I'm currently looking into 2 different multi units that have a 12-14% cash on cash return and I am very serious about purchasing them. I have heard a lot of talks about a future crash on the horizon. Do I still purchase the home knowing that a possible decrease in value could occur? I am still getting a great return even if property value goes down, but I am just curious if anyone has dealt with this or has any advice??

There always is, and always will be a potential crash coming. If it's a good deal, then buy it and don't worry about it.

If you are worried, it should be passed.

Why do you want to have more stress?

The bears always think the sky is falling

just out of curiosity what do you think is going to cause a CRASH .. markets ebb and flow they have ebbed up the last 8 years.. they will level off.. but why a crash.. why do you think there is going to be a crash.. just because someone is talking about it.. is there something specific that you think will cause a meltdown and values to come crashing down. ??

I agree with @Andy W. There is, and always will be a crash coming. If you feel the deal will survive even through your worst case scenario, it’s ok to proceed.

If you pass on these deals, feel free to shoot the details my way- I’ll pick them up!

Thanks!

Does a crash stop people from renting? Just keep your price point mid range so in a crash your not trying to rent LUXURY rentals

I am guessing many people think a crash is coming due to, they are using year 2010 housing price as a reference point.

If you compare today housing price to the price in year 2010, certainly today price is expensive.

However, if you use year 2005 housing price as a reference point, plus 13 years inflation, of course today housing price is not expensive at all.

Or if you use year 1950 housing price as a reference point, compare today housing price with year 1950’s price, today price is way way way too expensive. But the house price won’t drop back down to 1950’s price nor is 2010 price. Just like Dow Jones would not drop back down to 6000 points.

If you include 13 years inflation (from year 2005), today’s price is not considered very expensive in most markets (except California Bay Area).

People say, people are price out of the range, cannot afford the house. Is it really the truth case?

US household median income in year 2017 is $59,000.
US median house price in March 2018 is $250,400.

Average of $59k yearly income cannot afford a $250k house/townhouse/condo?

I don’t think so.
People likes complaining, just saying it. People don’t have to buy a big house. They can buy a smaller property to live instead of rent.

Back in year 2013, people already said the houses were expensive when they compared it with 2010 price.

The value of a property only matters if you are buying or selling. If a property is "underwater" it literally has no effect on the owner unless they try to sell it. If it's a recession and someone lost their job and can't pay the mortgage and it's underwater, that makes it hard to offload. But the value completely doesn't matter otherwise.

What you have to ask is about the sustainability of the rent capability of the property in a downed market. That's what matters. Because if suddenly you can't charge what you used to be able to for rent, or the tenant pool dwindles, or what have you....then things start to matter. So something like that would be impacted depending on the reason for the crash.

If you're near Vegas... let's say you buy a property there and then another recession hits. What's the first industry to go in a recession? Entertainment. What is Vegas' primary industry? Entertainment. Suddenly entertainment dwindles, so a huge portion of the renter pool disappears because they were in the entertainment industry. Now you don't have as many renters and have to lower your rents, and even then hope you can fill it. Now you have a problem, but the only part of this that has anything to do with the property value is if you have to sell it or need to sell it. 

All the more reason to make sure to buy in stable growth markets that aren't dependent on one industry. 

And, all this talk about a crash is speculation. If you hold out on investing waiting on a crash, you could be waiting for a lifetime. People like to think they know when one is coming, but...

Vegas-probably not for a few years. However, the price is kind high now and upside gain is reduced.  If they are fully rented then you can ride out the price drop. Even a recession may be transparent if the value drops.  You lose or made $ only if you sell.

Good luck

Sam Shueh

Vegas prices are 20% below 2008 prices. How much lower do you want them to be?

I rented houses right through the the great disaster of Las Vegas “crash” I wa raising rents as people losing their houses sure didn’t want to live in an apartment, and doubled down and bought a bunch more. If the rent covers the payments what does it matter what it costs. 

When I was buying houses in 2008 for $100k “friends” and family would say what if it keeps going down?  Down to what? I’m putting 25% down and in 15 years they will be paid for. Do you think they’ll be worth more or less than the $25,000 I put down in 15 years?

Is there any market in the US where you think houses will be cheaper in 15 years than today? THEN DONT BUY THERE! 

Vegas is the great cautionary tale...ONCE, in the history of the city, prices have dropped more than 5%. They went up 14% last year, and the year before. If they dropped 25% tomorrow you’re up 3% over just 2 years. 

I hope anyone talking about the next great real estate crash has zero dollars in the stock market and is renting the place they live in. 

Some the main reasons people lost their multifamily properties during the last recession was, they bought for appreciation, they were under capitalized, and they were over leveraged. As long as the property cash flows when you buy it, you don't over leverage yourself, and you make sure you have sufficient capital reserves/working capital. You should be able to ride out any correction. And at 12-14% Cash on cash, sounds like you've found some good deals!

Are they 5 units and above(commercial) or are they 4 units and below(residential)?

@Andy W. thank you for the input! I've followed thru with the deal and its been good. i guess it was just beginner nerves

@Bill Brandt

good point..  in the long run it will work out

@David Van don’t buy anything for at least 25 years just to be safe

@David Van

Thanks David, old post, but it lets you see how long the “next crash is coming” people have been around. And now Vegas is up another 13% since then. 

Now a 25% crash puts us back to 2017 prices instead of 2016. Maybe we can revisit in 12 months and a 25% crash will put us back to the prices We were warned us were too high.

I think prices are too high now. That doesn’t mean people won’t keep paying them indefinitely. Ha

@Ali Boone I really really liked your response, especially about the end on not waiting too long and always being worried that “a crash is coming”. What business do you own?!

@Bill Brandt this response made me chuckle and I feel like I learned a lot! I just got back from visiting Summerlin and Henderson; We actually even looked at the new Inspirada communities. I’ve been looking at multi- family out there and want to do a deal.

@Jonathan Aymin

Thanks Jonathon, say Hi next time you're in town. I have pizza with many of the California guys (and gals) who come here for the low entry prices. But, you're right, we do seem to have a lot of good quotes going around lately.

One response to a guy who posted saying the crash was finally here, trying to convince people properties were down 20% in his neighborhood. "Well, the crash everyone's been waiting for is here according to you, lets see how many "buyers" were really waiting.

But my favorite was someone that asked "How do the people who lack the courage to invest during a booming economy expect to have the courage to invest during a recession?"

Personally, I think a lot of people think saying they are thinking/preparing/planning, to invest in real estate is the same thing as investing in real estate without any of the risk. There's always one more thing stopping them from investing, but when that goes away they're going to set the world on fire.

Originally posted by @Jonathan Aymin :

@Ali Boone I really really liked your response, especially about the end on not waiting too long and always being worried that “a crash is coming”. What business do you own?!

(not sure if I can post the website on here without it flagging the response) You can go to my profile or check out Hipster Investments.

Possibly decrease in value and increase in vacancy rate. Vegas still has way more vacancy than most cities. Prime location matters.

@Bill Brandt thanks I will have to! Actually since I got back I had the pleasure of connecting with Alex Felice who was on the BP podcast and he is from Las Vegas as well! I’ll be back soon!