MARKET CRASH - Thoughts?

Member since 2016 · 13k+ posts · 12k+ votes

The market will eventually turn, this is a reality. Obviously a very good thing for investors and hopefully it will happen sooner rather than later.

I only wish it was not primarily the SFH market. Not my field of investment but for those interested with buy and semi long hold of a SFH it will be good news. With some luck there may be multi unit owners hit as well, those that took the BRRR path.

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David Fernandez

Real Estate Agent · Vienna, VA · Member since 2016 · 289 posts · 253 votes

9y

@Derrick Dill, if you come to Miami, you will see why he put $350/month car payment. It is ridiculous here, I feel like there are more BMWs, Lexus, Mercedes, Audis and other luxury cars than in any other city I've been. And yes, most of them are driven by people living beyond their means.

I agree that the food allowance is high though for a single person.

3 Reply

Brent Hill

Investor · Charlotte, NC · Member since 2015 · 192 posts · 126 votes

9y

robert kiyosaki says it is coming again...keep your powder dry and get ready for the next crash! My broker said the samething...trying to encourage me to just do some listings for now but now isnt the best time to buy investment properties....just seems like flips are getting harder to come by right now. We shall see.

1 Reply

Mark Alexander

OP

Miami, FL · Member since 2017 · 11 posts · 12 votes

9y

David Fernandez is right about Miami. People are holding $600 car payments with $3000 monthly income haha. Maybe that is why my estimates are a little over drawn. But in reality, I didn't include vacations, credit card interest, and let's not forget "South Beach Clubbing lol", etc. The point of this is to get others opinions from all different locations on their take with the market condition. It may not crash, and it may just take a dip. No one knows to be honest. For my personal case, I am saving up for my first investment house hack purchase and I would rather wait another year and buy a low market than to buy now at high value. Just my opinion.

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Brent Hill

Investor · Charlotte, NC · Member since 2015 · 192 posts · 126 votes

9y

How are the big boys going to make money if they dont make loans? Cmon. I think the consumers have been duped into the benefits of buying a huge liability...maybe home ownership is a little over-rated. You would think we would encourage people to buy assets that make us money. Do the banks have to play by the same rules that we do? If they did we wouldnt have had to bail them out the last time..I could go on a rant but they(the govt and schools) have trained us all to be good consumers...big banks love debt - that is how they make their money...the more we borrow and run up credit card debt, the better off they are...SMH.

2 Reply

Jo Lyn Cornelsen

Investor · Puyallup, WA · Member since 2017 · 12 posts · 13 votes

9y

Simple fact of life.
Markets move.
Up. Down. Sideways.
If they flat-lined... all investing strategies would be dead in the water.
Be aware of changes.
Develop strategies that work in different market cycles.
Invest wisely.

Here's some current indication...
https://www.housingalerts.com/blog/market-reports/...

1 Reply

Christian Ivanov

Investor · Arlington Heights, IL · Member since 2017 · 19 posts · 6 votes

9y

I am still a buyer, since I am a long term holder. Same goes for stocks. Always have cash on the side, I keep 6 months for each property. If there is a "sale" in the future, that's excellent. I can buy more. If you have a good location you will be fine in a downturn. My biggest concern is for the turnkey investors in the lower income areas. These properties will do bad in a downturn. Stay with quality.

3 Reply

Albert Bui

Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes

9y

Originally posted by @Mark Alexander:

Let me start off by saying that I am no means making an excuse to not invest in real estate. I am actually looking to make my first purchase (house-hacking) within the year. Here is what triggers me though:

My full-time job is in the Mortgage industry, and on a daily basis, I see home-buyers getting themselves into loans with little to no money down leaving them with barely any equity in the property. In my honest opinion, I believe that we are in a personal debt bubble (credit cards, student loans, car loans, etc) because of people over extending themselves credit wise.
Let me show you an example:

Average Joe wants to buy a home for $200,000 putting 5% down:

His income Pre-Tax is $4,200 monthly ($50,400 annual)

The column in the picture on the left represents how mortgage companies qualify somebody for a conventional loan - in this case, Joe's max Debt-To-Income ratio is 46%. On the right however exemplifies Joe's real life monthly expenses vs his AFTER tax income leaving him with a Debt-To-Income ratio of 122%! (Sorry for the bad handwriting!)

If a market crash is upon us and home values see a major decline, my worries are that myself, along with many others are going to be underwater on their mortgages. Is now a bad time to buy? Or does if you find the right deal under market value, should you be safe?

I don't say this to scare anybody or drum up drama, I simply want to know others thoughts on buying in today's expensive market with little equity.

Cheers!

This is true Mark we as lenders do not factor in hypothical Joe's actual daily life expenses even those the formula of 45% DTI is attempting do so by limiting DTI to that specific number.

The problem is that that there are taxes, utilities, living expenses, entertainment, and many other expenses that are not taken into account when looking at the 45% DTI.

I've had a similar feeling as you have had since mid 2015 in orange county till today in seattle/OC areas are still similar to this where people are coming in with 0-3.5% down and sometimes with no money of their own (seller credits closing, and grant program 0% down on primary).

1 Reply

Albert Bui

Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes

9y

fourplex house hack with freddie Mac home possible with 5% down and lender paid MI would be a good choice Mark, much better than FHA no monthly MI and no upfront FHA MIP.

Live in one unit while renting the other 3.

4 Reply

Scott W.

Real Estate Investor · chicago, IL · Member since 2012 · 1k+ posts · 231 votes

9y

I'm a family of 3; you wouldn't want to see our food purchases; the wife and are all her natural/special diet stuff plus eat out. I am on mint and I would say it averages around $1700. I feel like an ATM machine. :)

1 Reply

Mitchell Benson

Willis, TX · Member since 2014 · 158 posts · 58 votes

9y

If you are wanting to House Hack. Then you are not worried about whether prices go up or down. all you care about is the rents. plan for the worse case scenario, and if you still have 1 or 2 or 3 other people paying most or all of your mortgage for you, then what are you worried about? I can speak from experience.

3 Reply

Mike Roy

Rental Property Investor · Bath, ME · Member since 2014 · 220 posts · 288 votes

9y

Whether your buying a rental property or managing your personal finances, it's the cash flow that matters. There really is very little difference between a 10% capex fund and putting 10% of your personal income into an emergency fund - it's the same game. Average Joe clearly has a lot to learn about personal finance, and the mortgage industry has no obligation to teach it to him.

It is sad to see another example of someone getting over-leveraged into a liability they cannot afford - like watching a car wreck before it happens. However, I think many successful cash flow investors will tell you that one of the great things about real estate is the inefficiency of the market, that opportunities exist to purchase properties from motivated sellers at below market values. Average Joe might be another case of a future motivated seller. Bad for him, but great for many people on this site.

It is interesting to see the mortgage industry continues to loosen credit. To me, that means most of the smart money has already bought and now the industry is making room for the dumb money to chase price. It's kind of like the distribution phase of a bull market in stocks at its peak.

4 Reply

Chuong Pham

Real Estate Investor · Plano, TX · Member since 2016 · 39 posts · 13 votes

9y

The federal reserve and central banks are just preventing the inevitable from happening. Instead of letting the market correct itself sooner they just prolonging it with low interest rate.

Volatility and Risk are part of investing game. It just how you manage your overall portfolio.

My portfolio consist of 50% cash, 45% property, 5% stock. I try to keep my debt to asset ratio at 60-40 where 40% I have in debt.

Warren Buffet at the moment is holding about 86 billion in cash for some mysterious reason. I will bet my money with Warren that a discounts period will come soon. This current bull market is not sustainable.

2 Reply

Scott Harper

Investor · Longwood, FL · Member since 2015 · 221 posts · 130 votes

9y

For your personal goal of house hacking, if the numbers work out now and you can continue to have tenants paying for your hack , go for it. If other people lose their condos or sfh in a downturn you will have a larger pool of people to move in.

For other people, I would say yes many are over extending themselves. Here in Central Florida there is a building boom. New construction selling like crazy. Most are 500k and up. I look around and don't know how this many people can afford those payments. Rents and entry level homes are becoming unaffordable for the responsible new family. In 2005 I said the same thing to myself. If there is no affordable housing for new families, they can't buy and can hardly afford to rent then an adjustment is coming. It came and we know what happened. Those that bought thinking they had to or they would miss the boat lost big time.

A house hack would likely be safe but I would not be buying the glittery new construction at today prices. Just my humble opinion.

2 Reply

Jo Lyn Cornelsen

Investor · Puyallup, WA · Member since 2017 · 12 posts · 13 votes

9y

Scott, here in Seattle there is also a building boom, and EVERYTHING is selling quickly. Most new construction is $400k and up. Small old fixers are $250k - $380k.

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Derek Daun

Investor · Sacramento, CA · Member since 2012 · 289 posts · 151 votes

9y

You calcs on the right show a person with extremely poor spending habits. Yes, there are lots of people like that out there, but they aren't the ones buying houses. The main reason is that spending like that makes sure they'll never have enough for the down payment and two months of expenses to qualify.

We still have a huge amount of pent up demand for housing, and right now, for the most part, it's those people that have better financial statements that are buying.

Yes, the next crash is coming, but it might still be a couple of years out. It will likely vary more by location next time, and will likely show a lot more price stalling compared to crashing depending on where you are.

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Carlos Gonzalez

Investor · Phoenix, AZ · Member since 2015 · 346 posts · 170 votes

9y

The thing with real estate, credit cards, car loans and not a lot of money coming in is that there will always be cycles in the economy. It's because is human nature to over spend in credit cards, cars, houses, etc. We can't help it. The only people who can ride the crashing waves and make it alive are those who are conscious that a crash is coming soon because of economic cycles. One thing that I see being repeated now and prior to the crash 08 is real estate investors buying homes at premium prices and renting them. This is a recipe for disaster because they're not prepared for an exit strategy. Most tenants are up to their necks with debt and barely make rent payments sometimes late. Add to this a higher interest rate in credit cards or a car loan or both and a more expensive gas per gallon ( and it's happening, chevron and Exxon just posted their first positive quarter profits in their last years) and this is a perfect recipe for a great crash and all your tenants will go back to mom and pa and you're out of the business and lose all your properties. Now, if you're one of the few who invested in multi family like triplexes or fourplexes or more units then I think you'll be fine. The point is this, there will always be economic cycles you just have to know how to ride the wave without falling.

1 Reply

Seth Nanton

New Brunswick, NJ · Member since 2017 · 7 posts · 3 votes

9y

I think the fear of market crash gives people analysis paralysis. I was talking to a neighbor today about stock investing and what he said was similar. Afraid that a crash would wipe everyone out. I'm doing well dividend investing right now and have fairly good knowledge of the market. I think people are afraid when they don't have knowledge. I'm trying to learn about the REI game and have no knowledge, and for that reason I would personally have fears about the market crashing. But with knowledge I'm sure I'll be able to conquer that, as you will also.

3 Reply

Jeffrey Hotz

Real Estate Professional · Dublin, OH · Member since 2013 · 251 posts · 165 votes

9y

The biggest factor that needs to be considered in this market is wage growth. As long as wages grow appropriately with the "inflated" house prices, everything is fine. We saw lower than appropriate housing prices relative to nation wages in the beginning of this housing cycle, obviously with the restricted lending guidelines. Those are opening up, which has been great for the RE market. In a capitalistic society people will always over extend....its in our nature. Don't wait for the next market, you can be profitable in the current if you buy correctly (remember you make money on the buy). It's highly likely that this market will trudge along at a decent rate for years, so if your waiting for a significant crash you might be waiting a while. There will never be a crash like the last one, as economic factors will be different in the next crash, and we have no idea how that will effect the RE industry. I'm not bullish or bearish on the current market, just taking it for what it is until I see indicators that sway me one way or another.

4 Reply

David O

Investor · Detroit, MI · Member since 2012 · 119 posts · 64 votes

9y

It's too hard to predict the market. Buy good deals and you will be okay. All my deals will cash flow well even if I take the rent down by 20-25%. I work in the mortgage industry, specifically in default. I am not seeing anything out of the ordinary.

From my experience in the stock market, don't try to predict the market, just work with what you have. A recession will be a huge buying opportunity for me, but I am not waiting for it.

3 Reply

John Hickey

Rental Property Investor · Chappaqua, NY · Member since 2015 · 1k+ posts · 947 votes

9y

@Mark Alexander I lived in Miami in the early 2000 till 05. Everyone drove a nice car it seemed. I came back to NY driving my paid for Civic. Now I'm driving a beat up Camry. I'll buy a new car one day. I think about it sometimes. But when I get a bit of cash someone calls me up and says take a look at this house...maybe I'm crazy but I'm too busy to car shop. That and I could use the 350 to pay the mortgage on an empty unit.

I'm closing on a multi Tuesday, signed a contract on another yesterday. Just heard my offer got turned downed on a third. Putting an offer in on a house I tried to buy in 14 in a day or two. Seeing a house on Tuesday. Got partners on most of them but cash is short when deals are to be had.

I agree with @Derrick Dill I'd go even further and say $400 on a student loan and he makes 50k? That's killing him too. I have a GED and a few college credits, mostly taken for work stuff. Paid for that in cash too.

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Stanley Parsley

Investor · Chandler, AZ · Member since 2015 · 409 posts · 214 votes

9y

what goes up must come down

when you purchase something don't use speculation, use solid math

if you are upside down in one property then you are upside down in all the properties

that effects your lifestyle-upside down trying to keep up with ?

invest wisely and don't make a emotional decision with money- that is why it is the root of all evil- it will give you ulcers, sleepless nights, and you will loose relationships

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Jo Lyn Cornelsen

Investor · Puyallup, WA · Member since 2017 · 12 posts · 13 votes

9y

Money is not the root of all evil. The "love of money" is. Money is energy - a means of exchange within the community we live in.

2 Reply

Account Closed

Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes

9y

@Jo Lyn Cornelsen You have been taught well, and accurately.

2 Reply

Account Closed

Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes

9y

Originally posted by @Chuong Pham:

The federal reserve and central banks are just preventing the inevitable from happening. Instead of letting the market correct itself sooner they just prolonging it with low interest rate.

Volatility and Risk are part of investing game. It just how you manage your overall portfolio.

My portfolio consist of 50% cash, 45% property, 5% stock. I try to keep my debt to asset ratio at 60-40 where 40% I have in debt.

Warren Buffet at the moment is holding about 86 billion in cash for some mysterious reason. I will bet my money with Warren that a discounts period will come soon. This current bull market is not sustainable.

What Buffet sees is that money is fleeing Europe with the influx of immigrants from Syria and Africa who refuse to be part of the culture and because of Brexit and sovereign debt loads of Turkey, Cyprus, Italy, Spain and Ireland. Money is fleeing China because their accounting both for business and for government is "cooked". Japan has been stagnant for two decades and the only economy large enough to absorb it all is the U.S. The stock market has a way to go with all of this money coming in. Real estate likewise. Read what has happened in Vancouver, Seattle, San Francisco, and L.A. (soon Phoenix) because of the Chinese flight of currency. Soon enough, The Bond market will crash. Too much fed debt. This will lead to contagion. So, as the dominoes start falling, he will wait to see where the deals are, probably in commodities or transportation and he will buy the best deals. Simple enough.

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MARKET CRASH - Thoughts?

MARKET CRASH - Thoughts?

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