Why is there so much Happy Talk???

Contractor · Cornelius, NC · Member since 2011 · 123 posts · 89 votes

In 2010 I had the rose colored glasses knocked off my face hard and I am trying to understand why and how there is such Happy Talk right now about the economy. I am trying to figure out if it is my pessimism based in the 2008-2010 experience or if I am completely missing something. Even Ivy Zelman is providing happy talk about the future of home building and I tend to find her team realists. I see so many businesses are struggling or have closed and though that is anecdotal I believe it is a harbinger of doom. I don't believe the propaganda that comes from the Home Builders Assoc. There and a great many very smart people on BP so please tell me what I am missing or if I am right to see the coming apocalypse.

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Steve Morris

Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes

"how there is such Happy Talk right now about the economy."

1) We had a great economy before COVID

2) Stock market is still rising

3) Rates are all-time lows

4) Pumping a ton of money into the economy

I agree with you, but there are factors beyond mere human comprehension. However, it's all based on what other people do, you need to decide what's best for you.

In 2009/2010, I spent all day telling people to buy apts. The prevailing wisdom was you're an idiot if you buy. The guys that bought are very happy (even the few I had to "nudge") and have doubled their price and in cases 10x their equity.

Today's advice - If you're going to sell in the next 5 years, do it now.

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Aaron K.
Specialist · Riverside, CA · Member since 2015 · 6k+ posts · 3k+ votes
6y
Is the economy going to be bad for all those business that closed and their employees? Yes but this time because people aren't selling their homes unless they have to there is currently an undersupply for those still in the market keeping prices stable. Will that last forever probably not but the question becomes When sellers are comfortable listing their homes again because the pandemic has subsided, how many people will be back to work.
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Daniel Haberkost
Rental Property Investor · Colorado Springs, CO · Member since 2018 · 682 posts · 729 votes
6y
@Brent Zande I feel the same way, but I’m fairly risk averse and tend to be overly conservative/pessimistic.
I do think we’re living on borrowed time and there will have to be a recession across the board. It will probably end up not being as bad as you/I think just as it won’t stay as bullish as many of the people you reference think. It will likely fall somewhere in between.
But, who knows! I’m just speculating and could be entirely wrong. So I’m continuing to make offers but am being conservative, factoring in the chance of a significant drop in values, and keeping a healthy amount of liquidity.
What are you doing in your business?
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Brent Zande
OP
Contractor · Cornelius, NC · Member since 2011 · 123 posts · 89 votes
6y

@Daniel Haberkost I am also making offers but heavily weighing that I wont flip these and will end up with a long term rental. I am trying to recall back to 2008 and I think there was a great deal of Happy Talk then too, Its a little bit of a blur. Fiscal stimulus ending soon will show us the real picture I think. I appreciate your input.
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Brent Zande
OP
Contractor · Cornelius, NC · Member since 2011 · 123 posts · 89 votes
6y
https://www.washingtonpost.com...
And this....
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Darius Ogloza
Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
6y
John Maynard Keynes.
Seriously, as 2008 demonstrated after the fall of Lehman, the government is going to act as the consumer of last resort to prevent a deflationary spiral even if the economy shows massive unemployment. It did then. It is doing now with the multiple stimulus. Even the Republican senate's resistance has been token so far (with the exception of Graham and Paul and a couple of others). The Fed has signaled that it will aid and abet in this endeavor. Milton friedman is dead. We are all Keynesians now.
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Brent Zande
OP
Contractor · Cornelius, NC · Member since 2011 · 123 posts · 89 votes
6y
@Darius Ogloza do you think the Gov is running low on resources to continue this, even if the will is there? They sure like to push efforts to the cliff before they throw the gas on the flame. Senate is standing in front of this next round currently.
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Anthony GaydenPro Member
Rental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votes
6y
Originally posted by @Brent Zande:
In 2010 I had the rose colored glasses knocked off my face hard and I am trying to understand why and how there is such Happy Talk right now about the economy. I am trying to figure out if it is my pessimism based in the 2008-2010 experience or if I am completely missing something. Even Ivy Zelman is providing happy talk about the future of home building and I tend to find her team realists. I see so many businesses are struggling or have closed and though that is anecdotal I believe it is a harbinger of doom. I don't believe the propaganda that comes from the Home Builders Assoc. There and a great many very smart people on BP so please tell me what I am missing or if I am right to see the coming apocalypse.

There are a lot of people out there right now who believe that this economic crisis is just like the last one. They think that a lot of foreclosures are coming and that prices of real estate will begin to drop significantly. They want to then swoop in and buy deals for pennies on the dollar.

In areas where I invest there are fewer listings than ever and real estate is selling very quickly. I believe that the demand is high for people who were not economically effected for real estate, but the supply is very low. Not only that but all the stimulus and the dropping of interest rates has actually caused inflation. Prices are going up, not down.

This is not the same kind of recession as last time. We shouldn't base our real estate strategies going forward expecting it to be the same.

Podcast Guest on Show #21
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Darius Ogloza
Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
6y
@Brent Zande I have been seeing what Anthony Gayden is reporting in his market - a massive buying rush with very limited supply. Unless the property is a deep fixer, it is snapped up in hours.
As to your question, it's a mystery to me. All I can say is our government today reminds me of my beloved Chicago Bears during the late 60's and 1970's. They perfected exactly one play: the punt.
Recall too that Louis the XVI broke the bank by financing the American revolution and as a result lost his country (and his head).
I thank all the powers that be that I am not a millennial.

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Steve Morris
Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
6y
"how there is such Happy Talk right now about the economy."

1) We had a great economy before COVID

2) Stock market is still rising

3) Rates are all-time lows

4) Pumping a ton of money into the economy

I agree with you, but there are factors beyond mere human comprehension. However, it's all based on what other people do, you need to decide what's best for you.

In 2009/2010, I spent all day telling people to buy apts. The prevailing wisdom was you're an idiot if you buy. The guys that bought are very happy (even the few I had to "nudge") and have doubled their price and in cases 10x their equity.

Today's advice - If you're going to sell in the next 5 years, do it now.
5 Reply
Steve Morris
Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
6y
"I thank all the powers that be that I am not a millennial."

I remember my father telling me the same thing - 40 years ago :)

Society constantly re-invents itself. Stuff you/I were used to (like same job for 30 years) is gone (unless you're a gov employee).
3 Reply
Thomas Enright
Investor · Silver Spring, MD · Member since 2020 · 127 posts · 58 votes
6y
America is the greatest country in the world with the strongest fundamentals in place. Regardless of what we're currently going through, I refuse to believe that there will be doom and gloom.
That being said, I've got fully funded emergency funds and am weathered for any storm.
Hope for the best, plan for the worst.
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Brent Zande
OP
Contractor · Cornelius, NC · Member since 2011 · 123 posts · 89 votes
6y

@Thomas Enright See I used to believe that myself, but 2010 really ended that for me. I had a ton of reserve money, no kidding a ton, I was a custom home builder that had been doing it 15 years and was pretty low risk but wham the dip outlasted my reserve. What does it mean plan for the worst when the worst is undefinable.
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Darius Ogloza
Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
6y
@Brent Zande I have no crystal ball to be sure and once burned is twice warned (or so the saying goes if I got it right). I take solace in the fact that the S&P 500 and Russell 2000 are both flying high while we are still in the middle of the proverbial sh*tstorm. I am not an efficient markets "true believer" but I must say there is a lot of collective wisdom there that seems to be betting on the fact that the policy makers are going going to navigate this crisis better than they did the last. Also, things tend to play out better when you have had a dress rehearsal (as the government did in 2008-09).
There is no substitute for liquidity at times like this, but your point is a good one: how much is enough? no one really can say.
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Justin Thorpe
Member since 2020 · 437 posts · 675 votes
6y
Yes the “Happy Talk” makes you wonder especially if you watch the news where the new “sellers” know what sells in these times which is fear and stress!
Few things. I think the pandemic was a very tough punch in the gut for the US economy but the government acted quickly and restored stability where it mattered which is in the banking sector and the financial markets. Those were lessons learnt from the last crisis.
A generous dose of stimulus was put in to ensure small businesses stayed afloat and the unemployed were not doomed. I think more will come on that front in the next few weeks.
I do think that while Covid cases have not abated, there are two things happening which are, one the economy is limping back and second people have figured out to work around the constraints. There is an undeniable pickup in hiring and many other activities like construction.
Of course sports, hospitality, retail, travel and entertainment are yet in the dog house. But when I compare to the depths of despair in April, I see 20x increase in traffic and activity as people realize this virus won’t go away and sitting and waiting for it to go away won’t help either.
2 Reply
Kartheek Mulpuri
Jersey City, NJ · Member since 2016 · 2 posts · 2 votes
6y
I come from the tech industry. With several companies allowing their employees to work from home indefinitely & the low interest rates, anecdotally, I have a number of friends and former colleagues who are looking at buying SFHs as primary residences or as investments in Tier 2/3 markets. Keep in mind too that a lot of folks are sitting on cash right now and are thinking through how to deploy it. Even though SFH prices remain relatively high, for many, it feels like a better bet than the froth in the stock market currently.
2 Reply
Thomas Enright
Investor · Silver Spring, MD · Member since 2020 · 127 posts · 58 votes
6y
@Brent Zande Yeah... that's really hard. Sorry to hear about that. In my case, my absolute rock bottom safety net is my military W-2, and in 12 years my retirement check for the rest of my life so my situation is a bit different and a little bit more stable. I also intend on sticking to buy and hold after giving flipping a go and realizing that I didn't want a second job. Please, please, please don't take this in anything other than the inquisitive nature in which I'm writing it but do you think you would have faired as poorly if you were holding a handful of cash flowing rentals? What did you learn from your experience going through that? I genuinely want to know and appreciate any reflections from that time in your life. Thank you
1 Reply
Syed H.
Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes
6y
There’s a difference between pessimism and being realistic. If you think the world is ending, your just a pessimist and good luck to you. If you think yes this is an upcoming down cycle, and eventually we will come back stronger, that’s just being realistic. This always happens.
Let’s not pretend like the GFC didn’t make us lose and earn A LOT of money. I met plenty of pessimists in the GFC. Most of them are barely back to what they used to be. The guys that saw the light at the end of the tunnel are all wealthier and better off than pre-GFC.
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Brent Zande
OP
Contractor · Cornelius, NC · Member since 2011 · 123 posts · 89 votes
6y
@Thomas Enright oh my god if I had known then what I know now I would have fared significantly better. Its funny I built a business that was doing $15 million a year in custom homes and I knew there was no exit from it. I owned it but it was a job. 2010 was awful but it was also the very best thing that has ever happened to me. I started a brokerage that served Blackstone when they came to NC and then we brought Colony American Homes here. They both wanted us to do rehabs so I started the building business back up to serve them. Its a business and not a job now (mostly)! I realize how secluded I was in custom building and how little information I was working on to make BIG financial decisions. I am not as much an optimist and not a pessimist but I find I am a researcher now, thus this thread. The slant I am getting here is positivity and trudge forward with better information and multiple exit strategies and all will be well.
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Todd Rasmussen
Rental Property Investor · Clarksville, TN · Member since 2016 · 1k+ posts · 1k+ votes
6y
@Brent Zande
Thank you for this post. Don't forget is an important statement for me to hear, as I bought my primary residence in 2011 and have only realized the correction from that recession.
I don't think when sailing into a storm you have to furl all the sails, so we are still buying the right deals and continuing to utilize leverage to rehab and flip or refinance through recent acquisitions. We are trying to stay mindful of changing conditions and being prepared to take in the last bit of cloth if needed.
We are battening down the hatches by:
Selling our primary house which we have slowly live in renovated now instead of 2022 as originally planned.
Relocating to our market area in the event I need the 8% margin currently going to a property manager to maintain positive cash flow.
Buying low / zero down opportunities only.
Realizing equity to bolster cash reserves and getting rid of anything below a B class property.
We are treating our break even point on our cashflow as the drastic action needed point versus when we run out of cash.
I'd rather keep cash reserves and sell at 20% decline and be positioned to buy at the bottom over ride the decline to 50% and not have cash to buy back in.
In the end, we are betting on the strategy that failed you so hopefully our reserve will stretch farther or not need to be stretched as far as you experienced. Again, thank you for talking about it.
I built a calculator to project how long cash reserves will last in years, that might be of interest to this thread.

https://www.biggerpockets.com/files/user/ToddRasmussen/file/market-decline-resiliency-calculator

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Steve Morris
Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
6y
Originally posted by @Kartheek Mulpuri:
Even though SFH prices remain relatively high, for many, it feels like a better bet than the froth in the stock market currently.
On the plus side, once we get past the non-payments, vacancies are still in the 5% range. Any other comm RE would kill for that kind of vacancy rate (especially retail). Inflation remains low so expenses shouldn't swamp rent increases so NOI is up.
Add in low interest rates to finance and IF Biden doesn't f it up, the tax shelter can't be beat.
A lot going for apartments once you get beyond the shell-shock of this for the next couple of years.

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Thomas Enright
Investor · Silver Spring, MD · Member since 2020 · 127 posts · 58 votes
6y
@Brent Zande Wow that's interesting to see how you responded to and recovered from that situation. I really appreciate your time to write that up.
1 Reply
Justin Thorpe
Member since 2020 · 437 posts · 675 votes
6y
@Syed H.
The one difference here is the silence of investment gurus like Warren Buffet who if you recall were doubling down on investments during the GFC. To many of us that was an indication of where the smart money was going. So far Warren B has stayed very silent and kept himself out of action except for an investment in an energy company. He quickly sold out of airlines early into the cycle and lot of people were questioning his decision on that but now it’s becoming more clear on why he did what he did. I have always seen Buffet as the ultimate realist, so his silence is not very encouraging.
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Dan DiFilippoBusiness Member
Real Estate Broker · Fayetteville, NC · Member since 2020 · 251 posts · 244 votes
6y
@Brent Zande yeah, we're in what I've heard referred to as an everything bubble.
Check out "How Unfunded Pensions Will Destroy Your Retirement" on YouTube. It's by Raoul Pal who is one of the greatest global macro thinkers alive. Honestly, I recommend watching as much of his free stuff (and the Real Vision paid material, if you care to) as possible. Also the Macrovoices Podcast by Erik Townsend. I got super into macro about a year ago and it's been an absolutely crazy ride since.
[email protected]910-745-6972
Brookdale Property Management
Website View Page
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Danny Grey
Investor · La Jolla, CA · Member since 2016 · 66 posts · 169 votes
6y
Originally posted by @Justin Thorpe:
@Syed H.
The one difference here is the silence of investment gurus like Warren Buffet who if you recall were doubling down on investments during the GFC. To many of us that was an indication of where the smart money was going. So far Warren B has stayed very silent and kept himself out of action except for an investment in an energy company. He quickly sold out of airlines early into the cycle and lot of people were questioning his decision on that but now it’s becoming more clear on why he did what he did. I have always seen Buffet as the ultimate realist, so his silence is not very encouraging.

Berkshire Hathaway also recently posted a $50 Billion quarterly net loss. The Oracle of Omaha is nearly 90 years old and many of his top execs have left in the last few years. He simply may not have the answers this time around.
Then again BH is still sitting on more than $100 billion in cash, so they could just be waiting for prices to start diving again. Who knows? Interesting times we live in.

1 Reply
Conrad Cortes
Real Estate Agent · Houston, TX · Member since 2020 · 56 posts · 34 votes
6y
@Brent Zande
In my opinion, the fact that a lot of us “see it coming” is why it won’t happen.
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