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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KJ L.
Rental Property Investor · Los Angeles, CA · Member since 2017 · 210 posts · 155 votes
8y
Another one of these posts...
1 Reply
Chris Armstrong
Realtor · Charleston, SC · Member since 2016 · 229 posts · 159 votes
8y
@Jay Hinrichs
Honestly when you compare Charleston the the rest of the country, in 2008-12 it seemed like we came out of the event unscathed for the most part. Yes, those who were over-leveraged lost their butts though it was not like other places. I agree we are insulated for the most part from things happening. Right now the market is still climbing and making it hard for us to buy a home to live in haha. As you said the companies moving here and the job creation with the tourism make for good insulation.
I have lived here 31 years now and we built new near shem creek in mt pleasant. After hugo we bough an old cinder-block house with a 0.6 acre lot for 25K, now that same lot with the home on it is near 800K. Crazy crazy crazy
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Jane A.
Investor · Shawnee Mission, KS · Member since 2015 · 423 posts · 114 votes
8y
One thought is - to sell the whole portfolio, pay taxes and wait in cash for the better opportunities to invest during the next economic cycle. This is what I should do. What I will do - keep all the portfolio as a long-term investment because it works and will work during the downside of the cycle. If I would own anything is Arizona/Florida/California/Nevada, I would definitely sell because these markets have the history of a few times folding.
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Chris LumLee
Investor · Honolulu, HI · Member since 2017 · 187 posts · 108 votes
8y
Whether it be a stock, bond, or real estate correction, crash, or bear market...I'm building my cash reserve for all of my holding types. I'll still buy stocks/bonds or real estate as I have money but I'm also taking some money and putting it into reserves so I can buy stuff cheap when the time comes.
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James Bradin
Rental Property Investor · Destin, FL · Member since 2016 · 91 posts · 55 votes
8y
If you follow Scott Trench’s advice and only purchase properties that cash flow and are good deals you will “win when the market is up, win when the market is down, and win when the market is stagnant.”
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John Blackman
Developer · Austin, TX · Member since 2010 · 371 posts · 284 votes
8y
If your assets are cash flowing then you don't really need to do anything except hold. If the market prices (on real estate) drop, as long as your purchase price worked and your financing can make it through the turmoil (no ARMs) just ride it out. Many folks are expecting increasing interest rates, so all of that long term 30 year debt at 5% or less is going to look great on your books as prices and rents go up.
I also like owning first position debt as it moves with rates. Even if prices go down, the rates will go up. Conventional financing gets harder so we will likely see more loan opportunities. There is always an asset poised to do well in any market.
Buy it right and perform to the plan.
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Matt Millard
Lewisville, TX · Member since 2015 · 343 posts · 264 votes
8y
Originally posted by @Michael Kistner:

@Michael H.
The Fed Chairman just spoke yesterday about how strong the economy is and no crash in sight. With that said I still always have the possibility of a crash or bubble in mind, I think if you look for solid value add plays that cash flow well you'll always be ok.
It's only if you over leverage or take on too much risk that you should be worried.
Michael be very careful quoting the FED. They have done this many times before with Greenspan & more. The FED is the cause of the crash in my opinion.
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Ellis HammondPro Member
Investor · Leawood, KS · Member since 2017 · 178 posts · 108 votes
8y
Michael H. Just closed a 144 unit deal in Memphis. B class property. Talked with another investor friend today who is closing on another 49 units in the Southern California region, all C and B class type properties. During last recession, default rate was less than 1% on all large multifamily B class properties. I’d like to take advantage of more weary investors during this time. Shortage of affordable living is a bigger concern in bigger cities than a recession in my opinion. As far as CA market as i have seen a couple ppl reference on this thread, is still a strong market across the board. Homes sales year over year have decreased according to Robert Cambells latest report (for San Diego) but other factors he tracks, building permits, foreclosure sales, home defaults are all strong. Not as strong as last two years so something to keep watch on.
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Michael Kistner
Rental Property Investor · Lodi, CA · Member since 2018 · 206 posts · 115 votes
8y
@Matt Millard
I agree in most cases I take what the FED says with a grain of salt. But they also raised the interest rate, plan to one more time this year and three more times next year. You wouldn’t do that in a bad economy.
The coming crash most “experts” are predicting is because of the debt coming due in 2020. It may trigger a market correction, how big of one we don’t know. Which is why I always prepare as if it is coming.
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Branden Barnes
Contractor · Lansing, MI · Member since 2018 · 2 posts · 1 vote
8y
@Michael H. If you speculate a crash then you should reinvest your exchange into multi family.
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Jason Curtis
Rental Property Investor · Member since 2018 · 26 posts · 15 votes
8y
Ahh the 2008 crash, RE buying opportunity of a lifetime! Unfortunately, I was only in a position back then to buy one sfh foreclosure for about 20% of it’s market value. It was a very profitable acquisition and if I only knew then what I know now, I would be far more ahead of the game at this point. In my opinion, we’re not currently in a bubble. However a market correction (even modest) in some overheated areas is fairly likely. Conditions such as supply/demand, rising interest rates, market uncertainty/speculation, politics, world trade, income rates, job growth, and availability all play roles in it. I simply use those as indicators only but cash flow of my investments is the ultimate predictor. Make sure your assets can weather any financial storm before investing. Be in the game and know how to play! Sitting on the sidelines is for second stringers and no fun!
Find value and know your market. According to UBS Global Real Estate Bubble Index, markets like SF, LA and NY are currently considered to be the most overvalued in the country but even those markets are nowhere close to being in a bubble. I myself specifically look at housing prices as compared to income rates, and jobs/industry. Single industry locations aka “Boom Towns” mostly reliant upon one industry like Oil in Odessa, TX for example) are indicative of areas I usually will not invest in no matter what the current market conditions are. I tend to stay away from single points of failure as a habit. I want lots of thriving economic attributes that support areas I invest in specifically. Instead of trying to predict a crash or time the market, I suggest perhaps searching in other areas that are currently fairly valued and not single industry reliant like Boston or even better yet, undervalued like Chicago. If nothing else just remember, investing is like flying in an airplane. As a precaution, you still keep your seatbelt fastened at all times (even in ideal weather conditions) in case of unexpected turbulence and ride it out. Don’t panic and jump out of the plane expecting it to crash when it’s only a temporary inconvenience along your journey.
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Ted Mac
Fresno, CA · Member since 2017 · 7 posts · 1 vote
8y
I can't tell you the number of times I expected the "Big One" to some..I delayed buying properties for this reason and missed out on some real buying opportunities. I do watch how I use leverage as it seems to be the key when a down turns happen.
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Jordan MoorheadBusiness Member
Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
8y
@Michael H. I'm not saying that there won't be a market shift but all of these articles are written by media outlets citing "experts" who need traffic for their sites.
Will the market change? Of course!
When will this happen? Nobody knows!
I think that historically we are a long ways into a growth cycle (10 years) but there's no way to know when that will end.
1. Buy good deals.
2. Don't speculate.
3. Get long term debt.
4. Keep adequate reserves.
I'm still looking for deals that I can get into. At the same time I'm working to build adequate cash reserves to protect what I already own.
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Andrew SyriosPro Member
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Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
8y
We're going to see a dip for sure, probably in the next year or two, but I don't think we'll see a crash. But we are trying to build up our rainy day fund and keep higher cash reserves.
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Armando Payano
Developer · Tampa, FL · Member since 2016 · 118 posts · 61 votes
8y
@Michael H. Michael be mindful that selling your property because of the appreciation may seem good on paper however transacting real estate because of something the MAY happen may be something you look back on and wish you had done differently. Say you get top price for your property 270k. Subtracting commission, 6%, will leave you with 253k. Then subtract taxes and fees. I am not sure what these would cost in you area so lets estimate 3k. You are now looking at a profit of 63k. Now ask yourself if this still makes sense, as you will have to either wait for the 'crash' or buy in at higher multiples. Something to think about.
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Armando Payano
Developer · Tampa, FL · Member since 2016 · 118 posts · 61 votes
8y
Which reminds me. 2 years ago, there was a BP member from the market I am in. Tampa, specifically South Tampa. He was VERY vocal about an impending crash siting all the usual concerns, debt, interest rates, the duration of the current recovery and even siting BREXIT among other reasons why he was selling about 8 SFRs he had. I considered buying some of them, but I do not invest in SFRs.
He was condescending in his reply's to anyone who disagreed as if he knew something no one else knew. Fear of what MAY happen had taken over the machine. In REALITY the market was healthy an continues to show modest increases in rental rates and low inventory for sales. In general values have risen in South Tampa 8% on average of the last 2 years. Yes, that is not sustainable over the long term, but even a slow down would not have a detrimental effect to property owners.
Ultimately you should do what is best for you and your family and what helps you sleep well at night.
However in my real estate operations sleeping well at night has ALL to do with having a systematized approach to all phases of my 2 business models and removes outside influences and emotional biases.
A pragmatic view when considering things that are out of my control are what work for me. lt would be irresponsible of me to take action based on anything less than what IS happening rather than what MAY or MAY not happen.
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Alan Kahanu
Investor · Kailua, HI · Member since 2016 · 72 posts · 33 votes
8y
I believe there are deals to be had in any market, though far fewer. Not spotting an impending crash, but am building a little more cash.
1 Reply
Paul BryzekPro Member
Investor · Oakland, CA · Member since 2013 · 29 posts · 19 votes
8y
As Robert Kiyosaki teaches with Rich Dad Poor Dad - if you invest for Cash Flow and the property is putting money in your pocket at the end of the month (after all expenses: mortgage, interest, insurance, property tax, vacancy, repair) then in the event of a "crash" - you may end up with more cash flow due to an increased number of renters.
He teaches that buying real estate purely for appreciation is gambling and should instead be viewed as the icing on the cake.
I invest in Ohio :)
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Joe SplitrockPro Member
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Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
8y
@Frank Wolter The OP asked if he should 1031 and your advice is get guns so he can steal from people after society collapses. Easy there Mad Max.
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Brian Ploszay
Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
8y
Interesting post. There have been many crashes. Dot com bubble (didn't affect real estate much) and certain stock market crashes.
The great recession of 2009 was a real estate crash. What created a deep correction in real estate started with rising defaults in loans. And then lenders pulled back, leaving a vacuum of properties that couldn't be financed conventionally. We're not even close to that point yet.
I believe we are already in a mild correction for multi-family for the last year. The transaction volume is down significantly, which suggests that investors think the inventory is too expensive. I also have seen a rise in defaults for hard money lenders.
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Diana Dorantes
Rental Property Investor · Channahon, IL · Member since 2018 · 161 posts · 103 votes
8y
@Michael H. I am concentrating on buying good properties as long as the numbers work and meet what I am looking for. Will keep some cash on hand and buy more if deals present themselves.
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Marisa R.
Developer · Atlanta and Detroit · Member since 2018 · 601 posts · 821 votes
8y
I don't see a crash, in markets I play in, stock is low and there is so much pent up demand.
I play close attention to volume, at the end of the day no one has a crystal ball, but if you start seeing supply increase then perhaps its time to pay attention.
How do I mitigate risk -
Cash
Keep Leverage low
Buy in markets that are starting to rise, in the early stages
Load up, and sell some of your properties, reduce debt
Buy cash flow properties with returns of minimum 12%
Marisa
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Rick Hanrahan
Attorney · Montgomery, AL · Member since 2016 · 10 posts · 6 votes
8y
Michael,
That is the question, and good one. I would concur with the majority of commentators, including numerous lenders I work with, that we are likely somewhere in the 7th inning of the market cycle. With that, I wouldn't venture to guess what that means...i.e. a year, two years, or many years more until we enter a market correction. However, as a history major and former economics instructor, there will be a market correction. When that "market correction" will occur, to what effect, and the causes and implications are all very different questions. No one can know for sure. But the smartest investors know it is out there...like fishing when you can see the fish but nothing is biting. Eventually, the fish will get hungry, and the biting will start. And when it does, if you're sleeping, you'll be out of luck.
So, how to prepare? Most pundits offer very little here in my opinion. Some say put money in bonds, get conservative, to even stop investing. I disagree, and concur with many of our fellow BP contributors including: John Warren, John Blackman, Jordon Moorhead, Andrew Syrios, and Paul Bryzek. The culmination of their comments offer a good position to take in preparation for an incoming market correction.
When it comes to real estate, always buy for cash flow first, next appreciation, then principal reduction and tax advantages. With that, I concur to a great degree with Ben Leybovich (from prior threads) that investors typically make the largest gains through appreciation in typical 1-4 unit residential investments. However, cash flow must always be the first target. If a property cash flows little and the market dips, you're now in the red. Or as Warren Buffet says, when the tide goes out you'll see who is naked.
Cash flow is king for a reason. So, if you are concerned about the real estate market where you invest (i.e. there are around 400 markets within the U.S.), then definitely ensure you have healthy cash flow. But then again, if you're in this business for any length of time, you already know that.
Cyclical markets like the East and West coasts, and Sunbelt states are typically the most volatile. Midwest states historically have been more "boring" and less volatile. Then, within these larger regions, certain counties and cities offer different opportunities. The bottom line is that you have to know your market cold - like the back of your hand, so to speak. A superficial knowledge of your market could leave you in a precarious situation when the market corrects.
Wealthy and prudent investors are building up their reserves for when the market takes its turn. Then, when "their is blood in the streets" they will swoop in to purchase at rock bottom prices. [from Baron Rothchild 18th-19th Century British nobleman. He made his fortune following the Battle of Waterloo and the panic that ensued in the early 19th Century. The Rothchilds have maintained that wealth through the centuries and some estimates rank their family wealth near 1 trillion plus.] This is nothing new. It has been around for millennia. The modern family offices, i.e. wealthy families with tens of millions, are doing this now. But, alas, for the average investor, we can do the same on a smaller scale. We should continue to invest as long as it makes sense. But we should also be ready with cash reserves to purchase when the market takes a down turn.
As to other investments, like stocks, bonds, etc. that is also an important, but altogether different topic. I'll stick with real estate with this thread...
Thoughts?
My best!
Rick
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Jason Graves
Rental Property Investor · San Diego, CA · Member since 2018 · 242 posts · 234 votes
8y
@Michael H. Yes. Investing in positive CashFlow property on KS MO. After thr nect cash I will bring $ home to San Diego
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Account Closed
Real Estate Agent · Arlington · Member since 2016 · 162 posts · 100 votes
8y
You may accumulate a stockpile of cash the next two years, but there's a cost to waiting (this isn't often addressed). If you wait for the next dip you're risking putting yourself in a situation where you'll be seeking leverage while banks are clamming up. You'll also have inflation exposure. Plus, if you're a buy and hold person, what difference will it make if you buy in order to hold for 20-30 years - 30 years from now it will be totally irrelevant whether you bought in 2018 or 2020. The major cost I'd be more worried about involves the missed opportunity to build wealth and secure a well performing asset with fixed financing.
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