REI Lessons Learned From the Great Recession

Rental Property Investor · Bettendorf, IA · Member since 2017 · 187 posts · 256 votes

It's been said that those who cannot learn from history are doomed to repeat it. There's so much discussion out there about a possible crash, with many experts weighing in on both sides of the debate. My question in this post is NOT whether or not one will happen, but rather about what those of us who began our REI journey AFTER the crash can learn from those who experienced it firsthand.

So my question is directed to those in the BP community who were involved in real estate during the dark days of 2007-2009. How were you involved, what happened to your business, and what lessons did you learn that we might benefit from? I'm sincerely interested to hear your stories and any lessons learned that you're willing to share. Much thanks and respect to all who do!

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Russell BrazilBusiness Member

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

@Chris Jensen Im of the mind that this whole idea of buying with no money down is very risky. I buy with 25% down on all my properties, and I buy in areas with strong demand so that my value gets pushed up and my rent gets pushed up. So my properties Ive had for awhile now have close to 50% equity. So if my values get pushed down, no big deal.

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Chris Jensen
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Rental Property Investor · Bettendorf, IA · Member since 2017 · 187 posts · 256 votes
8y
@Llewelyn A. great post. Excellent comments about cycles and understanding what drives them, their consequences, and the opportunities that they afford. Sounds like you took a very measured, business-like approach to your real estate investing. Key take-away for me is to focus on neighborhoods where the RE business cycle is inclined upward, and then take steps to prepare for ups and downs on that cycle. Awesome advice, thanks for sharing with us!
@Corby Goade, great comments about what we should all be doing now to be prepared. And to your point, these are things we should be doing regardless if/when a downturn occurs. Just smart things we should be doing all the time. Thanks for contributing.
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Chris Jensen
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Rental Property Investor · Bettendorf, IA · Member since 2017 · 187 posts · 256 votes
8y
@Thomas S. thanks for the reminders on the ways single family properties are different than multi units. There's definitely a reason why there's so much talk about multi family housing. Tweetable quote: "Cash not earning its keep is not acceptable." Nice!
@Tiffany U. interesting strategy, and one that I'm sure many of us wish we were in a position to follow. I would love to be all cash every time, but limited funds immediately puts a break on that strategy. I'd be curious to hear how you're able to do this?
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Tiffany U.
Rental Property Investor · Mc Kinney, TX · Member since 2016 · 45 posts · 22 votes
8y
@Chris Jensen First I don't have a ton of properties. After the home I inherited during the recession caused me all sorts of grief I didn't do anything with real estate for years. When I was ready I had to find a market that made sense for me. The city where I live is not where I invest. The market where I live has gone crazy. I invest in a military town that's about 3 hours away. Prices are more realistic and the major employer is the military base. I have a sweet spot for investing according to my strategy and numbers that work for me. I look at properties that are in the 60,000 range and bid based on numbers that work for me. I let the sellers know its a cash offer and all three of my deals this year because it was cash worked to my advantage. For those sellers that don't like my offer I move on. This year I had $150,000 cash to invest which I spread across 3 sfh0 properties. They are not mansions but solid properties with a history of cash flowing well, in the military town. I plan to take a break for a year save more money for year and then start purchasing small multifamily units. We are following a modified strategy laid out in the bigger pockets real estate investing book. But we don't seek financing. At some point we may but the ROI of 8% on a property held free and clear vs 10% with a mortgage for 15 years. In my eyes the better deal is 8% free and clear. I am not worried about a mortgage and at this stage in my life I need my REI income to be as stress free and passive as possible. My goal to purchase small multifamily units hasn't worked out yet. But I'm patient I know it will happen and when it does that money will further compound what I already have going.
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George SkidisPro Member
Rental Property Investor · Belleville, IL · Member since 2017 · 875 posts · 529 votes
8y
Originally posted by @Chris Jensen:

@George Skidis if I interpret your comments correctly, your strategy all along was to have your properties paid off in a relatively short time frame (10 years). That gave you a healthy equity position in your properties. And when the crash hit you weren't in a crisis mode. Can you expound on the kind of pain you avoided by being on shorter term notes, as well as what kind of pain you did experience?
The PAIN: About two years before the crash I had $500,000 of loans non renewed by a bank. That bank was heavily leveraged in loaning to investors. The were cleaning house and preparing to be bought by Commerce Bank. Due to that It was necessary that I start scaling back. Sold one and has enough equity to pay off that property and another. We sold 17 units at substantial profits and carried second mortgages on them prior to the crash. We made enough on the sale that the second mortgages were just extra gravy. The sales left us with lots of free and clear properties. The second mortgages left us with extra cash.
The PLEASURE: We have been free and clear with no mortgages since 2009.
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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
8y
Own a 'good enough' primary res. A lot of my fancy neighbors struggled more than I did just to make the payments on their own house and boats and cars and other toys.
Invest in/own b class 2 bedroom+ rentals. Rents rose and the tenant pool improved as fancy homeowners moved down.
A-class had to offer tons of incentives to fill vacancies that were expensive and over-built. My c class efficiencies stayed pretty full, but I had more slow/no pays and headaches than normal.
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Gordon Starr
Rental Property Investor · Dayton, OH · Member since 2015 · 312 posts · 273 votes
8y
I actually saw that one coming, watching closely a forum called "the housing bubble blog", sold my entire rental portfolio in 2007 doubling my initial investment. My ex wife taking much, if not all the profits, though :( Then I went all in, buying all I could find in a very small geographic area near my home from 2012 to 2014. I learned how to rehab things myself, how to manage rentals, how to predict crashes. All very valuable, none more so than learning how to avoid marrying social climbing females! When your investments go on the skids, they will slide away too!
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Kevin Solomon
Toronto, Ontario · Member since 2014 · 10 posts · 7 votes
8y
@Chris Jensen I learned that Great Recessions are the best time to buy real estate. I purchased short sales and REOs at huge discounts with no competition. Sellers would do anything I wanted them to do to get their house sold. What I could have done better was throw out 10x more offers. I was far too cautious when I didn’t need to be
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Matt Millard
Lewisville, TX · Member since 2015 · 341 posts · 264 votes
8y
@Chris Jensen It was a college town & as the economy recovered rents went up but the improvements & updates gave them an extra boost & made them last!
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John Patterson
Contractor · Canton, GA · Member since 2015 · 107 posts · 81 votes
8y
IN 2007, My partner and I closed up the renovation business that was strong for 20+ years. We shut their doors then started our own.
They were too stretched and could not change direction. We were small but hungry. I had managed construction projects, but I have never sold a remodel before.
Through talk and hardwork we applied what we knew, scaled down and started selling ourselves .
It hasn’t been easy but we have a company that is efficient and streamlined.
Now it’s time to pursue new investment avenues. With today’s resources, anyone can be successful if they are persistent and dedicated.
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Aaron Stuiber
Real Estate Consultant · Milwaukee - WI · Member since 2018 · 142 posts · 73 votes
8y
As a newbie into REI Its awesome to see the other half's perspective.
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Vitaliy Tkachuk
Investor · Clackamas, OR · Member since 2015 · 2 posts · 1 vote
7y
From 2008-2010 I saw many people sell their homes just because others panicked and sold. I mean folks who could afford to pay, decided to sell at massive discounts because they noticed equity was TEMPORARILY wiped out. The lesson for me is to hold on and wait it out.
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