Investors Who Survived 2008-11: How Did you Make It Through?
Realtor · Southern California · Member since 2019 · 53 posts · 8 votes
Investors Who Survived 2008-11: How Did you Make It Through?
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Real Estate Broker · Raleigh, NC · Member since 2014 · 2k+ posts · 1k+ votes
7yI held on to everything I owned and rented it like normal. Business as usual.
26 Replies
- Rental Property Investor · MN · Member since 2017 · 864 posts · 555 votes7y
Hey @Tania Reuben I may be mistaken, but I think they enacted a law that prohibits banks from calling loans due in that manner. They CAN still do that with Lines of Credit I think though.
To protect ourselves, we always buy positive cash flowing properties and also buy in more stable markets, that weren't overally effected during the last crash. - Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes7y
I got lucky. Being in Vegas we just kept buying and kept raising rents. Good deals became great deals. Think about it. People are making money at today’s prices, imagine how easy it would be at lower prices.
keep in mind, National prices have only fallen once.Everyone sees the folly in people thinking prices can go up forever (in hindsight of course) but they don’t see any folly in 5-10 years of people predicting a second once in a lifetime event happening again, right away. They’ve all heard of recency bias but don’t see it in themselves.
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes7y
Dont sell real estate when prices are low. Pretty simple survival method.
District Invest Group546 Reviews - Real Estate Broker · Raleigh, NC · Member since 2014 · 2k+ posts · 1k+ votes7y
I held on to everything I owned and rented it like normal. Business as usual.
- Realtor · Southern California · Member since 2019 · 53 posts · 8 votes7y
That was my grandfather's line too! (He was big time in his day - grew Century 21 from 10 offices to over 10,000.
"The only way you lose in Real Estate is IF you sell when the market is LOW."
However, reading the story of someone who didn't default and had their loan foreclosed... I didn't realize this was possible.
Originally posted by @Russell Brazil:Dont sell real estate when prices are low. Pretty simple survival method.
- Realtor · Southern California · Member since 2019 · 53 posts · 8 votes7y
Did your vacancy go down or up?
Did you have to offer rental concessions to avoid tenants getting behind or having to evict anyone?
Originally posted by @Dawn Brenengen:I held on to everything I owned and rented it like normal. Business as usual.
- Realtor · Southern California · Member since 2019 · 53 posts · 8 votes7y
I've heard that from an investor or two locally... anyone who was in the middle, KNEW it was coming and they were selling to build up cash reserves.
Originally posted by @Account Closed:Honestly the best downside protection for 08-11 was simply not buying into the bubble building up to 07. That crash was well telegraphed and the bubble was obvious. Real Estate wasn't the only thing flashing warning signals, the build up of garbage debt from securitized subprime crap had been a slow train coming.
For someone unaware at the time, all they needed to do was take a peek at the local case-schiller home price indices and those red flags should have tipped them off to start digging around to find out where we were in the market cycle, and what were the well advertised risks.
For those who unfortunately bought during that time, the best protection was to go easy on the leverage, make sure the property cash flows, and to have cash reserves.
For those who didn't get sucked in, 09-12 was a absolute gold mine for most asset classes, the likes of which we shouldn't reasonably expect again as a jumping off point in our adult lifetimes.
- Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes7y
My rents and occupancy were largely unaffected in the last downturn. Have good locations, cash flow, prudent debt, reserves, and add value and we will do fine in most market conditions.
- Contractor · San Jose, CA · Member since 2018 · 262 posts · 407 votes7y@Tania Reuben Dont sell, keep holding and keep them rented. Rental demand is alot higher during downturns! In most cases, if you hold throughout your lifetime your properties will be worth more than you paid.
- Honolulu, HI · Member since 2017 · 247 posts · 315 votes7y
so you saw it coming, @david abbate? what did you do at that time?
Originally posted by @Account Closed:Honestly the best downside protection for 08-11 was simply not buying into the bubble building up to 07. That crash was well telegraphed and the bubble was obvious. Real Estate wasn't the only thing flashing warning signals, the build up of garbage debt from securitized subprime crap had been a slow train coming.
For someone unaware at the time, all they needed to do was take a peek at the local case-schiller home price indices and those red flags should have tipped them off to start digging around to find out where we were in the market cycle, and what were the well advertised risks.
For those who unfortunately bought during that time, the best protection was to go easy on the leverage, make sure the property cash flows, and to have cash reserves.
For those who didn't get sucked in, 09-12 was a absolute gold mine for most asset classes, the likes of which we shouldn't reasonably expect again as a jumping off point in our adult lifetimes.
- Realtor · Southern California · Member since 2019 · 53 posts · 8 votes7y
I've heard that some had to offer concessions to avoid evicting tenants, lower rent, and in one dramatic instance the valuation of the property dropped enough that even though the loan was being pad, it was called in due to the loan to value diminishing due to reduced valuation.
I actually believe that the meltdown was so extreme that we're unlikely to see anything like it in the forseeable future, but that doesn't mean there are not big lesson's to be learned.
Originally posted by @Junior Soares:
@Tania Reuben Dont sell, keep holding and keep them rented. Rental demand is alot higher during downturns! In most cases, if you hold throughout your lifetime your properties will be worth more than you paid. - Property Manager · Shelbyville, IN · Member since 2014 · 303 posts · 161 votes7y
@Tania Reuben I feel like the meltdown was a period of time when there were so many deals, and not as much competition? So a bad time nationally but a fun time for an investor? Anybody that failed is probably not on this forum...
I could be skewed - graduated high school in '07 and bought 2 flippers that year. Paid 15% hard money, but also picked up a half a dozen rentals buy purchasing on contract, no money down, just needed work/cleaned out.
My dad started a subdivision of new construction in '04 and started phase II of II in '07 ish, bank went belly up and called his $450k note due. Had to sell a 30+ unit trailer park to pay the debt. "Banks arent our friends" is all I've retained from that.
- Rental Property Investor · Ann Arbor MI · Member since 2018 · 58 posts · 43 votes7y
@Tania Reuben
Cash. Flow.
- Rental Property Investor · Toronto, Canada · Member since 2012 · 102 posts · 95 votes7y
@Tania Reuben @Tania Reuben I started investing in real estate in earnest during the credit crisis (2009)
As a Canadian it was never going to be more perfect. The C$ was at parity (or stronger) with the US$, real estate in Phoenix were discounted up to 70% off, every agent who was still working wanted to help me, and there was absolutely no competition from anyone
I applied that same lesson that I learned when buying Berkshire Hathaway stock during the dot com bust - buy when everybody wants to sell.
2009 was the third crisis in which I bought assets. First, was in the 90s when we when through our real estate downturn in Canada. Second, was the dot com boom. Third was the Great Recession
I’m patient because I know that booms and busts always come. There will always be a time when the market wants to give me a deal. Always
- Real Estate Broker · Raleigh, NC · Member since 2014 · 2k+ posts · 1k+ votes7y
@Tania Reuben No rental concessions needed. My target market for tenants is students and young professionals. They all still easily paid rent, and small rent increases happened as they normally do.
- Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes7y
Originally posted by @Tania Reuben:
Inspired by @Brian Burke's harrowing story of surviving the economic meltdown, I'd love to learn what other lesson's people gained through that time.
Many survived, some thrived, lost it all...
While I don't think we're going to see another down turn like that for a long, long time, I do think that protecting your downside is always smart.
In Brian's story, I learned that a bank will foreclose on a property EVEN when all payments are being made on time because the ratio's are no longer good and they need the loan off the books... paying or not (if you haven't read his story, it's in the forum and worth studying). I wasn't aware they would/could do this.
Would love to learn about any lesson's learned during the meltdown.
Tania,
Great question. I actually wrote a post about it before. Here it is:
https://www.biggerpockets.com/forums/432/topics/745147-how-to-survive-and-thrive-when-the-recession-comes
But here are the quick answers:1. I survived because I have properties in C/D & F areas of Cincinnati. Lower income rentals are not affected by the recession. People trade down when the economy worsens. You want to survive the next recession? Don't overlook C areas. Having them is one of the ways to "recession-proof" your portfolio.
2. I have access to private capital. Most of my competitors had become reliant on bank financing. Most banks didn't want to lend money at that time.
3. I continued buying and selling. I bought & sold non performing notes. I did shortsales. Sold some and kept most for cashflow. Investors who got spooked by the recession and stopped buying regretted their short-sighted decision and them giving in to fear. As Warren Buffett said "Buy when everyone's afraid". That's exactly what I did.
And what's amazing is that like Brian Burke, I never lost money for my investors even during the 2008-09 Great Recession. A lot of the young apartment syndicators today have not been through that. Some of them will be in for a "rude awakening" when cap rates start rising again as some of them have marginal deals and they will make their investors suffer greatly.
I hope I am wrong but unfortunately, history does & will repeat itself and people are susceptible in making decisions driven by greed and fear!
- 7yBrian BurkePro MemberInvestor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
@Tania Reuben sounds like you already know my story, but there were two key elements to my survival. First was that I saw it coming--sort of. I knew something was wrong, and by 2004 I knew that buying was hard to justify so I pulled way back. Didn't jump back in full speed until 2008. The second thing that helped me survive was when I did jump back in, I jumped back in buying foreclosed property at humongous discounts. I guess there was a third thing, too--I refused to give up when things were rough and fought my way through it, even when that meant paying out of my own pocket to protect my investors.
What's interesting, however, is my experience was the exact opposite of @Michael Ealy. My biggest challenges were in the lower-tier properties. What I found was the recession-proof stuff was class A and to only a slightly lesser extent class B. What I observed was class-A cutting prices to attract occupancy. Class B people that still had jobs and good incomes moved up to class-A because their prices were so close to the class B unit they were renting. That exodus caused class B properties to lower their rents, which attracted the class C tenants that still had jobs and good incomes. Class C cut rents and there were no takers because the working-class sector was hit so hard with job losses. So that left class C properties with occupancy challenges and a lot of difficulty collecting delinquent rents. Class D stuff was even worse--people were just moving in to take advantage of a free month move-in special and then sit tight to see how long it would take for the landlord to evict them. Once evicted, they repeat the process at the next property. I suppose it was no coincidence that most of the foreclosures that I saw were in the C&D space and it's also no coincidence that when market cycles mature, capital has a flight to quality to protect the downside.
I think the key to surviving the next adverse cycle, whenever that may happen, is to not take on too much debt, stress-test your numbers, and invest in growing markets (where people are moving TO) in good quality properties. Sleepy markets, or worse, markets where people are moving FROM, are likely to inflict the most pain or at least present the most challenges.
- Realtor · Southern California · Member since 2019 · 53 posts · 8 votes7y
I'll be reading your other post, thanks for sharing.
I have a call out on a property in your neck of the woods.... I have a trusted family member in that area, so it's on my radar. I'm targeting areas like the ones you're mentioning because of the solid rentals... although the trickiest thing I'm finding in those same areas is getting a good handle on vacancy rates.
Whenever I hear too much... you can't lose... I get nervous... something can always go awry.
I'm trying to learn AS much as I can from those who have done this, so I can structure my business accordingly and hopefully dodge a few sinkholes in the process!
Originally posted by @Michael Ealy:Originally posted by @Tania Reuben:
Inspired by @Brian Burke's harrowing story of surviving the economic meltdown, I'd love to learn what other lesson's people gained through that time.
Many survived, some thrived, lost it all...
While I don't think we're going to see another down turn like that for a long, long time, I do think that protecting your downside is always smart.
In Brian's story, I learned that a bank will foreclose on a property EVEN when all payments are being made on time because the ratio's are no longer good and they need the loan off the books... paying or not (if you haven't read his story, it's in the forum and worth studying). I wasn't aware they would/could do this.
Would love to learn about any lesson's learned during the meltdown.
Tania,
Great question. I actually wrote a post about it before. Here it is:
https://www.biggerpockets.com/forums/432/topics/745147-how-to-survive-and-thrive-when-the-recession-comes
But here are the quick answers:1. I survived because I have properties in C/D & F areas of Cincinnati. Lower income rentals are not affected by the recession. People trade down when the economy worsens. You want to survive the next recession? Don't overlook C areas. Having them is one of the ways to "recession-proof" your portfolio.
2. I have access to private capital. Most of my competitors had become reliant on bank financing. Most banks didn't want to lend money at that time.
3. I continued buying and selling. I bought & sold non performing notes. I did shortsales. Sold some and kept most for cashflow. Investors who got spooked by the recession and stopped buying regretted their short-sighted decision and them giving in to fear. As Warren Buffett said "Buy when everyone's afraid". That's exactly what I did.
And what's amazing is that like Brian Burke, I never lost money for my investors even during the 2008-09 Great Recession. A lot of the young apartment syndicators today have not been through that. Some of them will be in for a "rude awakening" when cap rates start rising again as some of them have marginal deals and they will make their investors suffer greatly.
I hope I am wrong but unfortunately, history does & will repeat itself and people are susceptible in making decisions driven by greed and fear!
- Realtor · Southern California · Member since 2019 · 53 posts · 8 votes7y
Thanks for jumping in! Your story inspired me think there must be a more people that survived and thrived here to LEARN from!
Curious, what are your thoughts on section 8 from this perspective?
Originally posted by @Brian Burke:@Tania Reuben sounds like you already know my story, but there were two key elements to my survival. First was that I saw it coming--sort of. I knew something was wrong, and by 2004 I knew that buying was hard to justify so I pulled way back. Didn't jump back in full speed until 2008. The second thing that helped me survive was when I did jump back in, I jumped back in buying foreclosed property at humongous discounts. I guess there was a third thing, too--I refused to give up when things were rough and fought my way through it, even when that meant paying out of my own pocket to protect my investors.
What's interesting, however, is my experience was the exact opposite of @Michael Ealy. My biggest challenges were in the lower-tier properties. What I found was the recession-proof stuff was class A and to only a slightly lesser extent class B. What I observed was class-A cutting prices to attract occupancy. Class B people that still had jobs and good incomes moved up to class-A because their prices were so close to the class B unit they were renting. That exodus caused class B properties to lower their rents, which attracted the class C tenants that still had jobs and good incomes. Class C cut rents and there were no takers because the working-class sector was hit so hard with job losses. So that left class C properties with occupancy challenges and a lot of difficulty collecting delinquent rents. Class D stuff was even worse--people were just moving in to take advantage of a free month move-in special and then sit tight to see how long it would take for the landlord to evict them. Once evicted, they repeat the process at the next property. I suppose it was no coincidence that most of the foreclosures that I saw were in the C&D space and it's also no coincidence that when market cycles mature, capital has a flight to quality to protect the downside.
I think the key to surviving the next adverse cycle, whenever that may happen, is to not take on too much debt, stress-test your numbers, and invest in growing markets (where people are moving TO) in good quality properties. Sleepy markets, or worse, markets where people are moving FROM, are likely to inflict the most pain or at least present the most challenges.
- Rental Property Investor · Corvallis, OR · Member since 2018 · 840 posts · 1k+ votes7y
@Tania Reuben I owned two triplexes near a college campus and kept them fully rented. I actually found a off market 4 plex in 2008 and had a hard time explaining to the bank how I found it $80k below appraised value. I had a great job and 740 score but still jumped through massive loan hoops and had to write a letter to the bank explaining the vast details.
One issue that did negatively affect me was that Bank of America shut down ALL my non owner occupied lines of credit. This was a bank West coast decision and I really used those wisely for RE investing. Thus, my loyalty does not exist to them any longer. I did change jobs in 2009 as my income was cut in half and then took 7 years off from any new RE investing! This was probably very costly for me. In 2016, I fired the machine back up and have done 10 flips, 3 4 plex fix, rehab and holds, partnership in 5 and 8 plex deal, and one solid RE syndicated zone; opportunity zone via Crowdstreet.
In the end, I did okay, but did not thrive in the eye of the storm 09-10 range.
- Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes7y
Originally posted by @Brian Burke:
@Tania Reuben sounds like you already know my story, but there were two key elements to my survival. First was that I saw it coming--sort of. I knew something was wrong, and by 2004 I knew that buying was hard to justify so I pulled way back. Didn't jump back in full speed until 2008. The second thing that helped me survive was when I did jump back in, I jumped back in buying foreclosed property at humongous discounts. I guess there was a third thing, too--I refused to give up when things were rough and fought my way through it, even when that meant paying out of my own pocket to protect my investors.
What's interesting, however, is my experience was the exact opposite of @Michael Ealy. My biggest challenges were in the lower-tier properties. What I found was the recession-proof stuff was class A and to only a slightly lesser extent class B. What I observed was class-A cutting prices to attract occupancy. Class B people that still had jobs and good incomes moved up to class-A because their prices were so close to the class B unit they were renting. That exodus caused class B properties to lower their rents, which attracted the class C tenants that still had jobs and good incomes. Class C cut rents and there were no takers because the working-class sector was hit so hard with job losses. So that left class C properties with occupancy challenges and a lot of difficulty collecting delinquent rents. Class D stuff was even worse--people were just moving in to take advantage of a free month move-in special and then sit tight to see how long it would take for the landlord to evict them. Once evicted, they repeat the process at the next property. I suppose it was no coincidence that most of the foreclosures that I saw were in the C&D space and it's also no coincidence that when market cycles mature, capital has a flight to quality to protect the downside.
I think the key to surviving the next adverse cycle, whenever that may happen, is to not take on too much debt, stress-test your numbers, and invest in growing markets (where people are moving TO) in good quality properties. Sleepy markets, or worse, markets where people are moving FROM, are likely to inflict the most pain or at least present the most challenges.
Hi Brian,
I was thinking why we have the opposite experience.
This is my theory: it depends on affordability.
In Cincinnati, in 2007, the median price range of homes was around $200K. The typical house payment is $1500/month. When the Great Recession hits, some home owners can't afford $1500/mo anymore so they traded down to $750/mo to $1000/mo which puts them at C & B apartment rental rate. Hence, my C apartments did well.
However, for your neck of the woods, the median price range was probably around $600K with a house payment of $2500-$3000/mo. When GR hits, income was lower and now they can afford $1500-$2000/mo which puts them in the A apartment rental rate and hence, your A apartments did well.
This underscores the importance of knowing your local real estate market.
- 7yBrian BurkePro MemberInvestor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
@Michael Ealy my observation above was in the Dallas TX market, where homes could be purchased for under $200K, class C rents were $600/mo and class B $800/mo. There were a lot of foreclosures in the class C and D multifamily space seemingly not because people were moving down a class, but up, and the lowest tier were vacating because they had no income at all. They doubled up with friends/family, concession/eviction surfed, or moved to the streets. And this is an area that even in the downturn did comparatively well. I saw similar things happen in other areas as well.
I wish I could explain the difference between your observations and mine, but as you alluded to, all real estate is local, and it seems that behaviors can be as well.
- Investor · Biddeford, ME · Member since 2017 · 282 posts · 180 votes7y
I've been buying everything off market and would recommend you do the same. By doing this, I'm able to buy them at a price where the economy isn't a huge worry.
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