Delaying Investment Until Next Economic Downturn

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Delaying Investment Until Next Economic Downturn

Pope Lake
Investor · New York City, NY · Member since 2019 · 82 posts · 43 votes

Hi BP! 

I'm currently looking to purchase a property in Birmingham, AL to buy and hold. I know that this market is currently great for this strategy, and hope to find a property that adequately cash flows. Ideally, I would like to purchase in this market before the year closes out.

However, given recent investor fear about an impending economic downturn, should I hold out until prices are generally lower? Of course, if I wait until the market actually turns I should be able to buy property for cheaper and save money.

While I've read that it's never great to try and "time the market" I also don't want to be over eager and purchase at potentially the wrong time, when waiting perhaps a little bit longer could result in a better investment. Interested to know your thoughts!

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Ladè Baruwa
Rental Property Investor · New York City · Member since 2019 · 90 posts · 122 votes
7y

@Pope Lake If you decide to wait until the market turns, who is to say when that will be? 

You may miss out on many opportunities waiting for an economic downturn, and who’s to say when it does happen that you will be in the same situation to buy as you are now?

Don’t wait. Do your homework, find an opportunity and go for it. 

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  • Henry Lazerow
    Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
    7y

    NO. What a lot of people don't realize is even if we have a "mild" downturn FED may just drop rates which will strengthen real estate prices. Real estate prices directly correlate to interest rates they don't directly correlate to stock market, etc. just look at how real estate prices held out during the dot com bubble.

    My personal strategy is too always be buying in the ups, downs, etc. It's nearly impossible to time the market.

    2Reply
  • Keith A.
    Rental Property Investor · TX · Member since 2019 · 236 posts · 392 votes
    7y

    I remember over a year ago a bell curve inverted and it was supposed to be the beginning of the end. If I had listened the "news" or waited for the "downturn" I would be two houses less right now and cash-flowing 10% less.  I've truly learned over the past several years that people in general are full of sh*t when they need to fill news slots for 24 hours straight. They literally make up issues. Will there be a recession? Some day yes, it's part of an economy. I think there is just an equal chance that demand and market will be higher in a year (in my state) due to people fleeing over-priced states. 

    3Reply
  • Nathan Hall
    Rental Property Investor · Martinsburg, WV · Member since 2017 · 111 posts · 81 votes
    7y

    @Pope Lake set aside funds, and go for it when you see an opportunity that will make you money in at least two different ways, if things go sideways. Be conservative with your gains and liberal in perceived expenses. If the math still works then, fire for effect.

    Don't try to time the market. Get ahead of it and have reserves, built up by your previous deals, so that you can capitalize without overextending. Every moment you are looking at the market to crash to make a killing, is a moment where you might be missing a good deal. Or not, honestly. It helps to actually enjoy running all the maths and seeing potential gains and pitfalls. I've never analyzed a deal that I didn't appreciate, because they always help me understand what I'm truly looking at.

    1Reply
  • Spencer Cornelia
    Investor · Las Vegas, NV · Member since 2017 · 321 posts · 524 votes
    7y

    @Pope Lake Lending constricts during downturns so why would you think that you will be able to get a loan if properties were to all of a sudden drop in value?  Based on your OP, you're assuming that lenders would lend:
    - to someone with zero experience
    - market values are declining for your target property
    - loan out 75%-80% of a declining asset when they have less money available to loan

    On the flip side, some economic theory has us in position to see a recession that me and & you have never lived through before.  If houses were to drop 50-80%, then maybe holding off would have been the better strategy.

    2Reply
  • Trevor Emmett
    Residential Real Estate Broker · Portland, OR · Member since 2015 · 48 posts · 38 votes
    7y

    @Pope Lake take your advice!! Don’t try to time the market. Just make sure you make money. Be patient. If you invest throughout your life time you will hit the market at its low points and in its high.

    1Reply
  • Jon Parton
    Flipper/Rehabber · Merrillville, IN · Member since 2014 · 24 posts · 7 votes
    7y

    @Pope Lake if the numbers work then buy. Contact wholesalers in your market. They can get you deeply discounted properties even in this economy.

    1Reply
  • Matt Sosa
    Rental Property Investor · Las Vegas, NV · Member since 2018 · 15 posts · 11 votes
    7y

    @Pope Lake I'm still very much a newbie, but am currently in Alabama. For what it's worth, when I purchased my properties they showed very mild changes based on market swings for as far back as I could dig. Especially when compared to Vegas, where my primary residence has seen a 60+% increase in the five years I've had it (granted we got hit hard in the bubble and took a long time to recover, so I got lucky with timing).

    I'm aiming for buy and hold too, so I try to get terms steady (30 year fixed), and as long as the income numbers cover the expenses (with some extra margin of safety of course), I don't see a problem. At the end of the day, if I can make a 10% return and get in now, that's a lot safer of a bet than a potential 15% return with waiting for the next year. Even if everything bursts and the prices drop by 50% tomorrow, I'm still making positive cash flow, so don't really care.

    1Reply
  • Bryan Lynch
    Member since 2018 · 13 posts · 2 votes
    7y

    @Matt Sosa where did you buy your rentals? Price range? Thx 

    0Reply
  • Matt Sosa
    Rental Property Investor · Las Vegas, NV · Member since 2018 · 15 posts · 11 votes
    7y

    @Bryan Lynch Huntsville. 70 for the single family and in contract for 124 for a duplex.

    1Reply
  • George MevawalaBusiness Member
    Real Estate Agent · Scottsdale, AZ · Member since 2017 · 116 posts · 102 votes
    7y

    @Pope Lake the time to invest is always now.. There is always a deal out there. I recommend looking into value add investing. If you are in it for the long haul and if the cash flow on the deal pencils or will pencil once you add some value, than appreciation should just be looked at as a "bonus". Just my two cents and hope it helps.

    1Reply
  • Maxwell Fontaine
    Specialist · Lynchburg, VA · Member since 2017 · 162 posts · 90 votes
    7y

    @Pope Lake I don’t know if that’s a smart idea. What if the downturn doesn’t actually come? Nobody saw it last time and I feel it’s becoming a trend to just say it’s going to happen again in 2020 whether it does or doesn’t shouldn’t base your decision to invest in real estate.

    When you compare what you think you’ll save when the economy turn vs how much you would make until then doesn’t come close. You’ll miss the opportunity to be already in the market and have the leverage to get as many props as you can instead of just starting.

    Lastly, more of a personality statement, how do you know you’ll actually buy properties in the downturn if you won’t do it when the economy is still going forward? Just saying, sometimes people have a plan never pull the trigger because the situation never feels right or looks right. READY. SHOOT. AIM.

    1Reply
  • Frank Maratta
    Rental Property Investor · CT · Member since 2019 · 105 posts · 68 votes
    7y

    @Pope Lake

    I think if a recession happens it will be at the next presidential election if one of these socialist dems get elected. With that said, people think it’s going to be like ‘09 again. It’s not. We had a bubble in 09 directly correlated to poor lending guidelines. People who got mortgages could barely afford to pay them and then once the economy downturned everything spiraled out of control and everyone lost their homes. We are not going to ever see the low housing prices we saw in 09 again, in my opinion. I think the worst that could happen to us as investors is this “bond bubble” I keep hearing about, which would make it difficult to get financing, which now that I think about it - would probably have a giant impact on housing prices. But I’m not an economist and take what I say with a grain of salt. If anyone has any info on the “bond bubble” please chime in because if this is true, that is what we should really be concerned with.

    1Reply
  • Ellen KirchdoerferPro Member
    Rental Property Investor · Cape Girardeau, MO · Member since 2019 · 8 posts · 5 votes
    7y

    @Pope Lake There will always be a reason why the current time isn’t right. Taking action is the only way to start creating results.

    1Reply
  • Edward Mendez
    Real Estate Agent · New York City · Member since 2019 · 14 posts · 9 votes
    7y

    @Pope Lake I agree with everyone here. Take action now.

    0Reply
  • Ola Dantis
    Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes
    7y

    @Pope Lake This is the MILLION DOLLAR QUESTION on every investor's mind, right?

    But the truth is, if you have your buying criteria and fiscal fundamentals down to a tee: for instance, BUY FOR CASHFLOW and set your BREAKEVEN OCCUPANCY threshold, then you should just buy Real Estate. 

    Waiting might sound like a decent approach, especially with all the noise in the current climate, but remember investors make money in all parts of the market cycle.

    2Reply
  • Matthew Couto
    Realtor · Concord, NH · Member since 2017 · 48 posts · 30 votes
    7y

    @Pope Lake as many have said, base your purchase on the price you are paying, cash flow etc. Never on what the economy may or may not do in a few months. You might be waiting a while, during that time it could go either way! The folks saying the economy is going to crash this year, were the same folks saying the same thing 2 years ago. 

    It will crash, but no one knows when. That's why I like to purchase for cashflow, only.

    1Reply
  • Daniel Mohnkern
    Investor · Titusville, PA · Member since 2015 · 298 posts · 150 votes
    7y

    @Pope Lake

    Why not just mitigate that risk by giving them an offer that would be a winner in either market? You do not know why the seller is actually selling. You only know what they are giving you for a reason. Perhaps their personal market is lower than the rest of the market. You would only know that by having them accept an offer. Stop giving yourself a reason to procrastinate and make offers that will be winners for you when they are accepted.

    1Reply
  • Jordan MoorheadBusiness Member
    Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
    7y

    Is there a way to block any posts that I see that include the works "recession", "downturn" or "crash" on here?

    [email protected]512-888-9122
    The Moorhead Team5140 Reviews
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    1Reply
  • Michael Ealy
    Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
    7y

    You can buy and make money in ANY real estate market but how you buy and make money will depend on the market.

    While the "amateur economists" here on BP are predicting the real estate market will crash soon and some advocate waiting it out, I acquired over $28M worth of real estate last month. One of them is a 534-unit portfolio, comprising of 4 properties and already sold 1. Will make close to seven figures when we close in a couple of months. Another is a 346-unit portfolio and we're increasing the rents as I write this post. So even if the market crashes soon, my cashflow would have increased substantially because I did not wait to acquire these good deals.

    So, the lesson: stop listening to "amateur economists" here on BP. Learn to how buy right, by understanding your local market and then just buy.

    1Reply
  • Robins Dorvil
    Rental Property Investor · South Florida and Central Florida · Member since 2017 · 50 posts · 40 votes
    7y
    Originally posted by @Jake Zhang:

    Best time to buy was 20 years ago, second best time was today. Stick to you analysis and understand forced appreciation. Build enough cushion so that even if you do go underwater, your reserves or cash flow allows you to weather the storm. 

    You are absolutely right. Especially if you're buying and holding. I think today's rates can help with any blow back we get from a recession. As a buy and hold investor, I'm not concerned about the appreciation. That's just added bonus. I just want a performing asset that cash flows nicely or give me at least $1 Cash flow during the bad times. With time and inflation a bad deal that cash flows will only get better and better in my opinion.  

    0Reply
  • Dustin P.
    Realtor · Tempe, AZ · Member since 2017 · 541 posts · 442 votes
    7y

    If you're hoping to buy at 2010 prices I would advise never looking to buy real estate ever again

    0Reply
  • Steve Kline
    Indianapolis, IN · Member since 2014 · 5 posts · 2 votes
    7y

    Real estate values are currently high but interest rates are low. When the market 'turns' it will likely be because interest rates have increased. The point is that generally the market buys real estate based on a monthly payment. The monthly payment in both cases will be about the same and a buy and hold strategy for monthly cashflow works in either market condition. The difference is that if you buy in a low real estate market with high interest rates, you will have the opportunity to refinance into a lower interest rate later. Thus you may be able to enjoy both a low purchase price and a low interest rate.

    0Reply
  • Michael H.
    Rock Hill, SC · Member since 2015 · 104 posts · 209 votes
    7y

    You don’t need to worry about an economic downturn. The thing to worry about is the fed raising rates. If they keep them the same or lowering the rate, I don’t see the housing market taking a price drop. Whenever they raise rates significantly, I could see prices dropping noticeably. That is due to the fact that when people buy, they look at their mortgage payment and what they can afford. If rates are higher, they have to buy something cheaper since they are paying more interest. That will drive prices down. The Fed hasn’t significantly raised rates in over thirty years so it will be a new experience for many.

    0Reply
  • Account Closed
    Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes
    7y

    @Pope Lake Of course the market will crash soon we all know it. Sell your primary house asap before you lose 49% of the value. Then at the bottom you have cash to swoop in and buy deals.

    1Reply
  • Pope Lake
    OP
    Investor · New York City, NY · Member since 2019 · 82 posts · 43 votes
    7y

    @Maxwell Fontaine appreciate your perspective, but think we're absolutely due for somewhat of a downturn in the next year or two.

    Irregardless, I definitely agree with you, and with many of the other folks that've posted, that the time is now - better to gain the experience and exposure to the market rather than delay. Great point. 

    1Reply
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