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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Bill Plymouth
Real Estate Agent · Philadelphia, PA · Member since 2018 · 416 posts · 396 votes
7y
@Gadiel Del Orbe if you were buying at full market price, then I’m glad you pulled the breaks. The people who get hurt in the recession, are the investors who’s values crash because they purchased at inflated prices. Now is always the time to buy, if and only if, you buy smart!
0 Reply
Mujahidul Huq
Real Estate Broker · Orange County, CA · Member since 2019 · 25 posts · 16 votes
7y
@Gadiel Del Orbe, if you are planning to live in the house for a long time, it wouldn't matter if the market crash, because it will go back up.
1 Reply
Dave Thomson
Rental Property Investor · Erie, CO · Member since 2017 · 34 posts · 13 votes
7y
Any “recession” forum post I see, I can’t help but click just to go see @Russell Brazil ‘s response :)
1 Reply
Andrew Pongyan
Rental Property Investor · Long Beach, CA · Member since 2018 · 27 posts · 12 votes
7y
@Dave Thomson ahahahah. Me too. He’s the best. Also, I feel like there is a recession post every 30 mins.
0 Reply
Anthony Dooley
Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
7y
@Gadiel Del Orbe more likely than a recession, rent control laws that are being passed in CA. A recession is two consecutive quarters with negative GDP growth. Thus far, we haven't had on quarter. Last quarter was over 2% growth and this quarter is projected to be 3%. So, the soonest possible time for us to go into a recession would be 6 months from now. Meanwhile, the economy is booming. I think you have been watching CNN too much.
4 Reply
Aaron Klein
Specialist · Wesley Hills, NY · Member since 2018 · 20 posts · 10 votes
7y
In Real Estate the recession isn't and should be something from holding you back in investing. In fact, you should always invest even when the market is that. That's actually the best time because right now it's down but soon it will go back up. It always does.

The rule for the people that want to religiously abide by the recession's tide:
Sell High now (before the recession). Buy Low then (during the recession). Sell High after (once its past).

The successful real estate investors know how to surf the wave of the recession to perfection. Just know that while the hype is big, it's not doomsday.
With all of this being said, the media is making this bigger than it is because they ran out of stories on President Trump and they have to scare you now with something else so you pay attention and watch through the commercials. If you want to be safe stick around here in bigger pockets and you should be fine.

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Reginald Ross
Rental Property Investor · Gulf Shores, AL · Member since 2019 · 107 posts · 115 votes
7y
@Gadiel Del Orbe
So what if there’s a recession? People still have to have a place to live. If you’ve done your homework and used realistic assumptions where actual data isn’t available, your investment *should* be relatively recession proof.
What happens in a recession? Economic activity slows and property values go down. Plan for 10-20% contraction in rents. It’s not all bad though, properly taxes follow property values so those should go down as well. Prepare to protest with documentation.
Unemployment may go down and tenants might be more at risk of losing their jobs. Screen your tenants more rigidly and have swift and rigorous eviction processes.
The fact that you’re moving into one side of the duplex you intend on buying is an even safer move. I understand the hesitancy but at some point you have to make a leap of faith because at the core of your investment is an inescapable element that you can’t avoid...risk.
You have to plan for risk and be ok with it. Acknowledge it, plan for it and if things go south...well, congratulations you learned something.
Good luck!
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Nigel Guisinger
Rental Property Investor · Member since 2019 · 93 posts · 110 votes
7y
A prudent investment mentality isn’t right or wrong in every case. The question comes down to what is your plan with the property. Are you buying based on cash flow or appreciation? If you buy now and it cash flows you don’t need to worry about asset value if you have the percentage of cash on cash that you want and you plan on holding long term. Think in terms of income required each month and income you receive each month. If your plan is to buy and hope that any property just goes up, I suggest just going to Vegas and putting it all on Red on the roulette table because hoping it goes up is just a gamble if you don’t do the research and have a game plan. Remember money is made when the market goes up and when the market goes down.
One of the smartest investors of our life famously said “The best time to buy is when you have the money and the best time to sell is the day you die.”
Run the numbers and then do it again and make the decision you feel best with. If the numbers work don’t cheat yourself. But if they don’t you need to walk.
1 Reply
Mark D Saller
Member since 2019 · 4 posts · 1 vote
7y
i don't think a recession is on the horizon. The Feds are about to lower interest rates again to stimulate the housing economy. People have a ton of equity in their homes thru the past housing failure and are in good shape to sell , the problem is the seller inventory is low and its a seller market.
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Max Zappas
Member since 2018 · 11 posts · 2 votes
7y
Try and find a deal, that is the most important thing in these times. If the duplex wasn't enough of a deal to be able to move forward then that is good. You want to be sure you'll hit at least a solid base hit. In times like this, you need to analyze what your exit strategy will be for any given deal and then run stress tests on it to see what you could handle in the event things got worse. For example, run your numbers as you think they will be, then run them with vacancy factors, with lower rents, with longer hold periods, and see if you'll be able to hold on through a downtown. The long and short is, if the deal is good enough, there is never a bad time to invest. So, find a good deal. Off market is a great way to find deals.
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Nicholas Saremi
Member since 2019 · 1 post · 0 votes
7y
Hi Gadiel!
Looks like you've had a bit of response already. Since you'll most likely look to get a loan as a first time buyer, you'll want to take advantage of these historically low interest rates. Have you thought of living in one half of the duplex and renting the other half to pay your mortgage? To answer your question, the housing market will have to drop to below 2010 levels for it not to make sense to buy now, especially if you find yourself a deal. Los Angeles is one of the hottest markets in the country right now and we don't foresee the housing market taking that steep of a hit anytime soon. Hope this helps!
-Nick Saremi
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Carl Childers
Member since 2019 · 6 posts · 26 votes
7y
Buying the correct way is recession proof. What I mean to say...find a great deal on a duplex or triplex...a great deal in LA is not the same as one in Atlanta so it’s relative. By having multiple family other people will pay your mortgage...you can practice being a landlord. It’s not a commercial loan. And having rentals in a strong market or a recession is always needed. In LA some will never buy and there will always be renters so others are always paying your bills.
Recession is not negative it is opportunity. If you buy before just make sure the numbers work and you are good no matter what. The value of the asset doesn’t matter if you are playing the long game because what goes up must come down...but it will rise again.
Go. Buy. Invest!
0 Reply
Shannon K Hilliard
Member since 2019 · 2 posts · 2 votes
7y
If you are investing for the long term, and you have good cashflow from rents to help you hold during a potential downturn, I'd say there is no time like the present to start investing. Investors who are looking to flip need to watch the market closely. I started my investing portfolio in the last market peak. I held though the "great recession" and made cashflow from rents during that time. My properties are worth about 40% more than when I bought them at the last peak. Dive in. And have a smart plan in place to hold through the downturn if and when it comes.
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David Wright
Member since 2018 · 9 posts · 4 votes
7y
If your numbers are good and you can create cash flow from the other side, I think this sounds like a good investment. Your timing is very good, interest rates haven't been this low in more than 2 years, and the best minds are saying the pullback next year will be mild, maybe 5% to 10% max nationwide.
2 Reply
Julia M. Spencer
Wholesaler · Member since 2017 · 1 post · 0 votes
7y
I've made this video which explains why one should be careful with markets such as LA and aim for more linear markets instead, especially as a Beginner.
0 Reply
Julie Noone
Member since 2019 · 17 posts · 3 votes
7y
In 20+ years of investing in the Denver and front range markets, we were never certain it was a good time. If the economy was booming, were we buying at the peak? If the economy was failing, would it get worse? (I can remember a time we went 5 months with a vacant rental.) We invested what we could with the money we had at the time and then worked hard and hung on long term. Now I wish we'd taken more chances earlier on. :) Good luck to you!
0 Reply
Tom Wade
Member since 2019 · 1 post · 0 votes
7y
I’m in East Tennessee. No income tax, low cost of living, mild seasons, low unemployment, the economy is red hot. I haven’t advertised an available rental in the past three years. If one of my rentals is going to become available, I have several fresh applications before the tenant moves out. In this economic situation it would be hard for you to miss.
0 Reply
Matt Carey
Investor · Brandon, FL · Member since 2017 · 178 posts · 67 votes
7y
@Gadiel Del Orbe
Predicting the market is a monstrous waste of time and energy. Buy and hold investments are naturally immune to cycles.
0 Reply
Theresa Ortez
Real Estate Agent · CA · Member since 2019 · 21 posts · 16 votes
7y
There are still some great opportunities in LA. Finding the right place might take some time as there are often competitive bids. If the numbers work, you can have a great cash flow and the ups and downs of the market don’t matter. I’m working with investors now in the area. Send me a message if you’d like to talk further. Wishing you the best in this next step.
0 Reply
Noelle Lothamer
Member since 2019 · 5 posts · 3 votes
7y
Echoing what a lot of people have said here... I bought my first duplex a couple years before the housing crash. I was underwater for years but it didn't really matter because I always had positive cash flow. Even with the bad economy, rents in my area stayed pretty stable and I was always able to find good tenants. If you're in a desirable area where rents will be steady, I'd say your risk is pretty low as long as you drill down into your numbers and make sure the math makes sense!
1 Reply
Jeffrey Burnham
Residential Real Estate Broker · Las Vegas, NV · Member since 2008 · 5 posts · 0 votes
7y
You should invest somewhere like Las Vegas then. SHORTAGE of rental homes with low taxes
0 Reply
Brandon Ingegneri
Rental Property Investor · Providence, RI · Member since 2015 · 1k+ posts · 594 votes
7y
@Gadiel Del Orbe I do not see a serious recession coming any sooner than the next 18 months to 2 years. It may extend a little beyond that, but unfortunately, coastal regions will most likely see the impacts on RE first. Regardless of prices, interest rates are expected to relatively hover and potentially decrease slightly. That coupled with a low national unemployment rate, and a sting overall consumer, and I do not see that changing at the moment. That doesn’t justify overpaying though. If you hunt down a deal, it survives market ebbs and flows.
0 Reply
AMANDA S.
Rental Property Investor · San Francisco, CA · Member since 2019 · 6 posts · 2 votes
7y
I am holding off until I see what the market does. In a correction, sometimes good deals hit the market because Owner's can't hold on, as they bought too high and rents are declining. I always look for buy low, sell high strategies. I would hold off for now and continue watching things. Additionally most markets on the West coast do not cash flow. You would likely be riding the market for appreciation only in Los Angeles; the same is true for us here in Seattle. The cash flowing markets are mostly in the Midwest and the South. There's some possibility for deals there, but with the uncertainty ahead, and unfamiliarity with those markets, I wouldn't recommend at this time. Patience is a virtue. Know when to wait it out in the wings and know when to pounce.
2 Reply
Tony Kim
Rental Property Investor · Los Angeles · Member since 2018 · 844 posts · 1k+ votes
7y
I'm still buying and the only thing holding me back from acquiring at a faster pace is the financing backlog caused by everyone trying to refi. As a buy and hold investor, a deal is a deal in any market.
0 Reply
Jordan Woolf
Flipper/Rehabber · Huntsville, AL · Member since 2019 · 117 posts · 57 votes
7y
@Gadiel Del Orbe
The yield curve has inverted before every recession the last 50 years and it is inverted right now. I am not expert but that seems pretty straight forward.
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