Warnings of Recession

Member since 2019 · 5 posts · 29 votes

I'm currently renting in Los Angeles and the rents are super high. I want to buy a property, but I am a little afraid especially after the treasury department said we are looking at early signs of a recession. I was working on buying a duplex for my first property, but the news stopped me. What should I do? Should I wait to see what happens? or Should I still buy? As a first-timer what do you recommend I do?

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Russell BrazilBusiness Member

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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes

If you dont have the courage to buy during the hottest economy ever, why do you think you will have the courage to buy during a recession?

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JM Payne
Rental Property Investor · Member since 2018 · 207 posts · 225 votes
7y
Jump in, both feet first, and enjoy the ride. The truth is that nobody knows what the market is going to do, and we're all still here to invest. If you base your life on the news [read:propaganda machine,] you will forever be standing on the curb watching the cars go by. You'll find no better place than here and your local networks to find coaches and mentors that will help safeguard you from a recession, as long as you are patient and take the time to learn. Best of luck with whatever you choose!

- JM
59 Reply
Keith A.
Rental Property Investor · TX · Member since 2019 · 236 posts · 392 votes
7y
over a year ago there was "sign's of a recession". 2 1/2 years ago when our President was elected the nation was going to collapse and the stock market was going to crash and people were going to die. If i believed this nonsense I would be 2 houses less and cashflowing less money right now. Observe the state of life around you and see for yourself, and make your investing decisions that way. People will always need a place to live... but I mostly see people fleeing areas and states where the price of living has become impossible due to taxes and horrible laws, and they move to places more business friendly with lower taxes. I would consider heavily the landlord/tenant laws in your state, the price of property in your state, and the amount of people leaving or not. But all in all, in the best of times people need a place to live, and in the worst of times people need a place to live.
52 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
7y
I'm trying to answer this in a way that....
Wait!,...Look up in the sky. It's a bird, it's a plane...NO,...it's...
...a flock of birds.
What kind you ask? It appears to be a flock of Chicken Littles. (I know Chickens can't fly. Make sure you tell that to Mr. Carlson...just in case)...and they're all aiming for your car. Now eventually at least one of them will hit it...and be declared an expert...even though that expert missed every previous year for the last 10. I guess if you drop enough (you know what), some of it is going to hit.
So, just in case, it's probably a good idea for everyone to stop driving.
35 Reply
Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
7y
If you dont have the courage to buy during the hottest economy ever, why do you think you will have the courage to buy during a recession?
[email protected]301-893-4635 Podcast Guest on Show #192
District Invest Group545 Reviews
Website View Page
118 Reply
Michael T.
Los Angeles, CA · Member since 2018 · 326 posts · 279 votes
7y
@Gadiel Del Orbe it's okay to be a little concerned at the beginning stages of your investing career especially with the news of a potential recession, however, if you do your due diligence and make the right purchase you should be absolutely okay.
The best purchases in Los Angeles for most new investors are multi units and while you will most likely not cash flow the appreciation can be amazing!
If you're willing to look in certain locations throughout Los Angeles such as; Leimert Park, near USC and further south near Hawthorne you'll find properties that will still see good appreciation over the next 5-7 years.
Don't be afraid if you've done your due diligence. The most important part at this point is starting and taking action.

17 Reply
Connor O'Halloran
Real Estate Agent · Denver, CO · Member since 2018 · 10 posts · 40 votes
7y
@Gadiel Del Orbe real estate investing is not about timing the market, it’s about TIME IN THE MARKET. As long as you buy good dirt and don’t ridiculously overpay, you should be just fine.
38 Reply
John Warren
Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
7y
@Gadiel Del Orbe I work with a lot of house hackers here in the Chicago suburbs, and I always tell them the same thing. Buy based on the fundamentals of the property and you will be fine. If you are seeing good cash flow, then you can easily ride out a recession where the value to your building goes lower. As long as you don't have to sell (Cashflow) you will not lose equity. The beauty of the house hacking strategy is that your risk is mitigated anyways since the bank is putting up most of the money. You have very little skin in the game.
17 Reply
Victor Saumarez
Investor · Lahaina, HI · Member since 2012 · 47 posts · 35 votes
7y
Check out the Case Shiller Index from 2006. You will see the market crashed, bottoming out around 2012. The circumstances that brought about the crash are not as present today, but prices are currently close to previous bubble levels. If you wish to insulate yourself against volatility a good strategy to follow is ‘value’ investing. This involves finding investments that are under-valued. However, the more a market is over-bought the more difficult that becomes to achieve. You can time the property market, but only if alternative investments are available to you. At the moment there are none. All asset classes are suffering (or enjoying) high valuations largely as a result of cheap credit. Although that doesn’t look set to change anytime soon a long over-due recession could spark a sell-off and provide opportunities for value investors. An important leading economic indicator that predicts recessions, the inverted yield curve, has already appeared.
14 Reply
Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
7y
@Gadiel Del Orbe. Do nothing for 25 years. Then the next recession will for sure be over with
15 Reply
Matt R.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
7y
LA still has major housing shortage overall. Not sure a recession is going to be like last time vs just a slow down. If we could get a major correction that could be nice but I would not count on it yet. Builders are down 20% with new permits, so there went 20% of new inventory. If the recession is mild it might not register on small LA multis much or at all.
Also consider garage conversions. For 25kish my friend converted his garage and will get 2k a mo extra on that. Thats 8% for the 1% OOS crowd. Look for a detached one perhaps. Good luck!
4 Reply
Michael Ealy
Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
7y
Originally posted by @Connor O'Halloran:
@Gadiel Del Orbe real estate investing is not about timing the market, it’s about TIME IN THE MARKET. As long as you buy good dirt and don’t ridiculously overpay, you should be just fine.

Here's a very smart answer.
Good thing I did not time the market.
I was buying apartments since 1999...bought a lot of apartments in 2007, 2008, 2009...and so on...so much so me and my partner bought 28% of apartment inventory in 2013. And I am buying still today.
Buy based on fundamentals in locations that are up and coming...and buy with a plan in mind on how exactly you're going to make money. Others just buy for appreciation. That's a fool's errand. Buy and force the appreciation. That's how I make money.
25 Reply
Josh C.Pro Member
Property Manager · Indianapolis, IN · Member since 2010 · 1k+ posts · 1k+ votes
7y
@Michael Ealy
Just looking for clarification, you bought a quarter of all the apartments that were sale in 2013? In America? Thanks.
0 Reply
Michael Ealy
Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
7y
Originally posted by @Josh C.:
@Michael Ealy
Just looking for clarification, you bought a quarter of all the apartments that were sale in 2013? In America? Thanks.

No, sorry. Me and my partner bought 28% of apartment inventory in Cincinnati, Ohio.
3 Reply
Josh C.Pro Member
Property Manager · Indianapolis, IN · Member since 2010 · 1k+ posts · 1k+ votes
7y
@Michael Ealy
That’s still a ton. Good year to buy for sure. 👍
1 Reply
Jasmine H.
Rental Property Investor · Houston, TX · Member since 2014 · 139 posts · 140 votes
7y
@Gadiel Del Orbe there was a recent discussion similar to yours and I answered with: "I'm thinking of waiting one to two years. If the house prices go down, it'll be awesome. If they don't, at least I'll be able to save more and possibly buy two. I'm an advocate of buy low, sell high." I'm sticking to this.
8 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
7y
"The things that come to those who wait,
are the things that are left behind,
by those that got there first".
20 Reply
Michael S.
Rental Property Investor · Gilbert, AZ · Member since 2015 · 49 posts · 56 votes
7y
Let the numbers help you with your decision. Try to find something that offers you positive cash flow each month. If you are living in half of the duplex, on paper you can add in the amount you would be paying for rent.
In Los Angeles it can be difficult to cash flow on a rental, so you need to take into consideration appreciation, both "forced appreciation" and local market appreciation. Forced appreciation refers to the increase in appreciation from your improvements and repairs of the property, such as finding the worst house on the block and improving it.
Monthly Cash Flow keeps you in the rental game and provides you with the ability to pay the mortgage on the investment but the extra cash flow provides you with a pat on the back each month to keep going and sometimes tolerate undesirable tenants.
In the event there is a recession "R", your monthly cash flow should help you to get through the though times. Rents as percentage, usually do not proportionally fall as much as home prices during an "R". A little bit of cash flow (after expenses are paid) can really help you to make it through an "R". Keep it 30 years and you will probably experience 3-6 recessions during that time, but at the end of the 30 years (provided all mortgage payments are made) you will have a paid off home in the Los Angeles area.
Final note: Try to make your money going in and always look for multiple exit strategies. Buy it right so that you can choose to flip it or just keep it and rent it. Many of my acquisitions started as a possible flip but I kept them as rentals.
Final Final Note: Not are recessions are the same. I think everyone still has the severe 2007-2009 recession in mind but some are very mild.

Good luck!
10 Reply
Timothy Paul R.
San Marcos, TX · Member since 2018 · 42 posts · 17 votes
7y
@Gadiel Del Orbe the best time to invest is always NOW. Nobody can predict the market, some would call that speculation.
6 Reply
Nik S.
OH · Member since 2014 · 454 posts · 227 votes
7y
if you can cash flow at current acquisitions price and assuming rents are realistic long term, go for it. Most people sit on the sidelines their whole life OR when they could have made a move earlier than they did.
People are afraid of taking risks and losing. Warren buffets rule is to never lose money aka the principle... I follow that however, it happens. Education isn’t free..... once you gain your “deal confidence ability”, watch the magic happen. Confidence is a hell of a trait!
Run your numbers, know your numbers. It’s funny, I’m doing deals my Father would say he doesn’t have an appetite for. Fast forward, now he says the value in my strategy.... we can all be fooled but do your research and go for it!
Interest rates are helping the compressed cap rates. Force some appreciation and everything “ balance out.
This market is on fire. We will be in better standing once it “softens” compared to last recession.
Cheers!
1 Reply
Dennis M.
Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
7y
Look when you make your own economy ,you don’t care what the market is doing . Feel the fear and do it anyway !
6 Reply
Jim Chuong
Rental Property Investor · Toronto, Canada · Member since 2012 · 102 posts · 95 votes
7y
@Russell Brazil As a person who only started investing in US RE during the Great Recession I’m not sure that this is an accurate statement
0 Reply
Jim Chuong
Rental Property Investor · Toronto, Canada · Member since 2012 · 102 posts · 95 votes
7y
@Gadiel Del Orbe there’s a reason that Warren Buffett is holding $122 billion in cash
https://www.inc.com/jason-aten/warren-buffett-has-a-122-billion-problem-it-could-be-really-bad-news-or-a-really-good-lesson.html
0 Reply
Matt Groth
Contractor · Grand Marais, MN · Member since 2016 · 249 posts · 417 votes
7y
Let's say you pay rent for 30 years. Now compare that to buying a duplex with no cashflow, break even every month, but mortgage, expenses and taxes are covered by your renter. Now say the market is cut in half. Which way is better in 30 years? Now imagine buying a cash flowing property, in a good area, with insanely low interest rates, and it appreciates. Personally, I am more afraid of NOT finding deals.
1 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @Michael Ealy:
Originally posted by @Josh C.:
@Michael Ealy
Just looking for clarification, you bought a quarter of all the apartments that were sale in 2013? In America? Thanks.

No, sorry. Me and my partner bought 28% of apartment inventory in Cincinnati, Ohio.
was that 1 out of 4 apartments that came on the market during that time or literally you and your partners own 25% of all standing MF in that city ? impressive either way.
this reminds me of a time years ago.. during the first real run up.. mid 80s on the west coast.. were 100k houses in SF bay area popped to 300 to 500k still a huge number in those days.
So I was up at Whistler in BC skiing and going up the chair lift with a nice couple from Vancouver.. and we talk about real estate at that time the Hong Kong Chineese were making a very serious run at every thing Vancouver getting ready for the 89 termination of British influence in Hong Kong and the prices were going up.. that couple said to me.. we are just going to wait for the prices to come back down.. and we were talking about nice SFRs in Vancouver at 200 to 300k.. well now same houses are 2 mil to 3 mil.. they never came back down.. and I don't know if that nice young couple ever pulled the trigger.. but I told them based on my experience in the SF bay area and the pacific rim buyer influencing our market I would not count on a big retreat in prices.. Of course they can happen but then at least as it realates to owner occ SF it seems to make new highs in the very strong coastal markets.. not so much in the middle of the country with Denver and north side of Chicago as exceptions..

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6 Reply
Kyle Smith
Rental Property Investor · San Diego · Member since 2019 · 109 posts · 87 votes
7y
@Gadiel Del Orbe just understand that EVERY SINGLE PERSON on BP has felt similar fear going into at least one of their deals. Be it their first deal or one with skinnier margins than they’re used to, everyone has experienced trepidation at some point in their investing careers.
As others have mentioned, make sure your fundamentals are in place and then you just have to jump in. You may not hit a home run on your first deal, but at least you’re at the plate taking some swings.
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