Are you prepping for the crash?

Investor · Kennesaw, GA · Member since 2018 · 98 posts · 127 votes

I'm curious what investors are or aren't doing in relation to the impending market crash a lot of people (smarter than me) are saying will happen in the next 2'ish years.

I'm selling a house in the next few months and contemplating just paying the capital gains instead of doing a 1031 exchange. Probably won't, but it's a thought I had.

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Russell BrazilBusiness Member

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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes

Much more money has been lost by investors preparing for market corrections than has actually been lost in market corrections.

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Michael H.
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Investor · Kennesaw, GA · Member since 2018 · 98 posts · 127 votes
8y
Love all the ideas. Personally I would say I’ve been “preparing” by ensuring I have a considerable amount of equity in the property I buy. With the 1031 basically I’ll increase my cash flow by at least $1000 a month with the same monthly mortgage by putting down roughly half as a down payment. The property I’m selling was bought 5 years ago at 187 (37 down) and I’ll sell for about 270.
1 Reply
Theo Hicks
Rental Property Investor · Tampa, FL · Member since 2015 · 1k+ posts · 969 votes
8y
Always invest following Joe Fairless' Three Immutable Laws of Real Estate: 1) buy for cash flow, not appreciation, 2) secure long-term debt (loan term that is greater than the projected hold period), and 3) have adequate cash reserves (upfront and on an ongoing basis).
11 Reply
Gordon Starr
Rental Property Investor · Dayton, OH · Member since 2015 · 312 posts · 273 votes
8y
"5 years ago at 187 (37 down) and I’ll sell for about 270" Michael, nobody should say you've made a mistake when you take a profit that hefty! Congratulations would be in order! If you can still get deals in your local market, I would say go for it. If not, take your profits and eat caviar! A lot of people are using the 1031 chasing yield with turnkey operators out of state. Way to many "what ifs" for my liking in that proposition.
0 Reply
Luka Milicevic
Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes
8y
This impending crash has been coming "any day now" for the past 10 years.
1 Reply
Jack Bobeck
Rental Property Investor · Jacksonville, FL · Member since 2008 · 784 posts · 528 votes
8y
There are always 60-66% of the population renting, so there is a need for it. The Amazon effect is wiping out office parks and big box stores. If anything is going to crash, look at Commercial, but I see residential and multifamily as growing for years to come. More and more people working from home, I see this as something positive. People need to sell homes in good times of bad, life happens....
5 Reply
Lesley Resnick
Real Estate Agent · Jacksonville, FL · Member since 2015 · 1k+ posts · 1k+ votes
8y
It's going to rain, I don't know when or how much, but I can give you a money back guaranty it will. My advice, buy 3 umbrellas and keep one in the house, car and office.
The predictions of the sky falling are made every year. Eventually, they will be correct and say, "I told you so". The real truth is no one knows and if they say they know....
The next tragedy will not look like the last one. They never do. Will it be a land war in Korea? A trade war with China? An unspeakable terrorist event, return of contagion?
I am going to keep buying as long as the numbers are good. I am far more concerned with finding my next deal, than if some billionaire thinks in the next 2 years something bad is going to happen.
7 Reply
Paul Choi
Rental Property Investor · San Ramon, CA · Member since 2017 · 350 posts · 611 votes
8y
Originally posted by @Russell Brazil:

Much more money has been lost by investors preparing for market corrections than has actually been lost in market corrections.
Best quote ever! Original from Peter Lynch
“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” – Peter Lynch
6 Reply
Todd Calhoun
Lender · Seattle, WA · Member since 2018 · 6 posts · 5 votes
8y
It's never a bad idea to plan ahead and re-evaluate if you are positioned to weather a downturn or correction, so I appreciate the post. Over leveraging took a lot of "could've been rich" people out in the last crash. It doesn't always mean you are being fearful, just realistic.
I think given the severity of the "great recession" the word crash might be on people minds whereas what might be immediately coming may be more mild than a "crash". But how far away and does that greatly affect RE? Markets have a tendency to surprise us and do what people least expect.
Long term, global debt levels are incredibly high, government and corporate, something will need to give. From what I see that is what many experts are pointing to as the next future calamity as much of that debt is on adjustable rates and will move higher.
0 Reply
Rob Hakes
Murray, UT · Member since 2016 · 162 posts · 166 votes
8y
What if the next financial crisis is not a "crash"? I think we all know the current landscape of things will change but it may not be that values plummet as they did in '07-'08. What if the next financial crisis is continued inflation/hyper-inflation, with values going up?
Remember that for years the country was going under 'quantitative easing' which pumped billions of fiat money into the economy. I think we are starting to finally see the velocity of this money over the past year or two now. There is way too much cash in the system to have a "crash" like we remembered it.
I think some areas are topping out now (the areas that always have major swings) because wages are slow to keep up.
I do agree the current financial landscape will not stay for long, but i don't think it will be a drop in home values.
3 Reply
Steve Miller
Rental Property Investor · Golden, CO · Member since 2017 · 19 posts · 57 votes
8y
1) Choosing to sell and pay capital gains on recent appreciation (rather than 1031, which is a valid option), you are effectively "recession'ing yourself" through taxes and transaction costs rather than a theoretical anticipated recession that may or may not occur in the near term. Assuming that you don't have an incredible opportunity (completely different scenario if so), it's much better to simply continue to rely on the assumption that real estate will, on average, increase by somewhat above the rate of inflation over the longer timelines that actually matter (20, 30 years).
2) Something not discussed on these "when is the recession coming?" threads enough: the data for what these kind of scenarios look like is readily available! Again, given that history gives us a pretty reliable sense of what the longest term appreciation trends will be, simply build the business to withstand the short term negative outcome. For many regions, that scenario was 2008-2012. The data for what happened to both housing prices and rents exists, on sometimes as granular as a neighborhood by neighborhood basis. My advice would be to build a spreadsheet with that data, make sure your reserves can cover a worst case scenario. Then, just for fun, make it a little worse so you can sleep better at night. If you believe in the 20-30 year future of your region (think demographics and jobs), this approach will work just fine.
4 Reply
Kevin Solomon
Toronto, Ontario · Member since 2014 · 10 posts · 7 votes
8y
@Michael H. Everybody predicts stuff in 2 years because it’s far away that it gives them time not to be immediately wrong and short enough to seem (irrationally) plausible This kind of prediction has been happening for decades I don’t pay attention to irrational predictions
0 Reply
Elbert D.
Real Estate Entrepreneur / Investor · Chicago, IL · Member since 2016 · 688 posts · 367 votes
8y
a correction is going happen.....when???? I don’t know and neither does the people who claim they are experts. Everything is over price and housing is tight everywhere yes. But what if there is no correction until late 2020???? People have been predicting a correction since 2015.
Landlords should still be pursing cash flowing properties. Flippers should be a bit worried only if they get caught in the mist of the crash during a deal. Since it would throw off the ROI numbers. But that's one deal. Smart and experience fix and flippers will bounce back and be back to flipping.
2 Reply
Joanna L.
New to Real Estate · Los Angeles, CA · Member since 2017 · 14 posts · 8 votes
8y
People still need housing after a crash.
If you are planning to buy/sell/buy/sell/etc, then maybe you will get caught with your pants down and could get hurt... But, if you buy a good solid place with the 1031 exchange, you can collect rent on it regardless of a crash.
If the crash is bad it might be impossible to get maximum cashflow from the property. You could have tenant retention problems, vacancy problems, problems keeping the rent as high as you want... Once I heard of a whole apartment building getting their rents reduced - a tactic the owners did to keep their buliding full during a bad economic turn.
But, I'm a buy-and-hold type of person. If the whole economy suffers and I have to also suffer for a year or 2 or 3 by collecting a bit less rent than otherwise - that's not going to put me off.
1 Reply
Justin WindhamPro Member
Banker · Nationwide · Member since 2015 · 4k+ posts · 1k+ votes
8y
@Michael H.
I'm not concerned about it. If a correction occurs, it might open up some more opportunities, and I don't rely solely on appreciation of assets.
2 Reply
Eric Burgh
Real Estate Professional · Hoboken, NJ · Member since 2017 · 46 posts · 26 votes
8y
I’d expect a correction and not necessarily a crash. But to be fair, who here really saw the crash of 08? It was all rosey and even those in the real estate investing game and realtors that I know of lost money or their homes, no one really saw it. I think some people did question the abnormally high real estate pricing though, which at this point we’ve surpassed those numbers in terms of what homes are selling for.
2 Reply
Brian Aragonez
Investor · Hackensack, NJ · Member since 2018 · 9 posts · 13 votes
8y
Nothern New Jersey isn't doing too bad. A lot of development around my areas of interest. A lot of influx of NYC residents who are tired of paying a fortune for a shoebox apartment/condo in the city. Short commute into NYC, great schools and cheaper real estate
1 Reply
Terry Lao
Professional · Anaheim, CA · Member since 2017 · 1k+ posts · 686 votes
8y
@Michael H.
First and foremost, all markets are local. If you purchased your SFR at 187k, and now sell for 270k, then you should track the median priced homes for Kennesaw, Georgia, going forward. Put together a spreadsheet of historical prices for past 12 years, beginning 2006 to date. You can plot on graph to help see the trend better.
If the median price keeps going up, then hold. If trend starts to plateau then next step might be going down. Look at jobs in your area, unemployment, and major construction projects.
Nationally still looks good, but like I said, " all markets are local".
Terry
1 Reply
Chad Jett
Member since 2018 · 2 posts · 1 vote
8y
@Michael H. I believe a crash like 07 & 08 is highly unlikely to happen again. Bank were giving out mortgage loan to people with low credit scores and when they wasn't paying; well that's is a huge part of it. Plus I was one of the thousands who was illegally forced into foreclosure by Bank of America, even though I had proof of all payments up to that point. At that point I had no choice but to file bankruptcy. When all the Federal hearings were over, I was awarded a wapping $800 settlement. The easy to get loans are not there now that has been corrected. As said in another reply; I believe yes the stock market will level out. Yes the housing market is going great due to jobs jobs jobs. Here in central Indiana apartment complexes are going up everywhere, I believe people are being more responsible compared to then.
1 Reply
Shawn Coverdell
Investor · Clatskanie, OR · Member since 2014 · 212 posts · 233 votes
8y
Properties might be sold at steep discounts? Race you to the clearance rack!!!
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
Originally posted by @Michael H.:

I'm curious what investors are or aren't doing in relation to the impending market crash a lot of people (smarter than me) are saying will happen in the next 2'ish years.
I'm selling a house in the next few months and contemplating just paying the capital gains instead of doing a 1031 exchange. Probably won't, but it's a thought I had.
Crash or a breather ??? big difference. why is it going to crash.. does this mean every cycle we are going to have a 08 GFC MELTDOWN is that what your worried about.. who is saying these things..
on the flip side I just saw an article that new construction Is UP in the northwest and east.. what does that mean..
Its OK for the market to take a breather .. its normal..
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
Originally posted by @Shawn Coverdell:

Properties might be sold at steep discounts? Race you to the clearance rack!!!
Maybe in Rural Oregon. were we have been in a depression state since the mid 80s with the demise of full scale timber production.
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1 Reply
Matt Millard
Lewisville, TX · Member since 2015 · 341 posts · 264 votes
8y
I’m going to disagree with the entire thread. I do think there is a big crash coming primarily because of the FED & the money printed & manipulated interest rates for so long. I can’t tell you when but we are in the 7th inning of a really long ballgame. We didn’t learn anything from 2008 & this isn’t going to be a soft landing. Real estate is one of 5 bubbles with stocks, student loans, subprime auto & total overall credit being the primary ones in order. Now is a great time to focus on cash flow & not appreciation. Or invest passively as I now do in mobile home parks, owner finance & even silver personally before this storm hits.
4 Reply
Alvin Sylvain
Los Angeles · Member since 2018 · 464 posts · 471 votes
8y
Originally posted by @Michael H.:
I'm curious what investors are or aren't doing in relation to the impending market crash a lot of people (smarter than me) are saying will happen in the next 2'ish years.
I'm selling a house in the next few months and contemplating just paying the capital gains instead of doing a 1031 exchange. Probably won't, but it's a thought I had.
I don't believe there exists anyone out there who can predict anything with any kind of reliability.
Crash? Fine. Two-ish years? Can you be a little less specific please? All this accuracy is wearing me down!
Don't get me wrong, I have absolutely no doubt we're in for a crash of some sorts. What it will be, what will cause it, when it will happen, which industry will be most affected, what we can do about it, well, those are the Magic Beans aren't they?
I also have to point out that people have been predicting the End of the World since the Beginning of Time. My favorite one is when a prominent newspaper predicted the World would End on April 17th, 1785 (or some such date). The big story on April 18th was that, yes, the World in fact had Ended, but nobody noticed.
There are prognosticators galore predicting all manners of doom and gloom. Every once in a while, they're right, but not because they knew anything more than anybody else, but more along the lines that if you predict "THIS YEAR IS IT!" every frikkin year, sooner or later, this year WILL be IT, and then they can bask in the glory of "predicting it all along."
I would just suggest that you make your investments with the consideration that, well, maybe the World won't End, but, something disastrous might occur. You or a loved one might get hit by a bus. Your favorite 4-plex might burn down. The neighboring 4-plex might get overrun by drug gangs. What are your contingency plans for catastrophes like that?
I imagine they'd work as well as any attempts at being "prepared for the crash".
0 Reply
Thomas Staub
Real Estate Coach · Austin, TX · Member since 2018 · 56 posts · 52 votes
8y
@Mike M. Is spot on. Low inventory, strong demand, fee new builds coming, where is the downward pressure in markets outside of Seattle, LA, Bay Area, New York and a few other primary markets? Secondary and tertiary markets look healthy
0 Reply
Chuks Erinne
Rental Property Investor · Atlanta, GA · Member since 2017 · 221 posts · 188 votes
8y
@Michael H. If you are a serious investor, you wont care about crash because you make money in an up or down market. You learn to zig and zag with the market. 2008 market conditions are just history. Market will always have a correction but not to 2007 - 2008 standards.
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