Grant Cardone is Very Down on RE Right Now - Are You?
Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
Grant Cardone is Very Down on RE Right Now - Are You?
Most Popular Reply
Prices and rents have moved a lot here in western Montana. I think here and throughout most of the nation we're set to hit a wall, at least. The economy is still a sick man long term and housing affordability is starting to push the limits. What's going to be the driver going forward short/mid-term? We're at near 0 interest rates and housing costs as a percentage of income can't keep rising indefinitely without real growth. Historically we're also well overdue for a technical recession (two quarters of negative GDP growth) though the fact that we've half-assedly emerged from the down turn in most aspects of the economy is probably playing a part in the delay.
Thing is most people are expressing a recent past bias. Many here are expecting another downturn like the one we just experienced. The recent collapse was epic and historic, something that happens less than even once a generation. So waiting for another such collapse is probably a fools errand and will keep you out of the game all together. The idea that things will either continue going great or collapse is a false choice. We may simply see years and years of moderation or sluggishness.
I used to be much more heavily invested in the market before I got into RE. What I would do is buy a little during the OK times, buy nothing (or rebalance conservatively) during the great times, and buy a lot during the bad times. Did very well by me. I think a similar strategy works for RE, in fact it's even better with RE. If you try and time the market perfectly you may sit on the sidelines for years with nothing to show. The great thing about RE is that it is so forgiving as an asset class that even if you overpay, fail to catch the falling knife, and buy at a poor time if you just wait it out you will do well long term. That's why RE is such an amazing investment. Time heals all but the worst wounds.
Right now there is an incredible amount of money chasing very few investment opportunities. This can't go on forever. I have no idea what the time frame will be but there will be another recession. I truly get the sense that every shoe-shiner and yahoo is interested in RE. Builders are living high on the hog again too. Both are usually a good sign of real froth.
It will probably look more like a normal turn of the real estate cycle meaning sluggishness rather than a massacre. But until then I'm focusing on refinancing and getting cash heavy. As an occasional smallish OK or soso deal with decent long term prospects comes up I'll probably take it. Even if it looks like a bad deal or poor timing after the fact. Like I said, the risk in waiting for some crash to buy anything is it may be a long time before there are really juicy buying opportunities. Perhaps a very long time. If you're on the sidelines for 5,6,7 years buying nothing you likely would have been better off buying and simply holding through the correction anyway. I'd hate to be years down the road still in waiting mode and have not grown my portfolio as a result. In short I'm prepping for the next technical recession to really start looking to shop hard but don't want to totally rule out adding slowly to my portfolio. If nothing else how the RE market holds up the a dip in GDP will prove how legit the recent gains are. In RE a strategy like that should be a win/win proposition.
76 Replies
- 10yAlexander FelicePro MemberGuy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
Been watching grant for 15 years, love him....but that guy is a stone-cold hustler and everything he says should be taken with the knowledge that he is a pure salesman who is only worried about Grant.
That said I agree with his position here. I'm positioning for a correction in the next 24 months, and I'm stock pilling cash to prepare for it.
- Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes10y
Thanks @Alexander Felice - anyone else with an opinion on this?
- Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes10y
@Ben Leybovich, I can only speak to my market. I predict a softening real estate market for at least the next 2 years in mid and Northern Wyoming. Cheyenne and Laramie in the south have the university, and Cheyenne has a lot more diversity than any other town in the state, and values seem to been pressed up from the front range in Colorado just to the south. Parts will have some pretty severe drops in prices, rental rates, and even populations. I don't expect any major improvements for another 4 years unless oil production drops in the middle east from war or OPEC.
Parts of Wyoming will have bad price drops, like Gillette. I can see up to a 40% drop, unless the coal regulations on power plants are changed. I know a lot of Montana has been hit but nearly as hard, North Dakota will drop a fair bit and SD will probably drop a little due to proximity. Those are about the only states I am willing to give opinions on.
Your turn for predictions.
- Lender · Denver, CO · Member since 2009 · 1k+ posts · 597 votes10y
in Denver and can only look at the data that is widely available. .8 months of inventory in the metro area, 10k people a month moving to Colorado, low unemployment despite oil and gas issues, strong rents, etc. There are cranes in the air and that only happens when money is easy to get. I just don't see what slows this market in the near future other than affordability.
What's Grant selling?
Prices and rents have moved a lot here in western Montana. I think here and throughout most of the nation we're set to hit a wall, at least. The economy is still a sick man long term and housing affordability is starting to push the limits. What's going to be the driver going forward short/mid-term? We're at near 0 interest rates and housing costs as a percentage of income can't keep rising indefinitely without real growth. Historically we're also well overdue for a technical recession (two quarters of negative GDP growth) though the fact that we've half-assedly emerged from the down turn in most aspects of the economy is probably playing a part in the delay.
Thing is most people are expressing a recent past bias. Many here are expecting another downturn like the one we just experienced. The recent collapse was epic and historic, something that happens less than even once a generation. So waiting for another such collapse is probably a fools errand and will keep you out of the game all together. The idea that things will either continue going great or collapse is a false choice. We may simply see years and years of moderation or sluggishness.I used to be much more heavily invested in the market before I got into RE. What I would do is buy a little during the OK times, buy nothing (or rebalance conservatively) during the great times, and buy a lot during the bad times. Did very well by me. I think a similar strategy works for RE, in fact it's even better with RE. If you try and time the market perfectly you may sit on the sidelines for years with nothing to show. The great thing about RE is that it is so forgiving as an asset class that even if you overpay, fail to catch the falling knife, and buy at a poor time if you just wait it out you will do well long term. That's why RE is such an amazing investment. Time heals all but the worst wounds.
Right now there is an incredible amount of money chasing very few investment opportunities. This can't go on forever. I have no idea what the time frame will be but there will be another recession. I truly get the sense that every shoe-shiner and yahoo is interested in RE. Builders are living high on the hog again too. Both are usually a good sign of real froth.
It will probably look more like a normal turn of the real estate cycle meaning sluggishness rather than a massacre. But until then I'm focusing on refinancing and getting cash heavy. As an occasional smallish OK or soso deal with decent long term prospects comes up I'll probably take it. Even if it looks like a bad deal or poor timing after the fact. Like I said, the risk in waiting for some crash to buy anything is it may be a long time before there are really juicy buying opportunities. Perhaps a very long time. If you're on the sidelines for 5,6,7 years buying nothing you likely would have been better off buying and simply holding through the correction anyway. I'd hate to be years down the road still in waiting mode and have not grown my portfolio as a result. In short I'm prepping for the next technical recession to really start looking to shop hard but don't want to totally rule out adding slowly to my portfolio. If nothing else how the RE market holds up the a dip in GDP will prove how legit the recent gains are. In RE a strategy like that should be a win/win proposition.
- Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes10y
I think timing is the issue. Short term (1 yr plus/minus) here in the Denver Metro look to continue to rise. I know it can't continue forever but timing is the question. Stepping back now and having this run continue for the next 5 years would miss out on a bunch. The key here is not to over reach but the question is what is too much. I had a guy that owns a company that does large scale development planning saying that those building apartment buildings have the mindset that even if the market turns down, they are so profitable that it won't matter. That right there is the stinking thinking that is driving this insanity and will lead to blood in the streets.
How all this comes about is really fuzzy to me but I know when the underlying thinking is flawed it will eventually be painful.
I'm selling a flip right now and the absolute craziness is insane. 40 showings in 2 days with 4 offers over ask and I priced it reasonably considering the comparables. Usually real estate doesn't change overnight so while it's happening the key is to somehow make hay without getting greedy or getting caught up in the madness.
- Investor · Carmel, IN · Member since 2014 · 332 posts · 245 votes10y
Importantly, depends on your view of future interest rates.
If you think that rates are going higher, then there may be some problems with real estate.
If you think that the Fed is going to continue to hold down rates and mortgage rates may even go lower (think Europe, where in some cases, rates have incredibly gone negative), then cash-flowing, hard assets may continue to get bids
- Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes10y
I am still waiting for the Baltimore market to recover from the last crash. LOL
I believe Grant is right when it comes to multi family in most markets. I think his point of priced for perfection is right on.
The pendulum swings both ways. All pendulums have swung to one extreme at the same time. Interest rates historically low, Millennials are renting more and delaying home ownership longer than their predecessors. Demand for apartments to rent is high, home ownership is low. Rental rates to income are high. Cost to rent vs cost to buy is high. My perception is that building of multi family is high right now.
Everything that leads to pricing of muti family has moved to the extreme, in favor of high prices. how long will this continue? how long before one or more of those factors starts swinging back towards a historical norm. We could see a perfect storm.
Obviously this varies by market. However it does seem pretty consistent that cap rates are at abnormal lows. That means the market is paying a premium for multi family right now. Why buy at the top of the market? I believe a significant part of the buying market does not understand the risk they are taking.
Ben i am guessing you feel the same way (perhaps for different reasons) You recently posted about how tough it was to find deals that were good enough to syndicate.
- Investor · Houston, TX · Member since 2015 · 176 posts · 121 votes10y
As Jerry W, I can only speak to my market. I am familiar with only two markets. The San Francisco peninsula and north west houston.
SF area is crazy at the moment. Don't know if this is heading for a complete meltdown or just a long level period. Long term renters with some serous rent control deals are finally throwing in the towel and moving out of the area. The same house that sold for $835k in 2014 just sold for $1.2M. This is not sustainable. For this market China has an impact and they are not doing all that well.
In NW houston, it really depends on the neghborhood and price range. Any SFR over $250K is not doing well. DOM are around 100-days. Cheap houses are also not doing well. But $130K to $200k are doing well. Lots of investors buying in this price range as they make good rentals.
Many would be buyers are holding out due to house prices and job security concerns. You would think this would be good for land loads, but the recent construction boom has flooded the market with property. We currently sit at 87% occupancy in my houston target area.
I have no idea how the floods last week will affect the NW Houston market. I expect to see a lot of distressed properties hitting the market. So, I would put some extra margin.
DFW market seems to be priced to perfection and beyond. A typical broker-listed "value play" is priced based on the future NOI which is 30+% above current NOI combined with ridiculously low cap rate.
Example: a 1961 C class building with $96K NOI is listed for $1.8M. The broker says that they used 7% cap rate to establish that price. But wait, $96K/0.07=$1.37M. Oh no, the NOI that they used is a projected one of $126K. In other words, whoever buys this complex for $1.8M will have to spend another 2 years to increase NOI to $126K just to break even. But wait, they won't break even because they have to spend money on upgrades to justify new rents. So, no, that NOI needs to increase even more to break even and what if cap rates go back to 9-10% by that time?
But people keep buying...
- Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes10y
it is discouraging the market in Central Oregon is for speculators not investors at least not cashflow investors. It is hard to just find homes in the 200k to 300k range and you will not cashflow on those homes with 25% down. I tell people if they want a rental using OPM they are wasting their time in Bend and will need to search out of town. Apartments are the same if not worse. In the longrun this will be difficult to sustain but as Keynes (the economist) said "in the long run we are all dead." For this reason I can't encourage people that are trying to create wealth for themselves to sit out. If you only have to preserve wealth I would advise to pass on this market or at least be very conservative.
Seems like most people are, in fact, "down." @Eric Bilderback mentions sitting out which I sort of disavowed but there's a really important point here... everyone's financial situation is different. I'm a strong believer that assets are worth different amounts (sometimes substantially so) to different investors even when they are making an intelligent and informed decision in their best interest. This is true for diverse reasons from taxes, to 1031 status, to the ability to add value through a specialization etc. There are people just getting started and others who are cash heavy with nowhere to go. So while the consensus is this is not a really good time to buy I think individual financial realities dictate whether a totally sit it out or slow accumulation strategy make sense. There is still money to be made if the occasional flip can be found and long term I think RE can almost always be a good investment. But new guys starting out trying to build a portfolio... good luck in most markets. You're going to have to be better than most.
- Railroad Conductor / Future investor · New Baltimore, MI · Member since 2015 · 130 posts · 40 votes10y
Parts of Metro Detroit are rising. I'm not super experienced but there are still buy and hold deals that make sense and cash flow fairly well. I picked up a 2/1 for 34k and get 750 a month for rent. I'm eager to find a few more before the process start getting to high.
So what are your thoughts @Ben Leybovich?
@Ben Leybovich I still remember very well the Podcast you, Brian Burke and Serge Shukhat did together as all of your third podcast appearances. To paraphrase poorly: Brian was asked what he thought the market was going to do, and he replied that he was a big believer there is no 'The' market - only individual markets.
That said, if you wanted to take the balance of the major metro markets (where the majority of REI is likely done) I would guess that Grant is on the mark, especially considering multifamily properties.
In other areas (like mine - rustbelt Northeast) there are still deals to be found in certain niches, if you're looking for them. Inventory is very low here in the SFR market, and I have yet to see a single property I thought I could make work in the current environment. Small multifamily seems to be the most workable buy and hold strategy here right now, but I am underwriting both rent and value declines in the short term on these deals (as well as expense increases) because even though we're very insulated from the rest of 'the market' it would not surprise me to see another countrywide decline, and I want to be prepared for it.
But say we are at the top of the market right now, and someone just paid top dollar for a house in a hot market (like North Bay San Francisco) - only pretend it's 2006. Even if values go through the floor (and they might) and rents drop 20% for a while (that's what I would account for) as long as the buyer has sufficient reserves, or alternate cashflow from other areas (W2, other investment areas, other properties in different areas) history tells us that as long as they can hold on long enough, eventually that will become a performing investment again. Values right now are higher than they were at the peak in 2005-2007. That obviously doesn't mean someone wants to wind up in that position, but maybe it helps with the fear aspect for some folks right now.
For myself, I'm still at a stage in my life and my investing career that my primary goal is to develop as much cashflow as possible, so that I can reinvest it while my wife and I continue to work our W2 jobs. As much as I would love to be sitting on huge cash reserves right now, waiting for the next correction (and the round of foreclosure deals that will come with it) I believe it's a smarter investment to be acquiring cashflowing assets right now. If the correction happens in a year, I'll have cashflowing assets, but limited cash to pick up new properties when they're at a discount. I'm OK with that risk. If the correction happens in 5 years (and my market lags the rest of the country) I'll be in a much, much stronger position than if I had just sat on the sidelines waiting. If a correction doesn't come, or is mild, I'll be in a much, much stronger position.
Know your market, plan for the worst, hope for the best.
- Investor/Syndicator · Cincinnati, OH · Member since 2014 · 470 posts · 599 votes10y
I have not been through a downturn in my investing career. This means I don't have the insight and wisdom that many of the posters here have.
None the less my thoughts are, yes the market is and has been climbing to numbers that don't make sense in many many deals. This does not mean someone has to sit on the side lines with piles of cash waiting for another 2007-2008 crash to happen. I believe it means you have to begin to think outside the box, be more creative with your value add, Improve management operations, find a way. Now if you don't want or need to do that then by all means sit on the side lines and wait for the correction. That is a safer and easier way with out a doubt. The issue I have with this is no one really knows when the correction will happen, or how much it will dip to correct.
Real estate is cyclical, but technology, generation shifts and cultural norms, and countless other factors will always change those cycles making it impossible to exactly predict. After all the tides of the cycles are all spurred by human behavior. As cultural ideals and government shifts, so will the volatility and speed of the cycles.
Many investors may fear the repeat crash of 07-08 or are waiting for it to pounce. If the market only corrects and not crashes was it worth the time on the sidelines? Obviously no one knows for sure. I enjoy learning from the many wise posters on BP, and agree with many of them. The point I wanted to make is even in markets like we are in you can stick to your underwriting standards and still find property that work it will just take more effort and more time. Currently I am willing to do that to continue the push forward rather than wait for something I can not predict the arrival of. I emphasize sticking to your standards, not bending to the spikes in the market but digging through them to find what you want.
The current market is like playing football in the snow. It easier to play football in 70 degree nice weather. In the snow you don't have nearly as many options on plays, you're more likely to fumble the ball. So yes if you are able to go sit on the sidelines and wait for 70 degree weather during a snow storm that will make playing the game easier. I would rather stay on the field and run the ball over and over until I end up in the end zone. Much harder, but sometimes you gotta play to the environment your dealt.
"Invest as if you have no money and invest as if the market will crash tomorrow"
I forgot who or where i read or listen to this but i am pretty much optimizing my portfolio base on the above and ask this very question on every single investment purchase now. and Yes, according to Grant, Robert Kiyosaki, Petter Shiff, Trump, etc...there real crash is just around the corner. the 2008 one is just a baby one.
I believe them. and prepare every single minute now.
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes10y
:D OK, on a serious note, I am being semi-serious above. Couldn't/Wouldn't give a rat's *** what anyone else thinks about the state of real estate, because I only deal with my local market and have as foolproof a buffer and exit strategy as I believe one could have. If he/she/they talk everyone else into selling out, or getting out, only means more pie for me.
Skyline Properties Out of curiosity, is Grant advocating opportunity in anything in particular (asides from Cardone U)? I listened to his last podcast 'Prepare for Recession', but sitting on the sidelines seems like a risk in lost opportunity as well.
- Investor · Eagle River, AK · Member since 2015 · 122 posts · 45 votes10y
Originally posted by @Andrey Y.:
Does anyone have any opinion on the Hawaii and Alaska markets?
Hi Andrey Y, I don't know about Hawaii, but we are entering spring and summer in Alaska and this is always the time when real estate values go up. I've been astonished at the rapid price increases in single-family homes and multi family units over the past couple of years. If a property is even reasonably decent the price is at the very least $200 a square foot and often $250 or $300 square-foot. Last fall and winter there were a few that needed lots of fixup $70 - $80 sqft. but those days appear to be gone. Rents are increasing of course, but when you consider the high property taxes here in the Anchorage and Wasilla area, there's not much money left for P&I.
I've run lots of numbers, and yes I'm pretty conservative and risk averse, (I lived through the "crash" in Alaska in the 80's and lost everything) however, it's difficult to get enough cash flow now to make the risk worthwhile in my opinion. I consider Alaska a "small population" state, ( about 720,000 total population) and as such, if people start leaving we have big problems. I just checked Google and the population of the Municipality of Anchorage, which is the greatest concentration of jobs, real estate, commerce etc. is almost 301,000. The Mat-Su Borough is the next largest at 95,000.
The state has budget problems and of course everyone knows the price of oil has dropped dramatically. I can't even imagine how many people have lost their jobs or will lose their jobs. The last time I checked, that meant they couldn't make their house payment either.
Personally, I'm building up my warchest and hoping that there are some motivated sellers and/or realtors who know how to put deals together for investors that will still be a bargain.
- Software Developer · Vidor, TX · Member since 2015 · 922 posts · 639 votes10y
I watched the video. He's kind of all over the place. Says CapEx isn't going to kill you, that lawn maintenance and the water bill will?? Everyone wants what he calls "priced for perfection". I think most people hope for that but hedge against it through reasonable savings. He then says never over pay for a deal and then his wife (I guess) says, "But you've overpaid for a deal many times". Same in one of his youtube videos, says saving is dumb and to focus on being rich and then says he didn't do his first deal until he saved 1,000,000 in a checking account from saving and living like he's poor. I think he's a rich guy that loves to hear himself talk.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.