Ready for a huge crash?? How insulated are YOU??

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Ready for a huge crash?? How insulated are YOU??

Jared Johnson
Real Estate Agent · Spokane · Member since 2019 · 17 posts · 16 votes

Hello all!

How is everyone doing? Are you insulated for a big drop or are you over leveraged?? with money being this cheap STILL are you all seeking to borrow or hold off?? just curious.

I have just gotten a refinance on my owner occupied triplex. Got a really great appraisal and am going to pull a HELOC and go shopping for a new project rental to start on. What is everyones opinions of the looming doom of a huge crash??

I think we are due for something just based on history, but then again im not sure. my market in particular is SUPER HOT and it has been for about year or more.

Also im thinking if I buy something soon and the economy crashes I will have done the numbers on the higher price anyway so it should be fine right?

scary times we live in right now..

Id love to hear others opinions on this thought!! thanks!!

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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
5y

You need to have your opinion validated by at least two sources.  So, are you getting the same opinion from both your crystal ball and your Ouija board, or just one of the two?

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    5y

    Based on what history exactly?

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  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    5y

    You need to have your opinion validated by at least two sources.  So, are you getting the same opinion from both your crystal ball and your Ouija board, or just one of the two?

    36Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    5y

    Set for the crash. Got the cash.  Me and millions of others waiting for the cull. 

    Remember that credit freezes when things implode, so borrow while the sun's shining. Long-term fixed. Commercial, portfolio/blanket and HML will not be your friend if credit tightens.

    18Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    5y
    Originally posted by @Steve Vaughan:

    Set for the crash. Got the cash.  Me and millions of others waiting for the cull. 

    Remember that credit freezes when things implode, so borrow while the sun's shining. Long-term fixed. Commercial, portfolio/blanket and HML will not be your friend if credit tightens.

    Sage advice from the oracle of East Wenatchee  .... thats one little factoid that is missed on BP.. wishing for a crash and then thinking that lending will be the same.. Crash works for CASH ..    there was a nice little book called into the Sage.. about a retired Seattle doctor going to over the mtn to the Sage of his child hood..   

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  • Lee RipmaPro Member
    Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
    5y

    @Steve Vaughan

    Lenders stopped lending there in April and May. Things have loosened up. Folks like to say-I’d buy once there is a crash. What did they say in April? I’m waiting. I picked up a couple of good deals in April and May, no one else was buying.

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  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    5y
    Originally posted by @Jay Hinrichs:
    Originally posted by @Steve Vaughan:

    Set for the crash. Got the cash.  Me and millions of others waiting for the cull. 

    Remember that credit freezes when things implode, so borrow while the sun's shining. Long-term fixed. Commercial, portfolio/blanket and HML will not be your friend if credit tightens.

    Sage advice from the oracle of East Wenatchee  .... thats one little factoid that is missed on BP.. wishing for a crash and then thinking that lending will be the same.. Crash works for CASH ..    there was a nice little book called into the Sage.. about a retired Seattle doctor going to over the mtn to the Sage of his child hood..

     Yessir, I remember how tight credit was during the GRC.  You warn us too, which keeps it fresh.

    Into the Sage.  Sounds like a book I would like. Thank you, I will check it out!

    1Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    5y
    Originally posted by @Lee Ripma:

    @Steve Vaughan

    Lenders stopped lending there in April and May. Things have loosened up. Folks like to say-I’d buy once there is a crash. What did they say in April? I’m waiting. I picked up a couple of good deals in April and May, no one else was buying.

    I hear you, Lee.  The great philosopher Mike Tyson (LOL) said it well.  All plans go out the window when you get punched in the nose.  

    True crashes are scary.  Went through the one as a real estate investor, several as a stock broker/investor/underwriter.  It's different when there's blood in the streets and no one knows how low things will go.  

    Lose a job or some other external, lose ability to get GSE loans, see values not finding a floor amd rising vacancy rates... then we'll see how much buying is actually done by most.  

    4Reply
  • Jared Johnson
    OP
    Real Estate Agent · Spokane · Member since 2019 · 17 posts · 16 votes
    5y

    @Lee Ripma

    That’s great to hear! :) happy you got some deals while it was scary for the others.

    0Reply
  • Lee RipmaPro Member
    Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
    5y

    @Jared Johnson

    Only once we have the full benefit of hindsight will we know if it was a great idea or foolish!

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    4Reply
  • Filipe Pereira
    Property Manager · Windsor Locks, CT · Member since 2016 · 1k+ posts · 1k+ votes
    5y

    Every year that goes by I think "this is the year" and then I am wrong. DJIA just hit 30K for the first time ever last week, but we can probably dig up 1000 articles 

    About how it was supposed to crash in 2018, 2019, or 2020. Even with covid-19 it has still rebounded.

    I always tell my investor clients who ask me if it's a good market to buy in that they should not be purchasing or selling necessarily based on the market but whether or not the transaction meets their financial goals and the criteria that they have set for investing.

    As long as it hits your criteria, I wouldn't care too much about what the market is doing.

    9Reply
  • Account Closed
    Rental Property Investor · Glens Falls, NY · Member since 2016 · 176 posts · 169 votes
    5y

    These threads have been abundant for the past 3 years on BP. 

    11Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    5y

    With the advent of social media, everyone has a voice to publicly state their opinion. The trouble is very little information presented by people has any underlying data supporting it. Most of the arguments for a crash boil down to three things:

    1. We are overdue for a correction. That is like walking up to a roulette wheel that has hit red five times in a row and saying that means the next spin is black. The roulette wheel doesn't care what the last spin was.

    2. It feels like right before the last crash. No it doesn't. I don't know how else to say it. The major factors that lead to the last crash where reckless lending and speculative purchasing. That lead to banking collapse, stock market free fall and job loss. This isn't a pattern we are in right now. 

    3. Prices can't go up forever. Yes they can. The prices of pretty much everything goes up over time, unless technology or economies of scale influence the commodity. The monetary policy in the USA aims to drive inflation at a constant rate, which is one reason prices increase. The other factor is supply versus demand. Not just supply OR not just demand. During the great recession we saw both an increase in supply and decrease in demand. That is a double whammy. 

    I guess logically you could say "there will be a crash in the future" and that seems like a safe bet. I can tell you "life on earth will end some day" with confidence, but will it happen in the next 12 months - I am not so sure. 

    At the end of the day one thing people forget is that crashes happen slowly. We didn't wake up one day in 2008 to sudden price drops and massive inventory. The market slowed over months and even years. It is also worth pointing out that every market performed differently. Some had massive loss, some not so bad. Some hit bottom in 2010 and some in 2012. 

    I do see factors working against housing the coming years, but it could very well just be a slow down. Lots of people are hoarding cash and there are lots of new investors chomping to get in the game. That means lots of fuel for the fire.

    I almost sold a house last year for $200K and today I could get $220K with multiple offers. I didn't see that coming, even after 20 years of being in real estate. I predicted in May the stock market would perform way worse than it is right now. At some point you just admit, "I really don't know what will happen". I do know if I buy good assets that given enough time, I will make money.

    When I joined BP a few years ago, one of the most popular discussion topic was "when is the crash coming" and here we are today. Hundreds of people were proven wrong over that time and people keep guessing.

    30Reply
  • Steve Morris
    Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
    5y

    "Are you insulated for a big drop or are you over leveraged??"

    To paraphrase Obama, I cling to guns or religion or antipathy toward people who aren't like me.  That's all I need.

    Actually instead of trying to do deals leveraged to the hilt, I show some risk management and investment management to minimize my exposure.  Should be SOP.

    2Reply
  • Karl B.
    Rental Property Investor · Erie, PA · Member since 2015 · 1k+ posts · 2k+ votes
    5y

    Refinancing one of my multi-family properties now. The others are either close to being paid off (within a few years) or are owned free and clear. 

    I don't go by history. We don't automatically have crashes based on dates on a calendar. They happen when bad things happen whether lockdowns, high unemployment, idiot lending laws, high foreclosure rates, etc. 

    Potential crashes are scarier for flippers than for buy-and-hold. If you only buy buy-and-holds that have good numbers and meat on the proverbial bone (value-add) then potential crashes matter less. 

    4Reply
  • Alexander Szikla
    Real Estate Agent · New York City · Member since 2020 · 818 posts · 639 votes
    5y

    As far as I'm concerned cash is trash. Capital is meant to be deployed. It isn't about timing the market, it is about time in the market. Compound interest is a beast if you let it compound. And know one has a crystal ball. 

    It is always a good time to do deals if you are doing good deals! Make sure you have a margin for error. Ensure that you can still service debt and carry yourself even if things compress. 

    11Reply
  • Nick C.
    Investor · Tampa, FL · Member since 2011 · 2k+ posts · 3k+ votes
    5y

    Hopefully everyone’s strategy is sound enough that it isn’t tied to the RE market doing well. If your strategy is tied to a rising market, get a new one that better mitigates risk. 

    3Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    5y
    Originally posted by @Alexander Szikla:

    As far as I'm concerned cash is trash.  

     This is pretty bold.  While I agree cash is meant to be deployed, it's not the rate it earns or doesn't earn in the dry powder stage, it's the opportunity to buy what others can't. 

    Right now while everybody is competing with each other for over-priced (to me) listed assets, I have 2 sellers calling me to please come look at their non-bankable condition rentals.  Either purchase will have a min 20% 6-month equity return with minimal work.  More if I carry the financing or do a sweat equity lease option. With no work other than paperwork. 

    That's just me and I hardly look for deals anymore.  Cash is not trash unless you're an asset manager with a high cost of capital. 

    7Reply
  • Matt M.
    Specialist · Easton, PA · Member since 2018 · 1k+ posts · 2k+ votes
    5y

    @Jared Johnson

    Like Mad magazine’s Alfred E Neuman said.. “what, me worry?”

    If you buy right and are smart, you’ll be fine. This is why I giggle when people look to buy and are fine with $100 CF. I could drop my rents by half and still make all my debt service, taxes, etc.

    5Reply
  • Bill F.
    Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes
    5y
    Originally posted by @Alexander Szikla:

    As far as I'm concerned cash is trash. Capital is meant to be deployed. It isn't about timing the market, it is about time in the market. Compound interest is a beast if you let it compound. And know one has a crystal ball. 

     While I agree about market timing, however I can think of a few very successful investors who disprove the cash is trash mantra.

    The goal of investing is to grow wealth while preserving capital. This idea that one has to be fully invested at all times is a recipe for average returns. If average is ok, then go for it, but if an investor has developed a competitive advantage then they should wait for an opportunity to buy great assets at a good price. When that comes along, they need to load up. You can't do that if you have been buying average deals along the way. 

    4Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    5y
    Originally posted by @Steve Vaughan:
    Originally posted by @Alexander Szikla:

    As far as I'm concerned cash is trash.  

     This is pretty bold.  While I agree cash is meant to be deployed, it's not the rate it earns or doesn't earn in the dry powder stage, it's the opportunity to buy what others can't. 

    Right now while everybody is competing with each other for over-priced (to me) listed assets, I have 2 sellers calling me to please come look at their non-bankable condition rentals.  Either purchase will have a min 20% 6-month equity return with minimal work.  More if I carry the financing or do a sweat equity lease option. With no work other than paperwork. 

    That's just me and I hardly look for deals anymore.  Cash is not trash unless you're an asset manager with a high cost of capital. 

     Isn't it great when you know how money works?

    Back on topic, I'm trying to prepare for the end of it all, as in the financial meltdown that I hear.read is just around the corner (again,..and again, and...). Is there anyone out there that can recommend a good boat builder. I'm thinking of converting everything to house boats. There's a company that was recommended to me, but I'm not sure of about the source if the recommendations, since they came from a bunch of animals.  The company is called, New Order Aqua Homes. I think they're out of Arkansas.

    2Reply
  • Account Closed
    Investor · Menomonie, WI · Member since 2015 · 20 posts · 12 votes
    5y

    I wait for the right deal and at a discount price. I'd rather have a few high return units than a bunch of average. If you have strong COC returns, a crash wouldn't really matter and you can ride on through. Also a year - year and a half of cash reserves to cover mortgages or throw at a new deal during opportune time won't keep you awake at night.

    3Reply
  • Justin Thorpe
    Member since 2020 · 437 posts · 675 votes
    5y

    @Jared Johnson

    The crash happened in 2008, your post is 12 years too late.

    2Reply
  • David G Vreeland
    Accountant · Member since 2020 · 26 posts · 2 votes
    5y
    Originally posted by @Joe Villeneuve:

    You need to have your opinion validated by at least two sources.  So, are you getting the same opinion from both your crystal ball and your Ouija board, or just one of the two?

    Love this so much

    1Reply
  • Jonathan R McLaughlin
    Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    5y

    @Joe Splitrock one topic not much discussed on these boards and I confess I don’t know what to make of it:

    The biggest, richest and best housed generation in American history has just entered the prime dying years releasing an enormous amount of liquidity.

    Not trying to be ghoulish but it’s something like 3-4 trillion in retirement assets. Even if the fed tightens, that’s a lot of liquidity in the system.

    3Reply
  • Zachary Ray
    Investor · Tampa, FL · Member since 2017 · 589 posts · 251 votes
    5y

    Scared money don't make no money

    9Reply
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