Good time to get into RE or crash is around the corner?

23 Replies

Hi, I am thinking to buy my first RE, but everyone keeps saying that big crash around the corner and it better to wait before getting into 30 year of overpriced loan. What do you guys think? Have some you been through it in 2008?What was your experience.

crashes are regional, so are prices, and so is recovery. But people always saying crash is near and maybe it is.... but buy smart and it won't be a problem.

It's always time to buy if you are buying a distressed owner situation off-market, below FMV that cash-flows.

Going out to the MLS willy-nilly and paying retail is never a good idea, on the cliff of froth or not @Ida Saidkariev

I went through the recession just fine.  2010 and 11 were the worst for me, but vacancy rates in my b-class multi's dropped and rents rose.  I bought off-market from tired landlords.  Good luck to you!

There is an article in Bloomberg about the big pile of retail store chain debt that is likely to go bad in 2018. To me that is one bad sign more centric to the US economy which otherwise is doing great. You are certainly not getting in at the bottom anymore but there are deals for those who are looking. So if you find a great deal jump in but with a long term horizon. Just my 2 cents.

Originally posted by @Ida Saidkariev :

Hi, I am thinking to buy my first RE, but everyone keeps saying that big crash around the corner and it better to wait before getting into 30 year of overpriced loan. What do you guys think? Have some you been through it in 2008?What was your experience.

 Anything can happen and my take was last crash was unique in that BS financing inflated prices vs organic demand. Corrections, recessions happen but not normally that bad. Today it is much more soundly based on supply, demand and realistic financing, proper downs, proper appraisals, organic growth vs liar buyer loans etc. 

Good luck!

I'm guessing you are thinking of a buy and hold versus a flip . I agree with others that if you are buying an actual deal ( below market ) there is less chance you will lose equity .

Even if you do lose equity though as long as you can cash flow if you have an long enough horizon prices will likely eventually go back up .

It's unlikely the next downturn will be as severe as the last one . If you buy 20% undermarket for example and prices decline 20% you didn't lose any equity .

There were a bunch of people that did "strategic defaults" on properties and gave them back because they were upside down but most likely if they held on they would of been ok now because prices have gone back to the bubble highs or exceeded them . Also rents have gone way up since then . I'm thinking of the SoCal market more specifically but there are a number of other markets where this is likely the case too .

What area are you looking to buy in ?

While it's usually more advantageous to buy in a crash, there's no way to know for sure if a crash is coming or not. So if you wait, you could end up waiting a while and losing more money by having not invested. You can still get good solid properties right now with good cash flow (not in LA, but elsewhere), so I wouldn't wait. But then if a crash does happen, buy like craaazy (especially if it happens in LA...but don't hold your breath on that one). 

@Joseph M. Thank you for your feedback. I am thinking of 4plex with FHA loan. I found one in Reseda, CA that doesn't really cashflow much...like $100 after only the mortgage, taxes and insurance paid off. But for socal ..it might be a good deal? So far everything else I have looked at negative cash flowing .

@Ida Saidkariev   when "people" say there is going to be a crash who are these "people"

I listened to a Bruce Norris talk and he does not see it.. and I personally don't see it.

bruce said you need about 40% of your mls to be short sale bank owned and distressed to be classified as a crash..

that aint happening most markets..

these things are quite regional though.. one industry down where the industry moves.. that can create a crash does not matter if you buy and hold or what have you no one there no one to rent to .

I would jump on that 4 plex.. that would be a very smart move..

A crash or recession, although unfortunate for some , is a wonderful opportunity for investors. prices plummet and lending is tight. Great time for owner financing or private money. 

I think we are still a lot closer to the middle of the RE cycle than the peak. However if your specifically speaking of LA I don’t see much upside in most areas. You may want to look at areas where people are moving to who are getting priced out of LA

@Ida Saidkariev I am definitely cautious about the potential downturn, however that has not stopped me from chasing deals. If I am able to find a good below market deal that cash flows well, then I am pulling the trigger. 

My strategy is to continue to make deals happen through 2018, while also saving aggressively/having cash reserves. It's worth it to have cash on hand in case there is downturn, however waiting to time the market is not a good idea either. The key is to search for deals that work for you right now - which is more challenging because there aren't as easy to find compared to right after 2008, however it's well worth the effort.

@Ida Saidkariev $100 per month cash flow taking into account that you would be owner occupying one of the units (since you'll be using FHA)

Is it fully occupied now ?

One thing in L.A is rent control of course.
"if the property was built on or before October 1, 1978"

To my knowledge you can occupy a rent controlled unit but you have to pay a relocation fee to the tenant . These fees are $6,000+ .
You'll probably want to do some reading on the Ellis Act and rent control laws .

Reseda is one of the lower priced areas of the city so it seems like it could have upside potential as long as prices keep going up. Definitely not an area that is gentrifying right now but that could change in the future . I know there is some new development planned.
There are higher end areas nearby like Tarzana and Encino and not too far from Warner Center area where a ton of development is being planned and under construction .
The valley definitely seems to be getting denser.
So owning some multifamily zoned land could be a nice development play in the future . Maybe the possibility to redevelop into condos or townhomes and have a nice exit.

In the meantime if you can live there and use the rents to help pay your mortgage it might not be too bad a thing .

Good luck ,

@Steve B. Thing with L.A is that the people being priced out get replaced with higher income folks .
I read this article today about all the new apartments being built in L.A . While it seems like its a lot of building it's still a lot less than a place like Seattle which is number one for construction right now .

I do think there could be an opportunity in following where the priced out folks are going .
In the past those priced out of L.A seemed to often move to Portland,Seattle or Austin . But now those markets have gotten more expensive and it seems less expensive cities in Texas and Arizona seem pretty common . But there is still a lot of land in those cities so it makes for a much different market than L.A

I think there is something to be said for this strategy . Philadelphia seems like it has benefiting from being the new home to those priced out of NYC . When I looked recently in Philly prices seem like they've gone up a lot .
One article about this
http://www.nj.com/news/index.ssf/2015/08/population_shift_people_ditching_ny_area_for_philly_by_the_thousands.html

@Ali Boone yeah of course one thing will be the ability to get lending will be harder.

I also wouldn't hold my breath for a huge price reduction in L.A especially in prime areas .

During the last crash it seemed the Westside wasn't affected too badly. Parts of the valley got killed and there were some great values.. and in the Inland Empire prices way overcorrected.
There were properties there for less than what a lot of Midwest properties go for now . At least 300% more now in places like Riverside etc .

@Ida Saidkariev I don't know the SoCal market so I won't comment on the specific deal. Personally, my buying has slowed way down, I cut/sold older properties and properties with challenging tenant bases, and my approach is generally more cautious. I also am not buying for appreciation but for cash flow. So if it is a great deal I will buy it. 

I recently had a great conversation with an investor that was almost 60, he said to me that my time horizon is different from him since I am in my 30s, so my approach will be different. He commented that its hard to say if property prices will be higher in the next 2-5 year period and whether a crash/recession will happen. But if you buy right and it cash flows well, and its in a economically strong MSA, it will most likely be higher in 10-20 years. 

But as I think you have seen from the comments, opinions vary from person to person. Good luck!

@Andrew Kerr , good points. If you are expecting to sell or exit in 5 years it might not be enough of a timeframe if there is a downturn ... but longer term prices have gone up historically in areas with strong economies like you said .

Joesph I agree with you in some desirable areas of LA, but unlike SF, LA can’t systematically acclimate enough new, higher income earners over  the breadth of the citys real estate market as a significant driver of price considering current levels.  Also I don’t think statistics on recent economic migration support that bullish of a conclusion.  I would guess the current income to house price ratio isn’t good and I don’t see evidrnce that’s going to change.  However that still leaves tons of viable RE plays available, like flips

The Real Estate market moves more or less in a cycle.  Most would agree that we are getting to the high point of that cycle.  

On the plus note money is really cheap.  I'm still buying if the deal makes sense.

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