Warnings of Recession

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Warnings of Recession

Gadiel Del Orbe
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
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?

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  • Roni E.Pro Member
    Specialist · Earth 2.0 · Member since 2019 · 598 posts · 271 votes
    7y

    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. 

    0Reply
  • Michael WallimannPro Member
    Rental Property Investor · Western Washington · Member since 2018 · 151 posts · 60 votes
    7y

    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!

    0Reply
  • James Murphey
    Waipahu, HI · Member since 2018 · 121 posts · 81 votes
    7y

    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.  

    1Reply
  • Nathan Williams
    Member since 2019 · 172 posts · 93 votes
    7y

    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.

    0Reply
  • Travis Watts
    Investor · FL · Member since 2017 · 247 posts · 245 votes
    7y

    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. 

    1Reply
  • Billy Smith
    Shawnee Mission, KS · Member since 2016 · 719 posts · 313 votes
    7y

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

    Mainly because 2008 crash was from massive amount of bad mortgage loans/fraud that shook the foundations of huge wall street banks that had bad investments i.e. mortgage /insurance Derivatives on such loans around the world it spread like the flu of 1918 around the world.

    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.

    1Reply
  • Danny Grey
    Investor · La Jolla, CA · Member since 2016 · 66 posts · 169 votes
    7y
    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.

    0Reply
  • Joique Bell
    Member since 2019 · 1 post · 0 votes
    7y

    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.

    0Reply
  • Roni E.Pro Member
    Specialist · Earth 2.0 · Member since 2019 · 598 posts · 271 votes
    7y

    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?

    0Reply
  • Alex G.
    Eastern Mass & Central Maine · Member since 2009 · 252 posts · 135 votes
    7y
    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.  

    0Reply
  • Kyle Root
    Rental Property Investor · Appleton, WI · Member since 2019 · 36 posts · 11 votes
    7y
    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.
    0Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    7y

    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.

    0Reply
  • Rob HallowellPro Member
    Rental Property Investor · Gilford, NH · Member since 2018 · 7 posts · 8 votes
    7y

    @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!   

    1Reply
  • Tony Kim
    Rental Property Investor · Los Angeles · Member since 2018 · 844 posts · 1k+ votes
    7y
    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!

    0Reply
  • Travis Watts
    Investor · FL · Member since 2017 · 247 posts · 245 votes
    7y

    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? 

    0Reply
  • Luke Saglimbeni
    Rental Property Investor · East Longmeadow, MA · Member since 2019 · 154 posts · 64 votes
    7y

    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.  

    0Reply
  • Todd Dexheimer
    Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
    7y

    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. 

    2Reply
  • Taylor L.
    Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
    7y

    @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. 

    2Reply
  • Bri Clark
    Contractor · Nashville TN · Member since 2019 · 17 posts · 3 votes
    7y

    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.

    0Reply
  • Ben Leybovich
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    7y
    Originally posted by @Russell Brazil:

    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?

    I have always enjoyed Russell's perspective. But, I have now fallen madly in love with Russell...

    Yes, I said it!

    3Reply
  • Dan Close
    Rental Property Investor · Louisville, KY · Member since 2012 · 51 posts · 31 votes
    7y

    There are always deals to be had even in a hot market, you just have to grind a lot more to get them. If you buy right unless something catastrophic happens with the economy you can weather a recession and still not be upside down. I should add a disclaimer though, I invest in Louisville, KY where the ups and downs are not nearly as dramatic as they can be in the coastal cities. I would imagine though if you can buy/rehab at 60 to 70% ARV minus repairs you should still be pretty good.

    1Reply
  • Jake T.
    Rental Property Investor · San Francisco, CA · Member since 2016 · 9 posts · 1 vote
    7y

    Go for it!  Make sure the duplex is in a good area and that rents aren't all the way at their potential.   Also, look for a value-add property if you're still nervous.   You'll do fine! Call anyone of these investors and they'll surely give you all the reinforcement you need to make a go at this. 

    0Reply
  • Account Closed
    Rental Property Investor · Sacramento, CA · Member since 2015 · 1k+ posts · 893 votes
    7y

    If you're going to buy a property that you plan to hold on to during a downturn, just pay really close attention to:

    1. How much value is the property poised to lose, if any, during a recession? At the peak of a market, I like less volatile markets, and seek out the least volatile assets within those markets that still meet my purchase criteria. Big cities tend to go up and down more during market changes than smaller markets. Nicer neighborhoods tend to go up and down more during market changes than working class areas. CA tends to go up and down more than midwestern and southern states.

    2. How is my property going to perform today, and through the crash, from a cash flow perspective? If i'm buying property at the peak, I want to hyper-compensate for that by means of earning the highest yield possible. If I'm going to be stuck with something until the market goes down and back up again, I want my bank account to be happy that I'm stuck with it. 

    If you REALLY want to be a homeowner now, and perhaps take advantage of the ridiculously low interest rates, a duplex might make sense. Just make sure you're ok with what you're paying to buy it, and the monthly yield it produces, regardless of its value. At the very least, assess the property w/ respect to the 2 points made above, just so that you are aware of what you're getting into, and make sure you accept the possible "risks" associated. 

    I personally wouldn't buy anything new in CA at this point in time. I just picked up a small MFR value add project in Indiana, though (and even that was purchased at about 40% of current market value). It'll cash flow great if I keep it, and has a huge equity chunk that keeps me safe. Honestly though, I'll still probably sell it to someone else that likes it's cash flow more than I do.

    I think it's still a great time to do deals, just be a bit conservative and be poised to ride the waves ahead without tipping over, ya know?

    1Reply
  • Shawn Coverdell
    Investor · Clatskanie, OR · Member since 2014 · 212 posts · 233 votes
    7y

    Find someone who tried to help a friend or family member out by renting to them. You know the cousin who decided to raise pit bulls for a living in the back bedroom to support his meth habit. Replace the floors. spend a couple months running back and fourth to Home Depot. POW!!!  you just doubled your net worth. 

    Yes the market could crash and your net worth only increases 25%. Just drop your rents a hundred bucks and grab up some bargains during the panic. Use some of your of your extra income to help out your friends who were in the stock market. 

    Shawn Coverdell

    Homes in the Hood

    0Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    7y

    There have been signs of a market top for the last 3 years.  There are deals in every market.  We are closer to a top than a bottom, but there are still deals.

    2Reply
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