Invest Now or Wait For Potential Crash

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Invest Now or Wait For Potential Crash

Kelsey Mortimore
Rental Property Investor · Providence, RI · Member since 2020 · 7 posts · 22 votes

Hi!

I’m new to the investing world. I want to buy a multifamily and house hack it. Would it be wise to invest now, while my market (Providence, RI) is super hot or wait for a potential crash? Any advice is greatly appreciated!

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Anthony ThompsonPro Member
Buy and Hold Investor · Cranston, RI · Member since 2013 · 1k+ posts · 1k+ votes
5y

@Kelsey Mortimore I’m doing a mixture of both, trying to keep some cash in reserve but also staying active and still doing some deals here and there to keep some money at work and especially keep a pulse on what’s happening in the market.

For your first investment though, I believe the best time to start is “now”, at any point in the market cycle, simply because you have to live somewhere and there is a lot of virtue in just getting started and getting over the “first deal” hump, overcoming “analysis paralysis” etc.

I’d recommend taking some time to “digest” your first deal though and acclimate to all the joys and responsibilities of house ownership, before rushing on to the next one. I’d say that at any point in the market cycle but with a little more emphasis now as we may see the market change while you’re settling in on your first purchase.

“Waiting for a potential crash” is more of an intermediate/advanced strategy and... to be honest even most of the “experts” get it wrong as far as timing. (Being human, I’m just as likely to be wrong on predictions and timing as most other people of course.)

So I think you should definitely just focus on what’s best for your own situation and “get a piece on the board” with a house hack if the numbers are acceptable to you, and then reevaluate where the market is, and you are, after that.

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  • Jeff CantrellPro Member
    Rental Property Investor · Jackson, TN · Member since 2018 · 45 posts · 17 votes
    5y

    @Jay Hinrichs agree 100%. Big difference between 2007 and now. Home owners had ARMs back then and now they have 30yr 2.5-3% FRMs. There’s no reason AT ALL for any type of mass defaulting on payments. I’m no expert, but I don’t see a housing crash coming. A possible small price correction, sure, but no major adjustment or crash. There’s just no reason for it to happen. I’d love to hear the scenario that would trigger it.

    Commercial realestate may be a different story due to the current situation with so many companies operating remotely. If that works long term, I can see commercial taking a hit.

    4Reply
  • Taylor L.
    Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
    5y
    Originally posted by @Jeff Cantrell:

    @Jay Hinrichs agree 100%. Big difference between 2007 and now. Home owners had ARMs back then and now they have 30yr 2.5-3% FRMs. There’s no reason AT ALL for any type of mass defaulting on payments. I’m no expert, but I don’t see a housing crash coming. A possible small price correction, sure, but no major adjustment or crash. There’s just no reason for it to happen. I’d love to hear the scenario that would trigger it.

    Commercial realestate may be a different story due to the current situation with so many companies operating remotely. If that works long term, I can see commercial taking a hit.

    Important to note that commercial isn't a single subset. Office is in trouble for sure, as is retail. But Industrial has done well through the Covid recession, as has multifamily and self storage. I expect we'll see a rush of capital out of office and retail into the other commercial classes over the next few years. 

    2Reply
  • Matthew Mazur
    Real Estate Broker · Los Angeles, CA · Member since 2020 · 46 posts · 18 votes
    5y

    @Kelsey Mortimore don’t ‘time the market’ - if you’re ready to dive in, you have a good understanding of the return you’d like to see and the area(s) you believe in, then jump on the right deal. There will likely be a waive of foreclosures in major markets over the next 12-18 months. I can say that will happen in Los Angeles with some confidence based on the current # of defaults in the pipeline. Will that correlate with a wider market crash? I have no idea. I do know that COVID has made people place a higher premium on where they live and on ownership, that lending rates are excellent and that banks are hungry for residential and MF opportunities because they are being really conservative with retail, office and hospitality/ground-up developments.

    I can’t say that increased foreclosures will correspond with equally as favorable lending conditions, so right now seems pretty good if you have the capital lined up.

    2Reply
  • Markesha Ramirez
    Rental Property Investor · Frisco, TX · Member since 2020 · 18 posts · 18 votes
    5y

    @Kelsey Mortimore I’m doing a mixture of both , i mean honestly properties i would have never guessed i own now as my rental properties . Real estate market is booming

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

    @Kelsey Mortimore nobody can predict anything related to financial markets. Househack now and get all of the awesome benefits!

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  • Matt Higgins
    Property Manager · Blaine · Member since 2015 · 209 posts · 276 votes
    5y

    Let’s just say covid  wasn’t “a thing” but we decided to take 8 months off from filing evictions and having to pay rent.  Also, we decided to let any home owner who wanted  to stop paying their mortgage for 6 months with out a clear cut plan on what happens at the end of the 6 months.  During this same period of time unemployment shot up to 8% when prior to that it had consistently ran at 2%.  This is the world we are currently living in.
    The 12 months (or however long it ends up lasting) would create a bubble even if unemployment were still at 2%.  Some homes are always in default!  I believe this to be a government induced bubble of foreclosures and their has to be a reckoning.  I am still picking up a cash flowing property here and there, but I believe the prudent thing to do is to get cash for 6 months to 1 year after evictions turn back on.  
    I disagree with the “people will just sell the house because they have equity now” argument.  What’s the old saying?, “in investing values go up the stairs and down the elevator”.  
    this is different than the prior few years when things just felt frothy.  There is with out a doubt a backlog of foreclosures to come created by the government. 

    2Reply
  • Grey Stone
    Investor · Palmdale · Member since 2016 · 112 posts · 80 votes
    5y
    Originally posted by @Michael Davido:

    I have the same reservations while looking for my first deal. I think I found possibly two, one inexpensive with a 8.72% ROI, the other a little more expensive, with around a 15% ROI. I still need to line up a preapproval, set up an appointment to see the property, and possibly make my first offers.

    There is a lot of talk about a crash coming "soon" or buy now - don't time the market, wait it out, make sure it's a good deal, cash flow, etc.  You talk to one person and they say there is likely to be a correction in 2021.  It starts in the bigger cities and then filters down to smaller markets.  Another says to look at the economic numbers and you'll see a crash occurs every 7 years and it has been 12 years since the last one.  And others say, keep buying as long as it's a good deal.

    Could someone explain a little more about "just make sure it's a good deal that cashflows and you'll be fine?" Put our hearts at ease. What is the rationale behind it if a correction occurs next year? I think my biggest concern would be losing value in the property and tenants stop paying rent. In other words, how do we ignore the potential for a crash with the confidence that we find a deal that is cash flowing with a good ROI? I hope my question is clear. I'm having a difficult time expressing what I'm thinking.

    If purchase prices drop (fmv), you are not forced to sell. As long as you feel confident it is a desirable property that will be rented for a good margin over the costs of holding the property, you should be fine. If the tenant stops paying, but you have reserves to get through an eviction, etc. You should be fine. If tons of homeowners lose their homes, they still need a place to live and will become renters. In theory, rents should remain stable and there may be a larger tenant pool to choose from (depending on the quality of your area). You should be fine. If you find a property that has a great ROI, think of reasonable worst case scenarios and if you think you will still be fine, take the leap. I am only looking at properties priced atleast 15% below FMV, with atleast a 20% spread on true cash flow, in "good" locations and am maintaining reserves. Are these super easy to find? no.....is it impossible? no

    2Reply
  • Fred K.
    Member since 2019 · 18 posts · 21 votes
    5y

    Here is an interesting article from the horse’s mouth on this topic:

    https://www.stlouisfed.org/publications/housing-market-perspectives/2020/storm-clouds-approaching-housing-market

    3Reply
  • Joseph Falco
    Member since 2018 · 6 posts · 5 votes
    5y

    @Kimberly Troy Are you selling your rentals ?

    1Reply
  • Ryan Cleary
    Investor · Palm Beach County, FL · Member since 2019 · 370 posts · 330 votes
    5y
    Originally posted by @Kelsey Mortimore:

    Hi!

    I’m new to the investing world. I want to buy a multifamily and house hack it. Would it be wise to invest now, while my market (Providence, RI) is super hot or wait for a potential crash? Any advice is greatly appreciated!

    0Reply
  • Account Closed
    Hayward, CA · Member since 2017 · 48 posts · 55 votes
    5y
    Originally posted by @Fred K.:

    Here is an interesting article from the horse’s mouth on this topic:

    https://www.stlouisfed.org/publications/housing-market-perspectives/2020/storm-clouds-approaching-housing-market

    Thanks for this link.  I tend to be continuously bullish on real estate, so I appreciate a well put together counter example.

    0Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    5y
    Originally posted by @Matt Higgins:

    Let’s just say covid  wasn’t “a thing” but we decided to take 8 months off from filing evictions and having to pay rent.  Also, we decided to let any home owner who wanted  to stop paying their mortgage for 6 months with out a clear cut plan on what happens at the end of the 6 months.  During this same period of time unemployment shot up to 8% when prior to that it had consistently ran at 2%.  This is the world we are currently living in.
    The 12 months (or however long it ends up lasting) would create a bubble even if unemployment were still at 2%.  Some homes are always in default!  I believe this to be a government induced bubble of foreclosures and their has to be a reckoning.  I am still picking up a cash flowing property here and there, but I believe the prudent thing to do is to get cash for 6 months to 1 year after evictions turn back on.  
    I disagree with the “people will just sell the house because they have equity now” argument.  What’s the old saying?, “in investing values go up the stairs and down the elevator”.  
    this is different than the prior few years when things just felt frothy.  There is with out a doubt a backlog of foreclosures to come created by the government. 

     You do understand why I would sell off my equity right?  It has nothing to do with Covid19.  It has everything to do with my cash (equity is cash lying dormant) outside of the property is 5 times more powerful than if it stayed in the property...and whether it stays or moves, the equity has exactly the same face value...it's the true value that increases to 5 times the face value when I move it.

    That also means my cash flow increases as well as the appreciation since I now have more property value than I did when the equity remained in place.

    0Reply
  • Dylan Barnard
    Rental Property Investor · Justin, TX · Member since 2017 · 134 posts · 57 votes
    5y

    @Kelsey Mortimore as long as cash flow meets your criteria and you keep a decent amount of cash reserves, it shouldn't matter when you buy. I would argue it costs more to stay out of the market a lot of the time. Sometimes it does cost to pay prices that seem unsustainable, so I also understand your fear. It's a tough time to wrap your head around at the moment, for us all..

    0Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    5y

    There are deals in every kind of market . This same question has been asked at the top, bottom and middle of every cycle

    0Reply
  • Kimberly TroyPro Member
    Member since 2020 · 17 posts · 16 votes
    5y

    @Joseph Falco, no I'm plannig to hold on to them.

    0Reply
  • Syed H.
    Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes
    5y
    Originally posted by @Jay Hinrichs:

    Exactly. People always forget that liquidity disappears in a downmarket. HMLs are gone, Banks are gone, LOCs are diminished; etc etc. People also seem to forget that even though you should buy when there's blood on the streets, few people have the guts to invest at that time. Everyone is waiting for the bottom. Most REIs didn't buy a single thing between 2008-2011. 

    0Reply
  • Hyacinth Dolor
    Investor · Bridgeport, CT · Member since 2016 · 24 posts · 12 votes
    5y

    It’s always a good time to invest especially if you’re house hacking and the numbers makes sense. Think of your process and your timeline. If you invest during a good market and have spent a few months doing Reno etc you’re only preparing yourself for the next crash. You’re also getting your foot yet in the business. I purchased a few properties during the crash and almost every other year since. Both the crash investments and the regular purchases are similarly profitable. As a matter of fact the non crash ones are even more profitable now due to such demand for units. Since house hacking requires lower down payments you could be left with some extra cash to be ready for the next crash. History shows there’s always a crash. That’s how the market corrects itself. The bigger question is at what point do you know when is a good time to dive in. Answer- Yesterday. 

    1Reply
  • Jon KellyPro Member
    Investor · Bethlehem, PA · Member since 2016 · 929 posts · 951 votes
    5y

    @Kelsey Mortimore If the numbers make sense, jump right in! Then, if/when the crash occurs, you'll have a lot more experience and you'll be ready to add to your portfolio. 

    0Reply
  • Whitney HuttenPro Member
    Investor · Boulder, CO · Member since 2016 · 1k+ posts · 1k+ votes
    5y

    @Kelsey Mortimore here are my thoughts about investing in a downturn. Long story short, buy reasonably well, have reserves, make sure you have ample cashflow, and don't put yourself in a position where you have to sell.  If you aren't forced to sell, you just need time to help you through the storm.

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    0Reply
  • Johnathan Rodriguez
    Rental Property Investor · NC · Member since 2020 · 5 posts · 1 vote
    5y

    @Kelsey Mortimore

    Where are you looking to invest? Im thinking the same thing

    0Reply
  • Manuel PradoPro Member
    Midland, MI · Member since 2015 · 56 posts · 17 votes
    5y

    @Kelsey Mortimore there are good deals today, there were good ones yesterday, and there will be some more deals to come in the future. You can’t do anything about the past neither the future. That’s why today is called “present” Know what your criteria is, and if the numbers work out, INVEST!

    0Reply
  • Kelsey Mortimore
    OP
    Rental Property Investor · Providence, RI · Member since 2020 · 7 posts · 22 votes
    5y

    @Johnathan Rodriguez I’m looking in the Providence, RI area!

    0Reply
  • Cheryl Vargas
    Rental Property Investor · Rohnert Park, CA · Member since 2014 · 306 posts · 160 votes
    5y

    @Jay Hinrichs

    It’s good that you brought in the perspective of credit availability in the last downturn. Everyone in this post is talking about a house hack being a good investment to buy now, since the house hacker has to live somewhere.

    But I am looking at buying a rental out of state now, which is a completely different situation, and applies to the credit availability perspective that you have brought up.

    Is now a good time to buy for a non- house hack out of state? I would be buying a property that cash flows now, but what chance is there of market rental rates falling in a high population influx city such as Orlando during a downturn and my property not cash flowing anymore?

    2Reply
  • Tyler GibsonBusiness Member
    Real Estate Agent · Orlando, FL · Member since 2017 · 1k+ posts · 2k+ votes
    5y

    @Cheryl Vargas I am local in Orlando. I don't see rental rates falling. This is what I see happening. The crash is predicated on the idea that people who have been laid off due to covid have put their mortgages into forbearance and are not currently paying. The banks will come calling someday but they can't right now due to the government's intervention. It is political suicide to allow the banks to foreclose on people while the virus is not under control. So this means there will likely be more time before the banks can start forclosing. Well if we follow the logic that the banks won't be able to foreclose until the virus is under control then it is reasonable to assume that these people would likely be back to work earning near the same income they had prior to covid. They will need a place to live. They won't be able to go out and buy a new house because their credit will be trashed. They will have to turn to the rental market. These will be well-qualified tenants that need a place to live. Orlando already has lower inventory for rentals so this is what leads me to believe that rental rates will not fall but could actually go up. No one has a crystal ball but this is what I foresee happening. 

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  • Cheryl Vargas
    Rental Property Investor · Rohnert Park, CA · Member since 2014 · 306 posts · 160 votes
    5y

    @Tyler Gibson

    That’s great to hear that Orlando has lower inventory than rental demand and the potential for rents to increase in a downturn.

    Thank you for the insights!

    1Reply
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