What if a recession is really coming in 2019?
Rental Property Investor · Atlanta, GA · Member since 2018 · 15 posts · 24 votes
What if a recession is really coming in 2019?
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
7yWho cares if we are in a growth period or a recession? You need to build a business that flourishes in any environment.
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@Shanese Francis basically yes, but one never knows the actual timing of the market cycle (plus it varies for different markets, property types, etc.) until you’re looking through the rear view mirror ;)
My gut says the market is due to turn soon. Regardless, it's always about acquiring properties very very deep. It works at the top of the market and it works at the bottom of the market. If you don't buy deep enough and are caught at the top of the market, that's where you get in trouble.
- Los Angeles, CA · Member since 2018 · 95 posts · 46 votes7y
Originally posted by @Charles Kao:
@Russell Brazil @Shanese Francis
I have seen this post like 500 times and people like Russell who respond to these posts keep saying essentially the same thing but in fewer words. Read the 500 other posts if you want or act but there is always a risk in real estate but with due diligence and hedging against the worst scenario your business if anything should thrive during a down economy. I personally would welcome a downturn and am prepared for it. I am not investing in secondary markets anymore and expanded into asset classes that historically have down well even in a downturn.
We can debate forever if recession is coming or not, if you should buy or if you shoudn't, at the end of the day nobody knows. What i'm 100% sure however, is that after the next big one most of the real estate genius on this forum advocating for buying all the RE you can get at max leverage regardless of the miserable cap rates we experience now won't be there anymore
I don't buy that "you thrives in a crashing RE market"; nobody can, unless you're Micheal burry and convince Goldman Sachs to create credit default swaps for you. You can't short RE. The only thing you can do is trying to catch a falling knife hoping it's near the bottom
- Los Angeles, CA · Member since 2018 · 95 posts · 46 votes7y
Originally posted by @Frank Wong:
Here is the thing about a recession. No one knows how it will affect housing. Look at the dot-com bubble that burst 99-01. In my area prices actually went up during that period.
Also some information I want to touch on.
NO, you do not want to buy Puts as a hedge. Unless you work for a hedge fund and have a Quantitative analyst from MIT working for you. This strategy is very difficult and requires a high level of skills. Puts have an expiration date to them. The time decay will kill you if you don't know what you are doing. Anyone who has traded puts know the difficulty of this.
As for REOs and foreclosures. I just don't see people abandoning their homes even with job layoffs. On this bullish run in prices, most buyers were putting 20% down unlike the 100% finance loans of 04-08. Why would a buyer leave their house if they have equity? Make zero sense. Now I can see a slow decline in prices but each area is different. In my area. I see a ton of buyers I know sitting on the sidelines wanting to buy at different price levels. Could those buyers be gone if the market turns? Yes. As of now, I see a lot of demand at different price levels. The foreclosure process is very long. At least in CA.
I do see some people getting exposed should a recession happen. There is no free lunch in this world and the easy money has passed. Some people will get their hands caught in the cookie jar.
It is true; actually the market only tanked 10% in the Bay area, but back then the tech sector in SF was considerably smaller than it is today and prices werent that inflated in comparison with other major cities.
What makes me (and many) nervous is the parabolic growth of tech tock these past 10 years; when the big dump will come, many companies will have to layoff big time and i can't think how that couldn't affect the RE in the Bay area given the massive speculation and negative cap rates
- Member since 2019 · 11 posts · 1 vote7y
I say bring it on. From an Asset Mg/portfolio side im ready. I live poor and think rich. Im renting a 1bdrm duplex in Durham,NC $515 a month. Waterbill is $16 lights economic plan $69.50... Car pmt 250.00..
There are savy business people with cash and good credit. Think bitcoin, oil traders, 401k accounts up nicely.. Buyers are looking for discounts.
I
- Investor · Los Altos, CA · Member since 2014 · 942 posts · 1k+ votes7y
@Marisa R. not to rain on your party, but there are actually quit a few indicators of rough waters ahead. I am not saying a recession is immanent, but I would say that it is more important to be watching the signs now than a year or two ago.
- Job numbers: It is really important to keep in mind that job numbers only take into account the number of people who are actively looking for jobs and seeking unemployment benefits. Benefits typically only pay out 26 weeks. After that point a person can try to extend but not always. The point being that there is no mechanism to track people who have fallen out of the benefit window. I suspect that there is a large unseen number of people who are out of the window and are living with family and perhaps doing side work that is not easily traced.
- There has not been a major "job creation" breakthrough in technology in several years. As an example the Iphone has had several feature additions, but there has not been any real leap in the technology that makes it significantly better than what was available before. An example of a real leap was going from flip phones to smart phones.
- The new technologies that are coming online are actually efficiency based and could potentially drive people out of jobs. A very good example of this is the trucking industry. There are 3.5 million truckers in the US alone. Tesla and several other companies are actively developing self driving trucks. The potential cost savings of getting rid of drivers for the trucking industry is HUGE. This also does not take into account the number of taxi drivers that will get displaced by self driving cars or the number of Lyft/Uber drivers who will no longer have a side gig. Grocery stores like Whole Foods are already going to cashierless stores. The next wave of technology will be driving lower skilled people out of the workforce. Also the Amazon effect is real and will only get larger as people become accustomed to buying more things online. The ripple effect on "brick and mortar" stores is everywhere.
Again I am not saying it is all doom and gloom. I am saying that the analysis about the direction of the economy should be more in depth then just the posted GDP numbers and the job figures.
With that being said, I am still looking to buy this year.
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Arlen Chou:
@Marisa R. not to rain on your party, but there are actually quit a few indicators of rough waters ahead. I am not saying a recession is immanent, but I would say that it is more important to be watching the signs now than a year or two ago.
- Job numbers: It is really important to keep in mind that job numbers only take into account the number of people who are actively looking for jobs and seeking unemployment benefits. Benefits typically only pay out 26 weeks. After that point a person can try to extend but not always. The point being that there is no mechanism to track people who have fallen out of the benefit window. I suspect that there is a large unseen number of people who are out of the window and are living with family and perhaps doing side work that is not easily traced.
- There has not been a major "job creation" breakthrough in technology in several years. As an example the Iphone has had several feature additions, but there has not been any real leap in the technology that makes it significantly better than what was available before. An example of a real leap was going from flip phones to smart phones.
- The new technologies that are coming online are actually efficiency based and could potentially drive people out of jobs. A very good example of this is the trucking industry. There are 3.5 million truckers in the US alone. Tesla and several other companies are actively developing self driving trucks. The potential cost savings of getting rid of drivers for the trucking industry is HUGE. This also does not take into account the number of taxi drivers that will get displaced by self driving cars or the number of Lyft/Uber drivers who will no longer have a side gig. Grocery stores like Whole Foods are already going to cashierless stores. The next wave of technology will be driving lower skilled people out of the workforce. Also the Amazon effect is real and will only get larger as people become accustomed to buying more things online. The ripple effect on "brick and mortar" stores is everywhere.
Again I am not saying it is all doom and gloom. I am saying that the analysis about the direction of the economy should be more in depth then just the posted GDP numbers and the job figures.
With that being said, I am still looking to buy this year.
great point about those that fall out of the job market.. for instance in Detroit its some staggering number that do not count for the national averages unemployed and will stay that way for most of their days.. but they don't register in the economic unemployment data.
I see the Tesla trucks at least on these routes.. Reno to Salt Lake and basically anything up and down 1 5 to be a huge factor.
Along with routes from say Denver to KC across Texas etc etc Routes with long hauls and no population or cross traffic.
- Investor · Los Altos, CA · Member since 2014 · 942 posts · 1k+ votes7y
@Jay Hinrichs you are 100% correct. Uber freight has been doing runs in AZ for a large part of 2018. Local drivers just pull the loads to a transfer hub and pass it off to a long haul driverless truck. There is a "safety" driver in the long haul cab, but you know that the sleep/rest rules cannot be the same for them vs. current long haul drivers. Also you know as they gather safety data and tech gets better the "safety" drivers will eventually be gone.
- Los Angeles, CA · Member since 2018 · 95 posts · 46 votes7y
Originally posted by @Marisa R.:
So I actually wonder why you would think US is heading for recession.
The economy is roaring, job figures all time low, GDP numero uno.
I just see blue sky.....
- Stock market tanking since October
- Dow Jones construction has lost 33% since january 2018
- interest are rising and will keep rising in the coming years
- RE prices are now exceeding 2007 levels (not inflation adjusted though)
- trade war threat
Originally posted by @Account Closed:
Originally posted by @Marisa R.:
So I actually wonder why you would think US is heading for recession.
The economy is roaring, job figures all time low, GDP numero uno.
I just see blue sky.....
- Stock market tanking since October
- Dow Jones construction has lost 33% since january 2018
- interest are rising and will keep rising in the coming years
- RE prices are now exceeding 2007 levels (not inflation adjusted though)
- trade war threat
This is an interesting read
https://www.marketwatch.com/story/were-probably-at...
A couple of ways to mitigate the risk is to manage debt and cash flow.
I also believe its also dependent on which market we are talking about, not everything is equal
I guess time will tell....
- Member since 2018 · 11 posts · 1 vote7y
Build an emergency fund. When a recession strikes, investment portfolios tend to plummet, jobs become less stable, and raises become far less widespread. ..
Diversify your investments. ..
Get a side job. ...
Lower your fixed living costs.
Regards,
Adrian Gates
QuickBooks Cloud Hosting Expert
- Verde Valley Arizona USA · Member since 2018 · 115 posts · 98 votes7y
We're going to have a recession. We just don't know when. De-leverage. Keep your cash cushion. Only buy comfortable cash flow Cap rates >6% and ConC ROI of 10%.
- Investor · Phoenix, AZ · Member since 2015 · 485 posts · 384 votes7y
One of the many mentors I like learning from is Ray Dalio. Check out some of his blogs, videos and books. No matter where you stand, his insights are valuable to all of us. I have compiled a few for your viewing and learning pleasure. Enjoy ;-)
Bridgewater founder Dalio: There's a significant risk of a recession in 2020 - Davos 2019
The next downturn will be more difficult to handle socially and politically, says Ray Dalio
Principles For Success by Ray Dalio (In 30 Minutes)
How The Economic Machine Works by Ray Dalio
The Economic Machine Explained in 30 Minutes
Ray Dalio Interview - Ray Dalio's Top 10 Rules For Success
Ray Dalio: Central banks will get so desperate they will give money away
How to build a company where the best ideas win | Ray Dalio TED
And one by Mark Zandi:
What Will Cause The Next Recession - Mark Zandi Says Corporate Debt
@Corby Goade @Jess White @Michael Ealy @Brian Juris @Mark Nickoson @Hoang Nguyen @Alexander Taylor @Shanese Francis @Molly Arnott @Chuks Erinne @Anthony Diggs @Levi T. @Dan H. @Jay Hinrichs @Account Closed
It's going to happen. We don't know when or how bad it will be. But the warning signs are abundant.
Start a side business in addition to the W2 job, cut expenses, save cash. And as far as buying real estate in times like these, where it appears we are on the top of a cycle, do your homework, devise a risk profile, and stick with it.
- Investor · New York City, NY · Member since 2017 · 173 posts · 36 votes7y
The main thing I have learned is, especially in the beginning, invest in areas where there are lots of jobs/factories etc.. blue collar work. So when the economy does go down, there will still be renters, and you can adjust accordingly the rent but you will NOT BE VACANT which is landlords worst nightmare.
- Rental Property Investor · Triangle, VA · Member since 2019 · 29 posts · 18 votes7y
@Jay Hinrichs I hear a lot of people say we'll never see another downturn like the 07-08 downturn. So, what will be different about the next one (whenever it is)? I have asked many of the older investors what was the second most memorable downturn they can remember. Most quote the early 80s or the early 90s. I believe in the future we will never know how bad it will be or is until we can actually look back at it. During the 07-08 downturn I was very new to real estate, and had just gotten out of a flip. With feeling lucky to have made it out in a nick of time, and seeing all the destruction around me, I chose to move on with regular life and stayed away from real estate. Of course hindsight is 20/20, so I wonder if I will ever get a chance to apply the lessons I know now to a period as abundant and interesting as the aftermath of the 07-08 downturn.
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