THE RECESSION IS HERE!!!

Rental Property Investor · Ithaca, NY · Member since 2015 · 1k+ posts · 1k+ votes

Quick! Sell me your house before it’s too late! :)

Are you optimistic or pessimistic about this upcoming recession?

I’m optimistic about these next few years, I hope there is a massive price correction. I’m running around trying to gather as much capital together as possible to buy bigger deals. Am I the only one seeing this silver lining?

If I remember correctly - the best time to invest is when everyone is selling. But what do I know I’m just a millennial.

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Mark Fries

Contractor · Jacksonville, FL · Member since 2017 · 1k+ posts · 2k+ votes

@Nick Rutkowski

Economic conditions never enter my mind...I CRUSHED it during the recession...and I continue to CRUSH it today.

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Nick Rutkowski
OP
Rental Property Investor · Ithaca, NY · Member since 2015 · 1k+ posts · 1k+ votes
7y
@Mike Bean I’ve heard real estate and commodities are good hedges for recessions. Happy Hunting my friend.
0 Reply
Ola Dantis
Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes
7y
A somewhat wise millennial, lol!
As for the recession, it's like the seasons, there is always spring after winter 🌤️ You can always bet on it.
For some smart investors, the recession or correction will come and go just like the season and some might not even flinch...
Right formula = strong market(s) + conservative underwriting + juggernaut cash flows 💵💵💵
This should mitigate some of the risks associated with a downturn or correction.
5 Reply
Anthony Wick
Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
7y
I'm optimistic that there will be more posts on BP stating the impending doom is coming.
12 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @Jason Hendrickson:

Anyone who's old enough to remember the last recession also remembers rental rates taking a dive and vacancies going up. There's no such thing as a free lunch.
yup the most missed point on all of BP.. some markets landlords lost homes in droves :(
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Jason Bergan
Real Estate Agent · Des Moines, IA · Member since 2018 · 36 posts · 19 votes
7y
Even if there is a recession, there's no good reason to assume that housing is going to take a huge hit like it did last time. Housing doesn't always take a hit in recessions, which is a reason that a lot of people invest in RE. Our estimates for our market are estimating slower appreciation during the next recession, not that properties will be going on sale by any means. Deals are always out there, it's more about finding them regardless of market conditions.
1 Reply
Victor S.
WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
7y
Originally posted by @Steve Vaughan:

I think a lot of us are more liquid than we like to be or are used to.
I'm not waiting for anything specific like a recession or even a contraction overall. The effort of turning like 200 rocks for a skinny deal just doesn't appeal to me. No surprise there. LOL
In the meantime, I'm earning my 2.1% in a money market and keeping tabs on my 5 or so specific plex owners of properties I am interested in.
Also may sell a couple commercial apts into the froth at these low cap rates. IF I can find something to 1031 into like a 40-50 unit in the midwest.
During the recession, I didn't experience higher vacancy or lower rents. Just the opposite matter of fact. A-class renters and homeowners moved down to my B/C+ townhomes and apts.
Maybe it was a resort-ish city thing there in UT or A class saturation. I saw A class apts offering tons of incentives to fill their units.
Steve didn't mention naps, wha? R is definitely coming... but then he's guaranteed to nap less... catch 22.
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Mike Roy
Rental Property Investor · Bath, ME · Member since 2014 · 220 posts · 288 votes
7y
@Nick Rutkowski - I think that investors who have built a durable real estate business have done so with future recessions in mind. Thus, they're not over-leveraged; buying in risky markets; or counting on optimistic projections of appreciation or rent increases to achieve a successful investment. They buy cash flow, and their portfolio has been stress-tested. These are the investors who do well in a bull market, but absolutely kill it in a bear. They have cash on the sidelines and are licking their chops.
You are not the only one that sees the silver lining. Plenty of savvy investors anticipate the next recession without being in fear of it. But it's not just about what cap rates, rents and vacancy will do - it's about the availability of credit, which will impact your ability to acquire new property as well as maintain financing on your current assets. During the GFC, everybody saw how good prices were, but not everybody could participate. Liquidity evaporated, lenders went risk-off, and those with cash were the winners.
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Scott Kimberly
Cheshire, CT · Member since 2018 · 87 posts · 60 votes
7y
For all you old-timers out there, what was different in 2000 vs 2008? Dotcom bubble burst vs housing bubble as far as availability, rents, investor income goes? I'm more familiar with 2008 than 2000.
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Mike Roy
Rental Property Investor · Bath, ME · Member since 2014 · 220 posts · 288 votes
7y
@Scott Kimberly - The biggest difference was that in 2000, the Dotcom burst was contained to the stock market. Even within the stock market, there were defensive stocks in which to hide. The broader market of U.S. single family homes escaped untouched, as the previous downturn in single families bottomed in the early 1990's and began a climb that soared through 2000 and finally ended in 2007. You can see this well by Googling "Case-Shiller US Home Price Index."
So as different as 2000 and 2008 were, 2008 and the next recession may be quite different as well. There has been a lot of monetary experimentation since 2009, and nobody on this forum, at the White House or at the Fed knows how it's going to play out.
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Account Closed
Investor · Boca Raton, FL · Member since 2017 · 108 posts · 18 votes
7y
should you get a Line of Credit before a correction..is it easier to get one beforhand to have cash readily availble in case the market turns? or it doesnt matter as long as you have equity you should be able to get the line? curious what factors if any a market correction have on getting an LOC?
2 Reply
Scott Kimberly
Cheshire, CT · Member since 2018 · 87 posts · 60 votes
7y
@Mike Roy that's about what I thought and it agrees with all the things I've read about the Dotcom bubble. Largely limited to the Stock Market.
I personally think that we need a good, healthy, correction to account for the bull market we've been in since 2009. The sooner the better too, the more time goes by, the larger the correction is going to be. But I don't think it'll impact housing more than price stagnation nationally, and throwing a bucket of water on the really hot markets.
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Mike Roy
Rental Property Investor · Bath, ME · Member since 2014 · 220 posts · 288 votes
7y
@Account Closed - During the GFC, lines of credit were pulled back as prices declined and equity evaporated. In a credit crisis, which historically most recessions have been, it really doesn't matter what your home is worth on paper. If credit dries up, lines of credit go away.
If you really want to raise cash from equity now to have available during a recession, your better bet is a cash out refi provided you can do it responsibly and without putting your asset at risk.
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Mike Roy
Rental Property Investor · Bath, ME · Member since 2014 · 220 posts · 288 votes
7y
Originally posted by @Scott Kimberly:

@Mike Roy that's about what I thought and it agrees with all the things I've read about the Dotcom bubble. Largely limited to the Stock Market.
I personally think that we need a good, healthy, correction to account for the bull market we've been in since 2009. The sooner the better too, the more time goes by, the larger the correction is going to be. But I don't think it'll impact housing more than price stagnation nationally, and throwing a bucket of water on the really hot markets.
Impossible to say because interest rates have been manipulated for so long. In a free market, interest rates reflect the true price of capital and accurately reflect investment risk. Because rates have been suppressed for 10 years, investors have lost the ability to accurately assess risk, and investments have been pursued that otherwise may not have. Nobody knows how a decade of malinvestment will resolve itself, but history tells us that we can expect a certain amount of liquidation in the affected sectors.
In 2008, very few really knew how the sub-prime crises would affect asset backed securities, which would eventually implode banks and punch the economy in the stomach. I'm sure there is a lot going on behind the scenes now that will manifest in ways that few can see today.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
@Mike Roy one of our main revenue sources in 08 to 09 ( and we did not have many) was doing loans for those that relied on heloc's for their working capital.. most all helocs got frozen.. and usually the borrower does not realize its frozen until they try to access it..
this is for sure the conundrum market gets bad enough that there are great deals.. but most cant access them because credit is dried up as well.(
I was just musing on why I think correction ( which i am calling price stablizations) is upon us and has been.
But because of lending policies and investors especially on this site be gung ho to buy in the trough.. the trough is going to be much shallower than in the past as those that know now that these are not forever and prices will bounce back will take action.
I think what happened in the GFC we were all shocked Myself included and had no idea the depth of the problems in the financial / mortgage world. So I have a hard time seeing us creating that meltdown again.. of course cities were industry or business leaves not much you can do there. so correction/stablization good thing.. big ole fat crash I dont see it. and if prices start to drop investors will stop the loss much quicker than what happened in 08 to 2011 is my thought ???
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2 Reply
Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
7y
@Mike Bean my biggest advice would be to not get a 300k mortgage with that income.
4 Reply
Mike Roy
Rental Property Investor · Bath, ME · Member since 2014 · 220 posts · 288 votes
7y
@Jay Hinrichs - Sounds logical, but it will depend on the magnitude of the panic and the availability of capital to put a floor under any declines. Same could have been said about the stock market of 2000 going into 2008, but the drop was actually more severe.
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Scott Kimberly
Cheshire, CT · Member since 2018 · 87 posts · 60 votes
7y
@Mike Roy fair points! I read an article the other day about "Zombie Companies" and how something like 13% of all corps worldwide are "Zombies". They don't make enough money to pay their debt services. I guess it depends on how many people they employ and if they fall apart all at once or slowly over time.
@Jay Hinrichs I agree with you for the most part, but the sudden rise of non-QM loans in the mortgage sector scares the hell out of me. They are probably fine for now, but it's only a matter of time before they stop being closely watched and start to spiral. If that sector of mortgage products stays "in check" it won't be too bad. My current prediction though is that Angel Oak will be the next Countrywide.
1 Reply
Mike Bean
Worcester, MA · Member since 2018 · 69 posts · 41 votes
7y
@Caleb Heimsoth Thanks for the concern but you gotta start somewhere. Unless you're working in a commission based career you don't have much say in your salary. The whole reason of incurring the extra $300k in debt is to provide cash flow to supplement that $50k/yr. If you find good tenants and have systems in place to deal with turnover then the payments on the mortgage are not a huge concern considering your tenants pay it for you (also don't forget there is 3-6 months of mortgage payments sitting in an account). Not sure how you thought that piece of advice would be helpful but if you have more advice with some substance that would be greatly appreciated.
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Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
7y
Originally posted by @Mike Bean:

@Caleb Heimsoth Thanks for the concern but you gotta start somewhere. Unless you're working in a commission based career you don't have much say in your salary. The whole reason of incurring the extra $300k in debt is to provide cash flow to supplement that $50k/yr. If you find good tenants and have systems in place to deal with turnover then the payments on the mortgage are not a huge concern considering your tenants pay it for you (also don't forget there is 3-6 months of mortgage payments sitting in an account). Not sure how you thought that piece of advice would be helpful but if you have more advice with some substance that would be greatly appreciated.
I’m basically saying start with less debt. You will likely he extending yourself too thin with 300k in debt plus the other debt you already have. That is not a good idea
3 Reply
LuAnn Leighton
Baltimore, MD · Member since 2019 · 80 posts · 47 votes
7y
I am optimistically and since I am new to REI, I am not going to let the panicking of a recession prevent me from building wealth.
LuAnn
4 Reply
Mike Roy
Rental Property Investor · Bath, ME · Member since 2014 · 220 posts · 288 votes
7y
@Scott Kimberly - Right on! 3% down, drive-by appraisals, the return of subprime (rebranded as nonprime) - all the mistakes of the 2008 housing bust are repeating. That sort of tells me that 2008 wasn't a harsh enough lesson for it to stick. We shall see ...
0 Reply
Alex Manwell
Rental Property Investor · Detroit, MI · Member since 2014 · 15 posts · 18 votes
7y
@Nick Rutkowski while claiming the recession is here seems a bit Chicken Little-esq, having capital on hand is always a good idea :P
Here in Chicago I'm noticing that single-family home prices on a city-wide average have corrected (aka fallen) slightly in 2019 (about 1%) from their recent peak in late 2018. As someone who watches the value of his properties like a hawk, I'm hardly excited about this. However there are two market indicators I follow that help me sleep better at night: Market Time and Inventory.
Market Time remains at a 10-year low - Average SFH market time is currently 77 days in Chicago. Immediately following the recession market time reached ~160 days.
Inventory remains at a 10-year low - In Chicago there are currently ~9,000 SFHs on the market, today. There were roughly 25,000 for sale during 2008.
What does this mean? Transactions are happening, and demand remains high... for now!
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Account Closed
Real Estate Investor · Waldorf, MD · Member since 2014 · 592 posts · 320 votes
7y
@Victor S. I took the bait, now I'm stuck on the hook. Look, I'm being chopped into pieces. Now I'm being sauteed and placed on the grill. Just great!!!
4 Reply
Ryan K.
Investor · Richmond, VA · Member since 2015 · 139 posts · 43 votes
7y
@Jay Hinrichs I agree with your thoughts. Stabilization or a small correction is a likely scenario (or worst case). We dont have the overbuilding like these was prior to 2008, the new construction numbers and new permit numbers prove that fact. And demand in most places it through the roof right now, and available inventory fairly low. If property prices fall even a moderate amount, say 10-15%, both investors and owner occupants (currently waiting on the side lines) will likely scoop things up and like you said "Stabilize" the market. Heck look at the recent movement in the stock market, it was a small trough in late 2018, and like you said the investors came in and bought, stabilizing things and bringing it back quickly. Just too much money on the side lines waiting for a small discount at this point.
1 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @Mike Roy:

@Scott Kimberly - Right on! 3% down, drive-by appraisals, the return of subprime (rebranded as nonprime) - all the mistakes of the 2008 housing bust are repeating. That sort of tells me that 2008 wasn't a harsh enough lesson for it to stick. We shall see ...
I hear ya .. but in practice and just a small slice of what we do which is build new construction in the 400k to 2mil .. we don't see these kind of loans coming on.. a few FHA and of course since we started aheroshome.org we are pro vet and I will sell on vet loans.. My wife and I think its our duty to allow our vets to buy our homes with those loans.. as painful as they can be sometimes.
That all said what I have seen is a lot of cash sales.. last year in Charleston for instance I sold one for 500k cash one for 750k cash and just closed one in Jan for 2.2 mil all cash.. and most of the folks are putting if not 10% down 20%.
So not sure who is actually getting those non prime loans. I see them advertised though in Scottsman guide and since I am NMLS licensed mortgage banker I get e mails from wholesale lenders about some of these programs.. but just don't know how many are really being done.. And for sure us self employed we still have it rough
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