/span><\/p>\n<p><a href=\"https:\/\/www.cnn.com\/2020\/06\/16\/success\/rents-are-dropping-us-cities-coronavirus\/index.html\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">But if rents start to fall<\/span><\/a><span data-preserver-spaces=\"true\"> with unemployment and evictions, and real estate prices begin to drop, a cash-flowing asset may go into the negative. If you are banking on riding high forever without much in reserves, you could be left vulnerable with too thin a margin, even at a 3% interest rate. <\/span><a href=\"https:\/\/www.forbes.com\/sites\/dimawilliams\/2020\/07\/17\/with-coronavirus-on-the-rise-again-is-the-housing-market-weakening\/#155979144c4c\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Some experts<\/span><\/a><span data-preserver-spaces=\"true\"> already see a weakening in the real estate market while the pandemic continues to impact the world.<\/span><\/p>\n<p><em><strong>Related:<\/strong> <a href=\"https:\/\/www.biggerpockets.com\/blog\/2016-07-03-4-phases-real-estate-cycle\" target=\"_blank\">The 4 Phases of the Real Estate Cycle (&amp; What All Investors Should Know About Them)<\/a><\/em><\/p>\n<h3>5. Unemployment is at an all-time high.<\/h3>\n<p><span data-preserver-spaces=\"true\">With all the flurry to buy property, people forget that <\/span><a href=\"https:\/\/www.pewresearch.org\/fact-tank\/2020\/06\/11\/unemployment-rose-higher-in-three-months-of-covid-19-than-it-did-in-two-years-of-the-great-recession\/#:~:text=Unemployment%20rose%20higher%20in%20three,years%20of%20the%20Great%20Recession&amp;text=The%20COVID%2D19%20outbreak%20and,20.5%20million%20in%20May%202020.\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">unemployment\u00a0<\/span><\/a><span data-preserver-spaces=\"true\">rose higher in the past three months than it did during the 2008 recession. Millions are out of work, and <\/span><a href=\"https:\/\/www.cnbc.com\/2020\/09\/16\/yelp-data-shows-60percent-of-business-closures-due-to-the-coronavirus-pandemic-are-now-permanent.html\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Yelp data indicates<\/span><\/a> <span data-preserver-spaces=\"true\">that 60% of businesses closed during the pandemic are not reopening. With that big of a hit on our economy, you need to figure that many people can no longer afford their homes.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">COVID-19 has threatened our security, and people may be pursuing home-buying as a way to ground themselves. Still, it seems hard to believe that all of this home purchasing can sustain itself, given the unemployment numbers.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">For every purchase, you should be asking yourself whether you can still manage a loss if prices in the rental market drop and values go down even 10-15%.<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-76990 size-full\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/02\/market-index.jpg\" alt=\"market-index\" width=\"702\" height=\"336\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/02\/market-index.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/02\/market-index-300x144.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<h2>Looking Forward<\/h2>\n<p><span data-preserver-spaces=\"true\">No one has a crystal ball and you need to do what works best for you. Just make sure you don&#8217;t ignore the fact that we are living in unprecedented times.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">I can&#8217;t help but think it would not hurt to take a deep breath and see what a little more patience will be worth in the long run.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Telling a real estate investor to hold off on buying seems counterintuitive. Still, part of being a successful investor is the discipline to analyze historical patterns in the market and watch inventory.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">No seller&#8217;s market lasts forever. And again, heed the words of Warren Buffett: &#8220;The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.&#8221;<\/span><\/p>\n<p><a href=\"https:\/\/www.biggerpockets.com\/store\/wealth-magazine-one-year\" target=\"_blank\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-123232 size-full\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/03\/Blog-700x120-v2.jpg\" alt=\"Blog ad for Wealth magazine\" width=\"700\" height=\"120\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/03\/Blog-700x120-v2.jpg 700w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/03\/Blog-700x120-v2-300x51.jpg 300w\" sizes=\"auto, (max-width: 700px) 100vw, 700px\" \/><\/a><\/p>\n<p><em>Are you also waiting on buying new properties or have you dived right in?<\/em><\/p>\n<p><strong>Tell us why in the comments.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The market may seem tempting right now, but here are five reasons to wait on your real estate investing in light of potential hazards ahead.<\/p>\n","protected":false},"author":612543,"featured_media":125215,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4433,7119],"tags":[],"class_list":["post-129903","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-opinion","category-biggerpockets-daily"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/129903","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/612543"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=129903"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/129903\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/125215"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=129903"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=129903"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=129903"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}