Anyone slowing down on purchases due to a possible correction?

Buying & Selling Real Estate
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Anyone slowing down on purchases due to a possible correction?

Will M.
Las Vegas · Member since 2018 · 21 posts · 6 votes

Hello,

I'm new to RE investing and actively searching for my first multifamily property. That said, as my plan is to hold these properties for my retirement, I'm apprehensive to get into the market now as it appears we may be due for a correction. As someone who lived through the crash in Vegas in 2008, I'd hate to buy at the top only to see the value significantly drop soon after. Been there before and it's no fun. It seems like it makes sense to sit out a year or so, wait for the correction, and then jump in with more buying power.  

That said, I'm curious what seasoned investors think about this mindset. 

Thank you in advance for your insight.

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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
7y

Time is the greatest ally of the buy and hold investor.  Time erases all mistakes. Even if you bought at the height of the market, and held on, You would have paid that mortgage down for 10-12 years by now.  You only lose money if you sell.  

Since WW2, prices have only dropped twice on a national level, and only the one from a decade ago was a significant amount.

Now if your market is more cyclical like Phoenix or San Francisco, then maybe you proceed with caution...but many markets are not cyclical. They go up, then flatten, then go up, then flatten.

And one of the great things about the last housing collapse.....so many home owners became renters, so rentals had strong demand. Rents skyrocketed in a ton of markets with the housing collapse.

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  • Angel Perez
    San Diego, CA · Member since 2016 · 33 posts · 15 votes
    7y
    @Will M. Good question. I am also interested.
    0Reply
  • Account Closed
    Member since 2018 · 214 posts · 175 votes
    7y

    What if the price does not drop, and going up gradually or stay flat the next 3 years? 

    Then sit out for another 3 more years on top of the 2 years sitting out?

    So sit out total of 5 years for doing nothing??

    I am still searching and would buy for cash flow if the number works, instead of waiting “maybe” an unknown forever time without doing anything...

    6Reply
  • Matt K.
    Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
    7y

    Im sitting out because I can't get my low-ball offers accepted or I don't have the capital for bigger portfolios.

    Correction could come, but that's more likely to mean more renters...and they would need to live somewhere. If you buy right and have the cash reserves then you should in theory be fine.

    But if your planning on using tenant A's rent to pay the mortgage of tenant b and c ....and live paycheck to paycheck might want to rethink the approach.

    1Reply
  • Alexander FelicePro Member
    Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
    7y

    I wouldn't advice to sit out on purpose, but deals are going to get more scarce, and have less margin. You'll just have less access to great deals as we move forward. You should always be trying to find them though, never slow down

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    4Reply
  • Mary M.
    Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
    7y

    So having lived thru the 2008 housing crash here are my thoughts - if you are buying to hold long term *and* you wont be overextended then Investing in a strong area in better type (MF) property would be, IMO,  a decent idea.    Your mortgage would be low and your cash flow should be able to withstand rent reductions if need be  

    However if the plan is to leverage as much as possible to buy in not so good areas? Your margin of error is small and it would be easy to become underwater. 

    The folks that i saw lost in the 08 crazh were people that bought SFH in super hot markets where they overpaid and overextended their ability to pay. (I know one family that lost their 300k downpayment in a foreclosure) or folks that has tiny cash flow margins and they could not weather lower rents or vacancies

    MF is probably a better bet than SFH at least where I am.

    What i am doing is waiting for something that fits my criteria - but I will buy if it presents itself. 

    3Reply
  • Mary M.
    Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
    7y

    Also even here in one of the most over priced regions of the country it took 7-10 years for prices to get back to pre 2008 levels. So be prepared to hold long term. 

    2Reply
  • Will M.
    OP
    Las Vegas · Member since 2018 · 21 posts · 6 votes
    7y
    Originally posted by @Matt K.:

    Im sitting out because I can't get my low-ball offers accepted or I don't have the capital for bigger portfolios.

    Correction could come, but that's more likely to mean more renters...and they would need to live somewhere. If you buy right and have the cash reserves then you should in theory be fine.

    But if your planning on using tenant A's rent to pay the mortgage of tenant b and c ....and live paycheck to paycheck might want to rethink the approach.

     I hear you. 

    The prices in Vegas juuuuust got back to where they were in 2005-2006. It took over a decade. My concern is if I buy at the top of the cycle (most likely now) and we have another massive correction, then I could lose out on appreciation and have a stagnant decade. 

    But I guess if rents hold or go up, all is well, right? :) 

    Thank you for your feedback.

    0Reply
  • Matt K.
    Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
    7y
    Originally posted by @Will M.:
    Originally posted by @Matt K.:

    Im sitting out because I can't get my low-ball offers accepted or I don't have the capital for bigger portfolios.

    Correction could come, but that's more likely to mean more renters...and they would need to live somewhere. If you buy right and have the cash reserves then you should in theory be fine.

    But if your planning on using tenant A's rent to pay the mortgage of tenant b and c ....and live paycheck to paycheck might want to rethink the approach.

     I hear you. 

    The prices in Vegas juuuuust got back to where they were in 2005-2006. It took over a decade. My concern is if I buy at the top of the cycle (most likely now) and we have another massive correction, then I could lose out on appreciation and have a stagnant decade. 

    But I guess if rents hold or go up, all is well, right? :) 

    Thank you for your feedback.

    Lot easier to get a 75-100k house rented and float a mortgage vs a Vegas house at what probably 2-3 x that or more....and probably not 2-3x the rent.

    Plus lot of Midwest or cahsflow areas prices are rather stagnate compared to Vegas and other areas 

    1Reply
  • Aaron Hunt
    All Over, USA · Member since 2017 · 689 posts · 756 votes
    7y

    @Will M.

    Nope. Still buying. Actually, one of my low-balls just went into escrow with a relatively eager seller yesterday (in Vegas). And I live >2,000 miles away. Deal fell out of escrow and I happen to get lucky. Cash flows from day 1, all-day.

    Snagged it for ~10% less than appraisal, and ~20% less than most recent model match comp. Even that model match is still under what the seller paid for it pre-crash, so they just want out and bad. They’ll have to bring cash to table for the close.

    Paying for it with the dead equity/appreciation HELOC on my first property in Vegas, that I bought with just 5% down, cash flowing all day, but appreciated 25% on top and I was able to drop PMI with re-appraisal. Crazy market!

    Will slow down when the deals dry up!

    9Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    7y

    Time is the greatest ally of the buy and hold investor.  Time erases all mistakes. Even if you bought at the height of the market, and held on, You would have paid that mortgage down for 10-12 years by now.  You only lose money if you sell.  

    Since WW2, prices have only dropped twice on a national level, and only the one from a decade ago was a significant amount.

    Now if your market is more cyclical like Phoenix or San Francisco, then maybe you proceed with caution...but many markets are not cyclical. They go up, then flatten, then go up, then flatten.

    And one of the great things about the last housing collapse.....so many home owners became renters, so rentals had strong demand. Rents skyrocketed in a ton of markets with the housing collapse.

    [email protected]301-893-4635Podcast Guest on Show #192
    District Invest Group546 Reviews
    WebsiteView Page
    25Reply
  • Matthew G.
    Specialist · Pasadena, CA · Member since 2017 · 133 posts · 86 votes
    7y

    @Will M. I think what's important is making sure the numbers work out to where you are comfortable and not forcing them to work. Run your numbers for multiple exit strategies. If you planned to fix and flip, but can't sell because the market corrects, then your calculations should have also taken into consideration renting it out with positive cash flow. What you will find when the market gets close to the top are that these deals that make sense are much harder to find. As long as you stick with your calculations, you don't need to just sit and wait.

    If you look outside of real estate though, the stock market has become much more volatile with big daily swings. It's possible a correction to the stock market is coming soon, so you may want to include that variable into your opportunity cost. If you purchase real estate today and the market slows down or dips and you have to hold on to your investment, is it worth missing out on purchasing near the bottom of a potential stock market crash.

    4Reply
  • Anthony Wick
    Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
    7y

    I'm closing on another duplex next month. Buy and hold, and should cash flow about $300 month after all expenses/hold outs. It's not a home run, but I don't like waiting for the deal of the century when I could be cash flowing and gaining equity immediately. The stock market lost 8-10% in October, and is flat for 2018. A simple cash flowing property with flat equity this year would have made me more money than my other investments. Diversification and cash flow is my plan. 

    7Reply
  • Jason Tanner
    Member since 2018 · 9 posts · 14 votes
    7y
    @Will M. I’m waiting either for the right deal or for a correction. Anything that has good fundamentals is worthy of investment in any market if done prudently IMHO. I’m also cautious about leverage.
    0Reply
  • Christopher Foote
    Lender · Boston, MA · Member since 2018 · 22 posts · 17 votes
    7y
    @Will M. I don’t think we can compare what happenned in 2007&2008 to what could happen now if we have a correction. The mortgage market in those days created a “false” market. People were buying that had no business buying, didn’t qualify and had little to no skin in the game. As soon as non prime and Alt A crashed this whole segment of false buyers were out. Couple that with the liquidity crisis it created that made it harder for legitimate buyers to buy and it created a perfect storm. Could the market slow down? Yes. Are interest rates going up? Yes Do we have a set of unqualified buyers buying property? No Is there a liquidity crisis? No There are still significantly more buyers than there is inventory. We have wage inflation for the first time in decades, we have historically low unemployment and the economy is growing. These are not the ingredients for housing to crash. They are signs that it will continue to grow, it just may not grow as rapidly. I think sitting on the sidelines is a mistake. Make your your deals work and cash flow and you should be fine. Just my 2 cents!!
    5Reply
  • Alvin Sylvain
    Los Angeles · Member since 2018 · 464 posts · 471 votes
    7y
    @Will M. Never try to time the Market. That rarely works. Nobody's crystal ball is 100% accurate, even though there is an entire industry around people trying to convince you that their crystal ball is better than 50%. If the numbers on a deal work, the numbers work; go for it. If the numbers don't work, then hold off, and look for a deal where the numbers do work.
    2Reply
  • Owen DashnerPro Member
    Lender · Omaha, NE · Member since 2008 · 1k+ posts · 1k+ votes
    7y

    Why not dollar cost average and keep buying good deals regardless of the market?  You can't time it, so just keep finding good solid deals relative to whatever market you are in.  As Russell said above, you will still have your mortgage paid off by someone else and own a free and clear asset someday.  There will always be people looking to live in rental properties, especially when there are big downturns and people can't get financing to buy.

    3Reply
  • Joseph W.
    Investor · Palos Verdes, CA · Member since 2018 · 9 posts · 3 votes
    7y

    We prefer not to slow down. My wife and I went to "Invest in Texas" seminar. It opened our eyes with out-of-state investing especially after reading @davidgreene book - A MUST READ ;)

    1Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    7y

    @Will M. the problem is people who don't buy at the top, won't buy at the bottom either. If you think it is hard to pull the trigger when the economy is good, wait until the economy tanks. All these "I am waiting for the crash" people will run scared when the crap hits the fan. That is how it went down in 2008. (less buyers = lower prices)

    Even if you did find the courage to invest during a crash, how do you plan to fund it? I am a solid buyer and the banks made me jump through hoops like a circus monkey in 2010, just to get a $150K loan. Even though I had 7 years rental property experience, high credit score, solid income and cash in the bank.

    Regardless, I don't see a correction next year or the year after that. Economy is solid, best in years. I have a closing next month, which is two properties this year and I plan to do two next year.

    Good luck.

    7Reply
  • Bart H.
    Dallas, TX · Member since 2016 · 1k+ posts · 745 votes
    7y
    Originally posted by @Will M.:

    Hello,

    I'm new to RE investing and actively searching for my first multifamily property. That said, as my plan is to hold these properties for my retirement, I'm apprehensive to get into the market now as it appears we may be due for a correction. As someone who lived through the crash in Vegas in 2008, I'd hate to buy at the top only to see the value significantly drop soon after. Been there before and it's no fun. It seems like it makes sense to sit out a year or so, wait for the correction, and then jump in with more buying power.  

    That said, I'm curious what seasoned investors think about this mindset. 

    Thank you in advance for your insight.

     I believe we are closer to a near term top, and I think the easy money has been made.  But as others have pointed out, you have a plan to buy and hold, it doesn't really matter if you buy and the value goes down by 50% the next year the values will come back.

    If the property cash flows and you bought in a good solid growing market, then 20 years from now, the rents should be higher and the property values should be higher.

    If property values continue to go up from here, then you have missed out. 

    You wont be able to time the top or the bottom, I wouldn't try.  No one can.

    We are personally just taking our time to find deals.  If the numbers work, we would buy today.  The biggest difference is two  years ago, we might have chased a bit.  Now we are sticking closer to our numbers..

    I don't think a major drop in property prices will happen again.

    But really its all about the numbers, if they work, do the deal regardless of the market, otherwise wait.

    1Reply
  • David Song
    Real Estate Broker · Redwood City, CA · Member since 2014 · 679 posts · 888 votes
    7y
    @Will M. I did. Did not buy anything in 2018 yet. Too risky to get into market at this time.
    0Reply
  • Marisa R.
    Developer · Atlanta and Detroit · Member since 2018 · 601 posts · 821 votes
    7y

    Depends where you are buying and what you are buying, there are markets within markets?

    I purchased 12 properties so far in 2018 so far and still going strong, but I am buying in two rising markets.

    No one has a crystal ball, but its a matter of mitigating the risk, managing the debt, and watching for warning signs ie more stock coming to market, market sentiment changing etc.

    1Reply
  • Andrew Angerer
    Rental Property Investor · Dayton, OH · Member since 2018 · 234 posts · 183 votes
    7y
    @Alvin Sylvain Well said! If you are making cash flow on a property that's all you need. Appreciation is just icing on the cake.
    1Reply
  • Jeff Ronningen
    Investor · Cincinnati, OH · Member since 2015 · 242 posts · 182 votes
    7y
    @Mary Mitchell what do you consider to be tiny cash flow margins?
    0Reply
  • Dave G.
    Investor · Phoenix, AZ · Member since 2016 · 349 posts · 418 votes
    7y

    I have the funding and am ready to pull the trigger, but have not bought anything in 2018 yet. Having a hard time finding deals where the #s work. 

    I'm will go against the grain with most folks and say you can time the market to some degree. I'm not a young person and have seen multiple real estate cycles over the past 40 years. As @Russell Brazil pointed out, if you're in certain parts of the country the cycles are more extreme and can be (admittedly imprecisely) played. My wife and I saw the lunacy in 2004-2006 and sat on the sidelines. We started buying in 2009 with acquisitions nearly ever year since.

    Our we in 2008 again? I don't think so for many reasons already pointed out in this thread. Labor supply constraints in the trades is also a big limiting factor to the overbuilding 10 years ago that contributed to the collapse. 

    So I am still bullish, but will only buy when the numbers work. 

    1Reply
  • Mary M.
    Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
    7y
    Originally posted by @Jeff Ronningen:
    @Mary Mitchell what do you consider to be tiny cash flow margins?

    i think this is probably different for each investor.... but for me and my goals i think a solid 6 CAP (along with my other criteria) as I will be leveraging , would encourage me to buy. Unfortunately in my area there isn't much that comes on the market so it is a waiting game.....

    0Reply
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