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.

15 Reply

588 views

Most Popular Reply

Russell BrazilBusiness Member

Moderator

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.

[email protected]301-893-4635 Podcast Guest on Show #192

District Invest Group545 Reviews

Website View Page

112 Reply

See this reply in the discussion

152 Replies

Jump to latestLatest

Sort by

Jim Young
Rental Property Investor · Roswell, GA · Member since 2016 · 37 posts · 22 votes
8y
I agree with all the posts that say the stock market is not the real estate market, etc. I think a more serious threat is a sharp rise in interest rates. What do you all think about the likelihood of that, how do you think that will impact our markets and what are you doing to prepare for it?
0 Reply
Ben Leybovich
Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
8y
@Rick Hanrahan - allow me to chime in. First - I am bullish as hell, but only on the large multifamily and only Class C assets in Class A markets. The recent cp rate compression in the face of rate hikes is indicative of either stupidity or astuteness on part of big money - I tend to think the latter.
Secondly, and this is what people miss in my commentary, appreciation in multifamily is a function of income. So, I don't really understand how this conversation has become an "either or".
3 Reply
Ray Chambers
Member since 2018 · 22 posts · 5 votes
8y
Why do you think there is a crash on the way?
The economy is running great, low inflation, and we are at full employment with small but rising wages.
Fed rates are getting normalized, reduced regulations and tax breaks are adding liquidity to the economy.
The yield curve is not inverted(so far) and as everyone on here is suggesting: "the risk-reward is still in the favor of investing."
0 Reply
Frank Wolter
Rental Property Investor · Cleveland, OH · Member since 2018 · 191 posts · 432 votes
8y
@Joe Splitrock I think your taking my statement literally. This conversation expanded past a 1031. I'm speaking in general. It's been an issue I've thought about I'm sure just like everyone else. My point being I've thought alot about the dollar collapse and the precious metal rally. If it gets to the point where it's that bad. Then there will be alot of robberies for those precious metals. It's the cop in me able to read the best in people. Lol
0 Reply
Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
8y
Yawn. Just another excuse for people to sit on the side lines. I invested before, during and after the 2008 crash. The only people who need to worry are those who are over extended or made bad investments. Regardless of the market, there is NO good time to be overextended or make bad investments. Global events can happen at any moment, so instead of trying to predict when a crash will happen, expect it tomorrow and build your business to withstand it.
2 Reply
John BeasleyPro Member
Investor · North Chesterfiled, VA · Member since 2014 · 21 posts · 22 votes
8y
@Michael H. My 2 biggest mistakes happened when I bought 2 properties to flip in 2007&2008.i thought the market had bottomed. It hadn’t. I had to pivot and turn them into rentals. I still have them and they have always cash flowed
0 Reply
Nicholas White
Rental Property Investor · West Palm Beach, FL · Member since 2018 · 19 posts · 10 votes
8y
I don't think we will have a crash (not like 2008) in the next few years but I would expect a pull back and softening in the market where we no longer have 5-10% annual appreciation. While interest rates continue to rise, this will push down values but unless rates increase dramatically I wouldn't anticipate more than a 5-10% correction in the market anytime soon. I would focus on purchasing stable properties with as many units as possible (to prevent 1 or 2 renters from controlling your income) and locking in long-term debt. Make sure you can still service the debt if rents drop or you experience moderate vacancy. There are many different markets that are still attractive today and producing stable cash flow with rents that are affordable ($700-900/month for 2-bedrooms). It is reasonable to assume that most people will be able to afford a 2-bedroom apartment in a good area for $900.
My question to everyone is this: If rates are still near all-time historic lows, is it worth locking in long-term debt (10 years+) even if values are high today vs. waiting 2 years for a dip in values when rates are (maybe) higher? A mortgage of $100,000 with a 5.25% rate (amortized at 30 years) will cost you less than a $90,000 mortgage with a 6.25% rate with the same amortization.
Hope this helps!
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
Originally posted by @Joe Splitrock:
Yawn. Just another excuse for people to sit on the side lines. I invested before, during and after the 2008 crash. The only people who need to worry are those who are over extended or made bad investments. Regardless of the market, there is NO good time to be overextended or make bad investments. Global events can happen at any moment, so instead of trying to predict when a crash will happen, expect it tomorrow and build your business to withstand it.
if your buying rental assets then the only crash or risk to crash in my mind is eroding of rent prices.. because of competition.. and those that are at max leverage lose their cash flow and maybe go negative.. but for those buying if the numbers work today and rents stay even .. and you run them right .. no reason not to keep adding horses to the stable.. If its your goal to own lots of rental houses..
in the cash flow markets these days the little rental homes are not selling for retail homeowner values anyway and have not for years.
they are selling just like commercial or MF based on income.. if income goes down price will go down .. if income goes up prices go up.
this new group of landlords are much better equipped to ride out a down turn than the last set of many landlords that bought pre 08 with no experience and no skin in the game .. the providers of these assets for out of state folks have really cleaned up their act..
So unless you have a situation like what happened in PHX in 08 were you have MASSIVE vacancies and same with Vegas you had prices crash along with retail homeowners with purchase money loans ( no deficiency judgement allowed) it became a cascade effect..
knew buyers the last decade are in my mind more educated ( thanks BP) locked in historic low rates and had to actually qualify for their loans..
So let me ask the audicance this if the market starts to erode are you going to walk away from your rentals ????? who is the investor that is going to do this.. can we identify which investors are going to default and cause this meltdown or bubble ??
builders don't have huge un sold inventory like 06 to 08 if it slow down that bad they just stop building but your not going to have like what happened in FLA AZ GA central CA literally hundred thousand sitting new homes.. banks wont allow that many specs and builders and national builders are just not going to go there..
Like my bank will only let me have 12 specs.. and I don't want anymore than that.. if I am not getting presales and big non refundable deposits I stop building.. and since most of us pay cash for the dirt like I do... I have no problem just stopping..
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
0 Reply
Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
8y
Originally posted by @Jay Hinrichs:

Originally posted by @Joe Splitrock:

Yawn. Just another excuse for people to sit on the side lines. I invested before, during and after the 2008 crash. The only people who need to worry are those who are over extended or made bad investments. Regardless of the market, there is NO good time to be overextended or make bad investments. Global events can happen at any moment, so instead of trying to predict when a crash will happen, expect it tomorrow and build your business to withstand it.
if your buying rental assets then the only crash or risk to crash in my mind is eroding of rent prices.. because of competition.. and those that are at max leverage lose their cash flow and maybe go negative.. but for those buying if the numbers work today and rents stay even .. and you run them right .. no reason not to keep adding horses to the stable.. If its your goal to own lots of rental houses..
in the cash flow markets these days the little rental homes are not selling for retail homeowner values anyway and have not for years.
they are selling just like commercial or MF based on income.. if income goes down price will go down .. if income goes up prices go up.
this new group of landlords are much better equipped to ride out a down turn than the last set of many landlords that bought pre 08 with no experience and no skin in the game .. the providers of these assets for out of state folks have really cleaned up their act..
So unless you have a situation like what happened in PHX in 08 were you have MASSIVE vacancies and same with Vegas you had prices crash along with retail homeowners with purchase money loans ( no deficiency judgement allowed) it became a cascade effect..
knew buyers the last decade are in my mind more educated ( thanks BP) locked in historic low rates and had to actually qualify for their loans..
So let me ask the audicance this if the market starts to erode are you going to walk away from your rentals ????? who is the investor that is going to do this.. can we identify which investors are going to default and cause this meltdown or bubble ??
builders don't have huge un sold inventory like 06 to 08 if it slow down that bad they just stop building but your not going to have like what happened in FLA AZ GA central CA literally hundred thousand sitting new homes.. banks wont allow that many specs and builders and national builders are just not going to go there..
Like my bank will only let me have 12 specs.. and I don't want anymore than that.. if I am not getting presales and big non refundable deposits I stop building.. and since most of us pay cash for the dirt like I do... I have no problem just stopping..
I agree. In my market we have way less builders than we did in 2008. Many were destroyed in the crash and they just have not been replaced with new ones. Most of the ones left are bigger developers who also own rental real estate. A friend of mine who is a small builder is mostly only doing pre-sold due to financing and risk.
Inventory is still low in many markets and low unemployment, so people have stable incomes.
It is just not 2008 all over again. I am not saying some catastrophic economic event couldn't occur, but is not going to be the same as 2008.
1 Reply
Jack B.
Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
8y
Originally posted by @Branden Barnes:
@Michael H. If you speculate a crash then you should reinvest your exchange into multi family.
Why??
1 Reply
Jack B.
Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
8y
There's an ad for becoming an FBI Special Agent here? lol.
0 Reply
Account Closed
Miami, FL · Member since 2018 · 55 posts · 24 votes
8y
It’s all locational. There HAS to be a pop in the MIamI Bubble soon. Average price in my area for a 3/2 is around 300 on the low end. And its only an ok area. And it will rent for about 2-2200. On top of paying 4K in taxes and 4x in homeowners insurance. There was an article posted saying it may even be a localized recession. I believe average salaries are around 43k. Tons of money coming in from Russian and Latin American investors has thrown the market out of whack. Even the really rough areas are selling for over 200k. I dont even like working in those areas. But right now I’m saving, either looking to capitalize on this, or move out of the state and go to Texas.
0 Reply
Caroline Widjaja
Rental Property Investor · Los Angeles, CA · Member since 2018 · 84 posts · 54 votes
8y
@Jim Young, I think the sharp rise in interest rates has a much bigger impact on luxury homes, especially in Los Angeles area. I see a slowing down in this luxury homes market right now, and so many buyers are waiting on the sidelines in expectation of the price will be going much lower or they are still thinking about the needs vs wants.
Well, as an investor, you really wish that a BIG crash will happen soon and you can buy a lot of properties, right? No, it won't happen. Like all other ppl said, you will see more of a softening market.
0 Reply
Warren Kirschbaum
West Palm Beach, FL · Member since 2015 · 16 posts · 9 votes
8y
“Just a small thing to keep in mind. If you don't do a 1031 you are getting all that mortgage principle pay down that you already paid tax on each year, tax free.“
How’s it tax free if you already paid tax on it (either as rental income or personal income)?
0 Reply
Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
8y
Originally posted by @Frank Wolter:
@Joe Splitrock I think your taking my statement literally. This conversation expanded past a 1031. I'm speaking in general. It's been an issue I've thought about I'm sure just like everyone else. My point being I've thought alot about the dollar collapse and the precious metal rally. If it gets to the point where it's that bad. Then there will be alot of robberies for those precious metals. It's the cop in me able to read the best in people. Lol
Someone once told me cops are a hammer and they see everyone as a nail. If you spend your life looking for the bad, eventually that is all you see.
0 Reply
Irina Belkofer
Real Estate Broker · Cleveland, OH · Member since 2017 · 719 posts · 658 votes
8y
Originally posted by @Warren Kirschbaum:

“Just a small thing to keep in mind. If you don't do a 1031 you are getting all that mortgage principle pay down that you already paid tax on each year, tax free.“
How’s it tax free if you already paid tax on it (either as rental income or personal income)?
It's different taxes.
You pay your income taxes every year from income on sch.E but when you sell your property, you're going to pay capital gain tax plus depreciation you took advantage for these years when property was in service.
There are plenty of taxes everywhere :))
0 Reply
Andrey Y.
Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
8y
Originally posted by @Jack Bobeck:

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....
You've got it backwards. 33-38% of the population is renting.
0 Reply
Melissa Gittens
Real Estate Broker · Windsor, CT · Member since 2015 · 1k+ posts · 268 votes
8y
I am always aware of the market and am constantly preparing my self for anything that is to come by buying low and looking for great cash flowing deals. I wouldn't suggest waiting for the market to tank, we should focus on buying great deals. Keep in mind a great deal for me may not necessarily work for your portfolio.
0 Reply
Mike HurneyPro Member
Real Estate Investor · Boston, MA · Member since 2009 · 2k+ posts · 542 votes
8y
I expected a correction over a year ago. But the best explanation I've heard for this continued appreciation is that:
The Population has continued to Surge and Inventory is the lowest since it's been tracked, 1950s.
I'm usually careful to have shorter term projects 3 months max, so I can see something coming and act accordingly.
& Dollar Cost Average - Buy something each year. So you buy high and you buy low. Averages out...
Then of course in the high market, maybe now in Boston, you can "cull the herd" dump a dog that's not performing.
0 Reply
Nicholas White
Rental Property Investor · West Palm Beach, FL · Member since 2018 · 19 posts · 10 votes
8y
@Michael H. - what are thinking of when you say a crash? Slow down in appreciation? Drop in values by 10%? I also think it’s important to consider whether that’s a nationwide crash and how different markets (Las Vegas vs. NYC vs. Omaha for example) will react and what your investment objectives are. There is arguably more risk investing in a single famIly flIp in Miami Beach right now vs. a 24 unit multifamily in Charlotte, NC.
0 Reply
Eric Jacobs
Specialist · Fort Lauderdale, FL · Member since 2016 · 187 posts · 128 votes
8y
Um. Too many to read all so forgive what I assume will be some redundance. First of all, the idea that you (and everyone else) have determined that there will be a "crash" and therefore you are going to sit on the sidelines until the sky falls (and pay cap gains I might add) is putting it mildly, not a good idea. First, there are a million reasons a correction, were there to be one would not look like 2008 not the least of which is the amount of capital sloshing around out there in the world. Second, there is always opportunity and to be honest, I'm kind of looking forward to a pull back and see it as a wonderful opportunity. Third, the enemy of the dead investor in a downturn is not the downturn its debt. RULE #1 OF INVESTING --- PRESERVATION OF CAPITAL.
0 Reply
Eric Jacobs
Specialist · Fort Lauderdale, FL · Member since 2016 · 187 posts · 128 votes
8y
@Nicholas White by the way, my main office is on Miami Beach and I can tell you that a "flip" on Miami Beach right now is a suicide mission you are absolutely right...I would overpay for a 24 unit in Charlotte (though still a little pricey these days) than buy anything on the beach. Candidly that's why I'm looking forward to a bit of a pull back...its a weird market down here in South Fla. and parts of Miami Dade County (Sunny Isles) have about 17 years of supply -- literally --lol
1 Reply
Justin Colletti
Keene, NH · Member since 2015 · 22 posts · 22 votes
8y
Absolutely I am preparing for it, yes. We are overdue for one.

Current yields are pathetic at this point. There is very little value to be found in any conventional cashflowing investments at this point, outside of a few select local markets. And euphoria and optimism are high (as evidenced by some comments in this very thread!) This is always the case before a crash.

How soon will it come? Impossible to say. Could be 2 years. Could be far less.

The difference with this next crash however, is that this one could be inflationary, like the 1970s. We could very well see another "silent crash" where asset prices remain elevated, while the price of everything else rises around them.

If that occurs, you still lose purchasing power by being in bad investments. You just don't lose in nominal dollar amounts. But the actual losses are still very real indeed.

That said, if you find a deal that pencils out well with a good margin of safety, go for it. A great deal that actually cashflows reliably always trumps general market conditions. The trouble is finding them, without compromising where you know—deep down—that you shouldn't be compromising.
2 Reply
Albert Ng
Rental Property Investor · San Jose, CA · Member since 2015 · 401 posts · 221 votes
8y
As long as you don’t over leverage & have an emergency fund, you should be able to ride out the crash.
0 Reply
Rich Senyszyn
Member since 2018 · 46 posts · 43 votes
8y
I’ve been around long enough to recall the 79 opec embargo, 87 crash, y2k, twin towers going down, the housing crash in 07-8, and other crashes. If you are worrying about any of these, it could be you are over-leveraged, don’t have adequate property reserves, and don’t have a personal 6-8 month emergency reserve.
1 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.