What Will You Be Doing if the Market Crashes?

Lender · United States · Member since 2020 · 1k+ posts · 499 votes

Obviously only the stock market is currently being effected with the coronavirus, but lets assume in the near future the real estate market starts to feel the impact or we experience another 2008. I'm curious to hear the game plan for investors.

If you flip properties, do you plan on buying more properties since they are cheaper?

If you're a rental investor, do you plan on buying more cash flowing properties at a discount?

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JD MartinBusiness Member

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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes

If it crashes? I will probably be doing the same thing if it didn't crash. Playing some music, buying some RE, working my job, drink a little wine on Sunday with my macaroni 😃

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Sam Josh
Sunnyvale , CA · Member since 2017 · 373 posts · 362 votes
6y
@Timothy Hero
Everything will depend on how cash rich you are. If you are cash rich you can be opportunistic and buy. If you leveraged yourself to your eyeballs, you are in trouble.
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Jai Reddy
Edmond, OK · Member since 2012 · 456 posts · 270 votes
6y
The challenge for those who say they will invest in a downturn, is if they really know when they are going to pull the trigger after aiming.
‘Could prices go lower? I should wait till they start coming back up just to be sure.’
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Jed Haslam-Walker
Real Estate Agent · Sarasota, FL · Member since 2020 · 77 posts · 102 votes
6y
Traditionally when hyper supply phases hit occupancy peaks and then starts to decrease while rents are still rising just at a decelerating rate. Then when the occupancy hits average long term levels ie. equilibrium levels rents stop climbing and level out. During this time the Fed Reserve hikes up interest rates, aggregate demand starts to decrease and there is a downward pressure on rents - they may not stop increasing but they will increase below inflation levels which results in lower overall cash flows for financed properties. The three things, increased interest rates, lower occupancy levels and lower profit margins can very quickly cause a negative cash flow in properties even with equity.
The traditional approaches to the final two phases are either sell at the end of the hyper supply phase if you can judge it correctly - or if you are going to hold - make sure you refinance in the hyper supply phase and try to lock in a lower rate to see you through the recession phase ( always happens can be several years 4-6 if there isn't a war or a global disaster ) before the market picks up again and use your cash reserves to weather the storm - remembering that property values always increase in real value over the long haul unless you've bought in somewhere like Cairo, IL - the other key strategy if you are going to buy and hold is ensure you have upgraded to protect against lower occupancy levels - if the renters have a choice in a hyper supply market you want yours to be the property to get the lease so give them granite :)
The recovery phase rather than the recession phase is the best time to jump back into the market - be prepared to engage aggressively for financing as lenders will be reticent but if you are prepared to give concessions which you will have to - you'll get moving again and be in the water when the recovery starts to gain ground again and then you're booming :)
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Trevor Ewen
Rental Property Investor · Weehawken, NJ · Member since 2014 · 1k+ posts · 704 votes
6y
@Timothy Hero
When the music stops, the investor with cash is able to buy at a discount. This is one of the primary advantages of some slight diversification in your portfolio. I always own a smaller percentage of counter-cyclical investments (bonds & precious metals, mostly). The rationale for that is precisely so I can sell those into a bad market and achieve some liquidity. Then you buy at a discount, and repeat. The income on bonds is poor and precious metals, nonexistent. But, at a critical moment, it's very nice to have protective assets that are going up in value and sell them off while everyone else is panicking.
I do think rental investors need to check their assumptions about the markets. If you are renting out amenity-rich condos (as an extreme example), get ready for tenants to downgrade in a recession. This is why class B- & C workforce housing is good from a cyclicality perspective. It's simple, and not super far from the floor in terms of what a home can rent for.
Local work markets are probably the biggest risk. Major employer shuts down and the whole game changes, even (and maybe especially) for people with workforce housing. An important hedge (but probably a decision that we all should have made years ago) is to go to markets with some employer diversity.
Beyond that, make sure you're not over-leveraged and hanging by a thread. You need to have enough cash to weather a few rough months if some re-positioning is necessary. There is nothing better for a buyer (like me) than a seller with few options and a sense of urgency. For your sake, don't be that seller.
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Joe SplitrockPro Member
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Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
6y
Originally posted by @Jai Reddy:
The challenge for those who say they will invest in a downturn, is if they really know when they are going to pull the trigger after aiming.
‘Could prices go lower? I should wait till they start coming back up just to be sure.’

Very true, you only know the bottom of a market after it has passed. Most investors follow the herd mentality. They buy investments when prices are high and sell when they are low.
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Joe SplitrockPro Member
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Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
6y
Originally posted by @Mark S.:
@Joe Splitrock Where did you get the ‘half the world’s population’ figure? I have been doing a lot of research on this and have not seen that anywhere. Of course I may have missed it.
On another note, this is a serious situation but I also remember when I was CEO of a mid size company years ago when swine flu showed up and was told by consultants that I had to take all these drastic actions to prepare for the coming epidemic. We seem to have come thru that okay!

The source was a SARS expert. The 2019 coronavirus strain has been identified to cause an infection rate of 2.5 people per one infected, which as I understand translates to 60-80% of the population infection rate. Many infected people may not even know they are infected or may show mild signs. It is also possible it may just become a seasonal virus, so could be around for years. Really it may be no different than the flu over time.
https://www.zerohedge.com/geopolitical/hong-kong-coronavirus-expert-warns-outbreak-could-infect-between-60-80-humanity
The swine flu (H1N1) was labeled a pandemic in 2009. A vaccine was developed and but the strain is still circulating as a common flu strain.
https://www.cdc.gov/h1n1flu/vaccination/public/vaccination_qa_pub.htm
The media is trying to compare coronavirus to ebola, which is insane based on risk and mortality rates. As you are saying, the Swine flu or even SARS seems to be a more appropriate comparison. Assuming it follows that path, once the major outbreaks are contained, they are likely to develop a vaccine and it will become just another bug floating around.
I am not an infectious desease expert that is for sure. Honestly, I got caught up in the media scare. After reading the WHO and CDC websites, it is far less concerning than the headlines will have you believe. I hate to say it, but I think it is even being weaponized for political gain. That is disturbing because the fear alone can cause major economic damage.
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Account Closed
Attorney · Bedford, NY · Member since 2020 · 15 posts · 24 votes
6y
Originally posted by @Bob Prisco:
@Account Closed I am from LI, so I understand pricing.. I have been doing business in the cleveland markets for about 10 years,,,, crazy returns

Sounds like I need to take a flight out to Cleveland. The New York market is not the most investor friendly, but unfortunately it is the only market I know and feel comfortable with. I still managing to find good deals--usually 1-2 a year. As a buy and hold investor, 1-2 solid properties a year satiates my appetite for now. In a down turn, I think the New York market will be flooded with great opportunities due to the high carrying costs associated with owning in New York.

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Bob Prisco
Specialist · Cleveland, OH · Member since 2018 · 1k+ posts · 666 votes
6y
@Account Closed Cleveland has been the number one rental market for many years. Forbes only noticed back in 2017 and 18 and ranked it # 1. Well where were they when we were providing 25% ++ net caps to our clients. It seems the " mainstream " is always years behind. 10% ++ net caps are still to be had,,,,
Good Luck
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Account Closed
Attorney · Bedford, NY · Member since 2020 · 15 posts · 24 votes
5y
@Bob Prisco it is funny revisiting this thread post covid and seeing that the market has been flooded with opportunities. Interesting times.
2 Reply
Steve Morris
Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
5y
Obviously only the stock market is currently being effected with the coronavirus
Can you explain, the stock market is at all time highs?
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Mark H. Porter
Investor · SC NC, VA · Member since 2020 · 1k+ posts · 756 votes
5y
Good conversation - this will be about who has cash. I was talking to a person who runs a condo-hotel in a vacation area. With Fannie and Freddie pulling back from condo vacation homes there really is no one left to finance them. This brings prices down yet leaving people with the inability to buy unless its all cash.
So my friend borrows commercial at 3% and loans at 6% on a 10 or 12-year term. Cash is king when opportunities abound. I find the most important trait is patience. Properties MUST be undervalued, MUST be in the right area, and MUST be the condition you desire. Don't settle for less.
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Joe SplitrockPro Member
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Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
5y

I agree. Sometimes you can gain perspective by looking back and seeing what worries did or didn't come to pass. I enjoyed reading my own comments in this thread. I was actually pretty accurate 11 months ago. Since my post was made, I have gotten COVID and I have made two house purchases. I lived and both houses have increased in value in a short period of time.
That being said, we are not really post COVID yet, although I think the threat will be neutralized in the coming months. People will still be getting COVID a year from now, because there is a portion of the population that is anti vaccination.
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Joe SplitrockPro Member
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Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
5y
Originally posted by @Steve Morris:
Obviously only the stock market is currently being effected with the coronavirus
Can you explain, the stock market is at all time highs?

The explanation is you are responding to a statement he made 11 months ago when the stock market was being affected. :)
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Account Closed
New York NY/Columbia County, NY · Member since 2020 · 19 posts · 5 votes
5y
@Joe Splitrock 2% mortality rate? Where?
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Joe SplitrockPro Member
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Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
5y
Originally posted by @Account Closed:
@Joe Splitrock 2% mortality rate? Where?

That comment was made 11 months ago, at which time the mortality rate was around 2%. Since that time we have increased testing and improved treatments. As of today in the USA there have been 405,186 deaths and 24.3 million cases, which translates to 1.6% mortality rate. Globally the cases are 95 million and deaths are 2 million, which is over 2% mortality rate.
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