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@Jim Goebel makes a valid point. Without wishing to put the cat among the pigeons this very same scenario played out over and over before the previous crash; commission-takers will naturally take a different view from stake-holders who carry risk. It’s par for the course and we all accept that. So, the conversation needs to keep civil and scientific. 

A couple of points; firstly, although RE is localized research shows there is ‘contiguity’, which means the effects of RE spills over into neighboring areas and beyond. This bubble is more widespread due to investor activity. Secondly, the monthly nut drives sales not the price per se so interest rates are fundamental to any discussion. Thirdly, it’s not necessarily home prices themselves that do the damage, but their effects on credit markets and the downward spiral this can create. A space to watch IMO is leveraged loans.

You can insulate yourself against recessions, but the most revered hedge against volatility has always been ‘value’ investing; buy low and sell high. The second most useful tool is diversification, which for many includes a wider asset allocation than just RE. However, diversification within RE has mileage. In a nutshell, you are looking for neutral or even negative correlations. There is no research on this to my knowledge, but it shouldn’t be impossible to find within RE.

Gadiel, I'll offer a slightly different perspective because, I hear you, I don't want to overpay for a property and then watch the market tank. Having said that, I think there are still options. If you're looking for a place to live, one option is to do as Brandon Turner always says, and house hack. Find a duplex, live in one and rent the other. If the cashflow covers expenses, then you’re essentially living for free and won’t mind as much if the market goes down.

Even if the house is strictly an investment, enough cashflow can make it worth it to buy now. I actually did an analysis, looking at what would happen if I had bought at the height of the market in 2006, road it all the way to the bottom and then back up to current levels vs. waiting until it bottomed and buying from there to the current levels. In the end, with the right cashflow, even if you bought at the absolute top and held, you ended up ahead.

My advice is don’t trip. Satisfy your own questions and research in the markets and asset types your are interested in. You’re either in or you’re out.

Originally posted by @Randy S. :

In August of 2019, Warren Buffet's company Berkshire Hathaway had a record $122 Billion of cash sitting on the balance sheet. Year to date, they have sold more investments than bought. Warren Buffet <-- The guy who seems to know everything about when to invest and when not to invest.

It seems like Warren should read this thread so he can take some advice and put his money back into the market lol.

 Not to contribute to fear-mongering, but it is also quite possible that he's cash heavy so he can go shopping when everything is on sale...Food for thought. 

What I led with still holds true though, get out there and get to it!

- JM

@Gadiel Del Orbe

Here's how I look at it (Im a home owner, investor, prop manager/broker in LA)

You have to pay to live somewhere. If you have stable income and a good likeliness of keeping that through good times and slow times and if you have the means to buy now, start looking and jump on the right place when you find it. The value might drop but it will always come back and continue higher. 

We don't know what the next recession will look like, what the banks will do as far as lending, how long it will last, or if we will see values drop meaningfully or at all. There is SO much demand here and so little available supply. 

So if you have the cash, the desire, then start looking and when you find the right place, that will be a sign that the time is right. DM me if you have any thoughts or questions - happy to help you talk it through 

Hello Gadiel,

I'm struggling with the same situation and well the only constant pattern I keep hearing from the investor that bought property in the 2000-2006 that did not lose their shirt is that they invested base on cash flow and not appreciation. Today I'm currently seeking rentals properties with an ROI of 12% after all expenses are paid, not easy but doable.

But most importantly educate your self first. Read, listen to podcast get and get infatuated with finding a solution to this problem, obviously you are not going to fix this problem for the world, you only need to fix it for your self.  This will look something like this :

-Know your Budget. Know exactly how much money you have for your investment, this is important because is going to give you your lateral limits.

-Find your Market. You need to find a market that works for you this can be in your backyard or in a different state.  Obviously, if this is not in your own city this will require more work on your part, but this is part of the game.

-Find your dream team. You need to find what @David Greene calls your core 4 (Deal finder, Property Management, the contractor, the lender)  read this  https://www.biggerpockets.com/...

Now, all this will take time don't rush it, the key is not to become impatient! and to enjoy the process of becoming a PRO.... Good luck

Reading subjections 

Long-Distance Real Estate Investing

BRRRR

Retire Early with Real Estate. 

I think a prudent person and our own belief a recession is coming. You have to do your homework and see what are you interested in. Usually student housing, mobile home parks, and selfstorage do well in a downturn. I would do your home work and do your diligence. 

The time is always now. There is always going to be talk of a recession. Nobody knows what is going to happen or when. Take action and make moves. Just do your due diligence, buy right and get the ball rolling. You'll be glad that you did. Best of luck to you moving forward!

J Scott's Book Recession Proof Real Estate is a great place to start.  He give great advice on how to make investments even in a hot market that will most likely be safe in in a recession.  

I think a recession is coming but I dont think it will be nearly as bad as the one before where lenders were giving away loans to people who couldnt repay them.  Im personally not too concerned as I buy and hold so a temporary dip in value will not have much impact on me.

Great topic! Consider these (3) "rules" when investing through a recession: #1 Buy for cash flow, not potential appreciation. #2 secure long-term conservative financing. #3 Have cash reserves on hand. Most investors who followed this advice made it through the last recession without losing their property. 

Folks using 2008 as a mirror of what can /did happen is a mistake.

I just don’t see the real-estate getting slammed like that again the loans on the books mostly are solid loans.

Still a great demand for homes here below 300k, builders not keeping up or not wanting to keep up?

So, the current market has pushed homes up to levels that has put the big profit investors trying to reinvent the wheel still looking for the big margins of the past.

Big fish seem to weather the storm ok no mater happens.

Originally posted by @Jim Chuong :

@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

That reason is not necessarily what many people are implying. It's very likely that he's simply finding far fewer opportunities to invest in. The U.S. and developed world in general are undergoing substantial regulatory constriction, corporate consolidation, & demographic decline. Berkshire has had a lot of success since the last recession but keep in mind that a lot of that initially came from them putting pressure on congress to bail out banks that had their money in them... so when other companies got cleaned out, Berkshire had room to run when others couldn't, and a lot of their success cascaded from those efforts.

Also, we have to remember that Buffett is 89 years old and has long since passed the top of his game.

Only time will tell, I suppose.

Honestly I started off buying foreclosures at a really cheap price in areas I knew would climb up in value. So if the housing market did crash the price for my properties would probably still be worth more then what I paid for them. For instance, my very first property I won in a auction for $80k back in 2013 and just sold it this summer for $210k. Another property that I bought sold for $918,000.00 in 2008, but I bought it in foreclosure for $313,000.00 in 2015. So if another recession hits, it won’t hit home too hard. Remember you make your profits on the buy, not the sale.

I would do your homework about the market, and the new rent control law. Also, are you trying to house hack e.g. buy a duplex and rent one side out and live in one side?

Originally posted by @Billy Smith :

Folks using 2008 as a mirror of what can /did happen is a mistake.

Indeed. I lived through two boom-bust RE cycles in the Boston area, the first one ending with the S&L debacle and the second - in 2008. The two cycles were different and so will be the next one. IMHO, the next bust will not occur until RE marketplace participants forget the lessons of 2008 in another 20 years or so. One can easily spend half of one's investor life sitting and waiting for the next Big Bust and then, lacking hands-on REI experience, be too afraid to take advantage of favorable economic conditions.

In my experience,  prices in seemingly overpriced Class A locales decline less and are first to recover.  The opposite is true for Class C locales where housing prices drop like a stone and recover considerably later.  

I do understand what you are going through and that you are worried about jumping in but let me tell you from my experience. I was 24 when I purchased my first rental property. I found myself talking myself out of every deal because I was to scared to pull the trigger. Will I fail? Will I not turn a profit? ect…..But I eventually told myself that I had to jump in and make the most educated decisions based upon my knowledge at the time...Well it didn't go well at first but eventually turned around and will make $200 a month starting in 2020 (I rented it out below the market value because I just wanted to fill the units).

Go for it man. Don't be scared of a recession you could wait around for years and miss out on the hottest market.

There are deals always present at the top and bottom of a market.  It's about knowing what a deal really looks like to determine if you are at risk in the current cycle.

@Gadiel Del Orbe

I recently purchased my first investment property a 2 family. It took almost 2 years to convince my wife to sell our first home (a single family) in order to jump into investing. It was a long battle to get to this point and winning her over but the tougher battle was to conquer my own fear. Countless hours listening to the BP and other financial podcasts and reading the forums and books, I was able to ease my anxieties. So after getting my wife on board we accept an offer on our house. Then we find out my wife is pregnant with our second child 2 days after accepting an offer on our house. She's pregnant and we have an 18 month old... great timing right? The point I'm trying to make is that the timing will never be prefect and you won't always know what is going to come your way. Everyone gets to a point where they either crack and they go all in or they walk away. Weather, it's recession speculation, convincing your spouse, confronting doubters, a baby on the way etc... there will always be something that you will use to hold you back. The best time is the present to change your future. Do you homework and get comfortable being uncomfortable. 

Best of luck!   

Originally posted by @Rob Hallowell :

@Gadiel Del Orbe

I recently purchased my first investment property a 2 family. It took almost 2 years to convince my wife to sell our first home (a single family) in order to jump into investing. It was a long battle to get to this point and winning her over but the tougher battle was to conquer my own fear. Countless hours listening to the BP and other financial podcasts and reading the forums and books, I was able to ease my anxieties. So after getting my wife on board we accept an offer on our house. Then we find out my wife is pregnant with our second child 2 days after accepting an offer on our house. She's pregnant and we have an 18 month old... great timing right? The point I'm trying to make is that the timing will never be prefect and you won't always know what is going to come your way. Everyone gets to a point where they either crack and they go all in or they walk away. Weather, it's recession speculation, convincing your spouse, confronting doubters, a baby on the way etc... there will always be something that you will use to hold you back. The best time is the present to change your future. Do you homework and get comfortable being uncomfortable. 

Best of luck!   

You're a braver man than me! Recessions don't scare me nearly as much as going out on a limb on a plan that would entail convincing my wife to selling our primary house. I'm sure it'll end up being the right decision though!

I always find it interesting that some syndication groups will sit out of the game for years trying to time the markets and predict particular outcomes, while others continue doing deals through the cycle. Two quotes come to mind, "When your education increases, your risk decreases." - Robert Kiyosaki? "We learn from mistakes, but the mistakes don't have to be our own" - Warren Buffet? 

Buy a cash flowing deal at a reasonable price (profits made in the buy). Always tell yourself wealth isn't built in a day.  Hold long term, suck out the cash flow, build equity, and then 1031 up. Rinse and repeat.  Take action!  If you are still hesitant and scared, I would recommend doing some multi level marketing (backed by Kiyosaki and Trump) to be able to sell things, and have the courage to do so.  More often you push your limits and do things you aren't comfortable with, the greater your odds of taking action.  Greatest skill to have per Robert Kiyosaki is the skill of selling.  Good luck, take action, and do your hw/due diligence.  

When I started in 2008 people said "you're stupid," "You're crazy," "you can't make money in real estate." Then in 2010, after I made a lot of money in RE, everyone said that shadow inventory was going to flood the market and prices would go down even further. By 2013, everyone said we are going to see a double dip recession. By 2015, it was that prices are too high and we are 12-18 months from a recession. Still today it is the same. Eventually those calling for a downturn will be right. 

It's my philosophy to always plan for a recession. Stress test your deals and plan for things to go wrong. Then when you do buy, you have some flexibility. Buy for cashflow, with value add, use solid debt financing with lower leverage and have solid cash reserves (9+ months of P&I payments). While times are good, make the major cap ex improvements, figure out ways to lower expenses and increase revenue. 

@Todd Dexheimer I love it. Well put. There are lots of folks out there predicting the next recession, when they could be spending time analyzing properties, working on their portfolio, or building their network. 

There are a lot of really great replied here. You couldn’t find a more fertile and the first mix of great feedback. But as someone who lost everything in the recession and swore off the real estate market and is now back. I’d like to give you a perspective. I was a realtor, investor, and my husband owned a specialty carpentry company. So we failed hard, literally losing everything. I mean living off welfare, a family of six in an 800 square-foot apartment  Apartment, going back to school, selling everything, making my own laundry detergent to save money, failing hard. 

And the best lesson I learned was that you can’t make decisions based in fear. If you’re afraid to buy a home right now then don’t. Why don’t you work on personal growth.  You will never ever lose on an investment in yourself. Let me know what you decide.