How did you get crushed in 2008 due to overleverage ?
Gilbert, AZ · Member since 2020 · 94 posts · 26 votes
How did you get crushed in 2008 due to overleverage ?
Most Popular Reply
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
3yQuote from @Francisco Milan:
Hello
I have heard this over and over again from previous investors that lost it all in 2008 and I am starting to hear it right now again. How do these individuats loose everything due to being overleveraged?
Because they are over-leveraged. This means - unlike Bill or Joe - they bought property with 80% - 100% financing and the rent payment barely covered the mortgage, taxes, and insurance. They had nothing left over for other expenses like vacancy, maintenance, or capex. If a property is losing $100 a month and then the property value drops from $200,000 to $160,000 in less than a year, people panic and sell to cut their losses.
Why did some lose?
1. They didn't actually do the hard work and save up. As property values rose in the crazy market, people learned they had a lot of equity in their primary home. They thought they were wealthy and that real estate only goes up, so they cashed out their equity and bought investment property. Now they are leveraged on the investment and on their primary home.
2. They had no idea how to buy smart. They heard that real estate is a great investment, so they bought something without crunching the numbers, researching the location, etc.
3. After buying the property, they failed to learn how to manage it. They get bad tenants that don't pay rent or trash the property, they start bleeding money, and suddenly their golden egg turns out to be a lead weight they can't wait to unload.
Look at the recent market. The market went crazy and prices skyrocketed. A lot of homeowners suddenly realized they had a lot of equity in their primary home. They also saw a video that said they could buy a short-term rental in the Smokies or Florida and make $150,000 a year. Who wouldn't want that??? They cashed out their equity (bringing their mortgage payment higher than they want, but they can swing it with all the profit they'll be making) and they buy something for top dollar in a market they are unfamiliar with during a peak season. Eventually, they will learn that the property nets 1/3 what the YouTube guru told them it would, it's more work than they thought, and the shine will start to wear off.
If the market turns, people in this situation will drop that property for a loss and run with their tail tucked just to stop the bleeding. Tens of thousands of new investors will follow suit.
What could cause that panic? An economic depression. Prices rose astronomically and they could drop quite a ways to more reasonable values. War with China. Another COVID-like farce. There are many unknowns. Wise people flourish while the foolish lose.
The DIY Landlord Book4.7247 Reviews
50 Replies
- Gilbert, AZ · Member since 2020 · 94 posts · 26 votes3y
Quote from @Nathan Gesner:
Quote from @Francisco Milan:
Hello
I have heard this over and over again from previous investors that lost it all in 2008 and I am starting to hear it right now again. How do these individuats loose everything due to being overleveraged?
Because they are over-leveraged. This means - unlike Bill or Joe - they bought property with 80% - 100% financing and the rent payment barely covered the mortgage, taxes, and insurance. They had nothing left over for other expenses like vacancy, maintenance, or capex. If a property is losing $100 a month and then the property value drops from $200,000 to $160,000 in less than a year, people panic and sell to cut their losses.
Why did some lose?
1. They didn't actually do the hard work and save up. As property values rose in the crazy market, people learned they had a lot of equity in their primary home. They thought they were wealthy and that real estate only goes up, so they cashed out their equity and bought investment property. Now they are leveraged on the investment and on their primary home.
2. They had no idea how to buy smart. They heard that real estate is a great investment, so they bought something without crunching the numbers, researching the location, etc.
3. After buying the property, they failed to learn how to manage it. They get bad tenants that don't pay rent or trash the property, they start bleeding money, and suddenly their golden egg turns out to be a lead weight they can't wait to unload.
Look at the recent market. The market went crazy and prices skyrocketed. A lot of homeowners suddenly realized they had a lot of equity in their primary home. They also saw a video that said they could buy a short-term rental in the Smokies or Florida and make $150,000 a year. Who wouldn't want that??? They cashed out their equity (bringing their mortgage payment higher than they want, but they can swing it with all the profit they'll be making) and they buy something for top dollar in a market they are unfamiliar with during a peak season. Eventually, they will learn that the property nets 1/3 what the YouTube guru told them it would, it's more work than they thought, and the shine will start to wear off.
If the market turns, people in this situation will drop that property for a loss and run with their tail tucked just to stop the bleeding. Tens of thousands of new investors will follow suit.
What could cause that panic? An economic depression. Prices rose astronomically and they could drop quite a ways to more reasonable values. War with China. Another COVID-like farce. There are many unknowns. Wise people flourish while the foolish lose.
Thank you for your reply very very knowledgable sir
- Gilbert, AZ · Member since 2020 · 94 posts · 26 votes3y
How do you guys feel about corporate rentals or so called midterm rentals? You rent to nurses or insurance companies relocating their clients
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes3y
Quote from @Francisco Milan:
How do you guys feel about corporate rentals or so called midterm rentals? You rent to nurses or insurance companies relocating their clients
I feel like "mid-term rental" is a practice that has always existed but the term didn't exist until 5 minutes ago. Anything rented longer than 30 days is a long-term rental in the eyes of the law and should be treated accordingly. You market on the same websites, screen applicants to the same standard, use a written lease, follow the same Landlord-Tenant laws, evict through a court if they stop paying, etc. Including utilities and furnishings doesn't change anything except a few terms within the contract.
When renting for more than 30 days, you will earn less than with a short-term rental, but you can earn more than you would with a one-year lease. You'll also experience higher turnover and more vacancy. You have to analyze the options and choose which one will work best for you.
The DIY Landlord Book4.7247 Reviews - Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes3y
it was multiple scenarios and multiple instances of how it happened. For many, they shouldnt have been in the business in the first place and got knocked out of the game for good. With others, its just everything hit them all at once. There were experienced investors that got banged out as well but the majority were unqualifieds. It happens. They were giving away nearly free money to anyone and so many kept buying. Some of these people had 50 or 100 rentals in places like Baltimore. The money was unlimited with almost nothing down. They assumed the value would go up forever so they kept buying and selling at a profit. In addition, they were trying to flip and wet their beak in thousand of other ways (liens, auctions). In addition, some of that cash flow and profit was spent on other stuff because they always felt there would be more. People in the early 20s were walking around bragging about owning millions of dollars worth of property. They were taking high end vacations and putting big screen TVs in the bathrooms and laundry rooms and splurging on madness. Money was everywhere. Then the crash hit and it was like pulling out the rug from under them. Tenants lost their jobs so half to a third of their portfolio went vacant. They had no money to service all the debt or renovate anything. They couldnt pay taxes, insurance, make repairs, place new tenants or meet any financial obligations. The hard money started calling in notes. Interest only notes matured and hit them from the other side. Like a ponzi scheme they just didnt have enough capital to cover even 10 percent of their debt which created massive foreclosures collapsing their entire existence. Way after the the crash I had sort of a small portfolio that went vacant at once. I am experience and have a lot of resources and it nearly devastated me. Can you imagine if I was inexperienced with a bogus portfolio that was ten times larger?
- 3yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Mark Cruse:
it was multiple scenarios and multiple instances of how it happened. For many, they shouldnt have been in the business in the first place and got knocked out of the game for good. With others, its just everything hit them all at once. There were experienced investors that got banged out as well but the majority were unqualifieds. It happens. They were giving away nearly free money to anyone and so many kept buying. Some of these people had 50 or 100 rentals in places like Baltimore. The money was unlimited with almost nothing down. They assumed the value would go up forever so they kept buying and selling at a profit. In addition, they were trying to flip and wet their beak in thousand of other ways (liens, auctions). In addition, some of that cash flow and profit was spent on other stuff because they always felt there would be more. People in the early 20s were walking around bragging about owning millions of dollars worth of property. They were taking high end vacations and putting big screen TVs in the bathrooms and laundry rooms and splurging on madness. Money was everywhere. Then the crash hit and it was like pulling out the rug from under them. Tenants lost their jobs so half to a third of their portfolio went vacant. They had no money to service all the debt or renovate anything. They couldnt pay taxes, insurance, make repairs, place new tenants or meet any financial obligations. The hard money started calling in notes. Interest only notes matured and hit them from the other side. Like a ponzi scheme they just didnt have enough capital to cover even 10 percent of their debt which created massive foreclosures collapsing their entire existence. Way after the the crash I had sort of a small portfolio that went vacant at once. I am experience and have a lot of resources and it nearly devastated me. Can you imagine if I was inexperienced with a bogus portfolio that was ten times larger?
this scene played out in most all cash flow markets across the mid west and deep south and eastern seaboard.. REFI's stopped and HML got called the underlying debt for the HML ers were calling the debt on their borrowers IE the HML companies themselves.. this is what happened to me.. I had over 450 HML out at the time.. with my capital coming from Bank credit lines and cash.. Our lines of credit got called.. my borrowers could not refi and rents either were way lower than a HML interest rate DSCR as no one underwrote these to SCR the HML rates and as you mentioned tenants stopped paying .. Even Section 8 was an issue because my borrowers did not have the money at turnover and the houses would not get approved and tenants and their voucher left .
I ended up owning well over 250 of these homes.. And this is why I had to start basically from Scratch in 2010 t0 2011. 90% of the HML you see today started after 2011.. Very few that were working and running in 06 to 09 are still in business we all got hammered..
Now in today's market I don't see repeat since credit tightened up folks have had a huge run up in values etc etc . However there is no question that those that got variable rate debt 3 to 5 years ago with 5 year adjustments are going to be stressed come refi time. REFIs are still available so its not a credit freeze but cash flow will change if rents did not go up dramatically to cover the increase in cost of capital.. It could be some props there were making money every month become break even now with a refi or maybe lose a little bit every month.. not a wipe out though just change in cash flow. - Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes3y
Wow @Jay Hinrichs what an experience. Glad you over came. I always thought about getting into lending but always backed off because experiences so many have. One of my HLMs told me to run the other way. He tells me he has to foreclose on a wide range of loans now. May be him lending to the wrong people but who knows. I do know there are tons of inexperience investors now with very high failure rates. He wanted to unload one of his foreclosures on me. I looked at it and it's un-doable even if I got it for damn near free. Looks like it was hit with a nuclear bomb and nothing can be done but a tear down. Probably cant even be auctioned. If he went out to see it before lending money I have no idea why he would do it. There are tons of garbage foreclosures some of these lenders are sitting on.
- 3yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Mark Cruse:
Wow @Jay Hinrichs what an experience. Glad you over came. I always thought about getting into lending but always backed off because experiences so many have. One of my HLMs told me to run the other way. He tells me he has to foreclose on a wide range of loans now. May be him lending to the wrong people but who knows. I do know there are tons of inexperience investors now with very high failure rates. He wanted to unload one of his foreclosures on me. I looked at it and it's un-doable even if I got it for damn near free. Looks like it was hit with a nuclear bomb and nothing can be done but a tear down. Probably cant even be auctioned. If he went out to see it before lending money I have no idea why he would do it. There are tons of garbage foreclosures some of these lenders are sitting on.
it can happen to all of us.. pretty tough to be 100% perfect when your loaning on fix and flip in the turn key markets. Crap happens .. And loaning in judicial markets is even more risky than loaning in Trustee sale markets.. IE foreclosure time lines are so LOOOONG in judicial markets by the time they get the property back they are many times just a stripped shell. Have to be very careful who you extended a mortgage to.. VS what I do which is JV deals with NO debt NO Debt.. so you take foreclosure out of the equation. - Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes3y
Buy properties and in locations where there is little to no risk of extended periods of vacancy regardless of market conditions and sleep well at night.
- Milledgeville, GA · Member since 2013 · 1 post · 0 votes3yPeople got crushed, as other mentioned, because they were over leveraged, had short term hard money loans on too many properties and couldnt refinance out, lost their job, went bankrupt, or had some other catastrophic events in their lives when the real estate market crashed.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Mark Cruse:
Wow @Jay Hinrichs what an experience. Glad you over came. I always thought about getting into lending but always backed off because experiences so many have. One of my HLMs told me to run the other way. He tells me he has to foreclose on a wide range of loans now. May be him lending to the wrong people but who knows. I do know there are tons of inexperience investors now with very high failure rates. He wanted to unload one of his foreclosures on me. I looked at it and it's un-doable even if I got it for damn near free. Looks like it was hit with a nuclear bomb and nothing can be done but a tear down. Probably cant even be auctioned. If he went out to see it before lending money I have no idea why he would do it. There are tons of garbage foreclosures some of these lenders are sitting on.
lot of HML is doing very aggressive lending practice as it's not their money, for example: lend money with high LTV/LTC ; donot have inhouse appraisal team, only have few people in company, lending nationwide not to their local market.......it's investor money that they're losing, they may even low skin of the game after all.
- 3yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Carlos Ptriawan:
Quote from @Mark Cruse:
Wow @Jay Hinrichs what an experience. Glad you over came. I always thought about getting into lending but always backed off because experiences so many have. One of my HLMs told me to run the other way. He tells me he has to foreclose on a wide range of loans now. May be him lending to the wrong people but who knows. I do know there are tons of inexperience investors now with very high failure rates. He wanted to unload one of his foreclosures on me. I looked at it and it's un-doable even if I got it for damn near free. Looks like it was hit with a nuclear bomb and nothing can be done but a tear down. Probably cant even be auctioned. If he went out to see it before lending money I have no idea why he would do it. There are tons of garbage foreclosures some of these lenders are sitting on.
lot of HML is doing very aggressive lending practice as it's not their money, for example: lend money with high LTV/LTC ; donot have inhouse appraisal team, only have few people in company, lending nationwide not to their local market.......it's investor money that they're losing, they may even low skin of the game after all.
very few HML lend their own money mainly because they dont have that much liquid capital I mean your talking 20 50 100 mil or more in cash.. who has that sitting around.. lending is all leverage and OPM with those of us in the bizz making our fee's on origination and management. Plenty of mom and pops though with usually a few million to maybe 20 mil.. But those folks are almost always just lending in their city or MSA they live and work in.
- Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes3y
Quote from @Francisco Milan:
Quote from @Carlos Ptriawan:
Quote from @Eric James:
At present one issue is commercial loans that will have interest rates adjust in the next year or so. Those owners may be forced to sell for a loss/ be foreclosed on.
The residential market is hanging on, with many not selling to hold on to a low rate mortgage. This is helping keep prices up. But what if conditions change? For example, unemployment rising several percent, forcing an increasing number of people to seel their homes into a high interest rate environment? We may only be at the beginning of difficult times.
unemployment data in all sector is showing that the job market is too strong and unemployment is reduced.
please do note that these "so called recession" is not a natural recession, but a "technical recession" created by gov. policy , the real economy itself is just fine , prior to 2020 Fed is already doing QT but then due to covid they printed money too much (not accidentally), now they have burnt the money , but they already announce they would print the money again next year. It's not that complicated.
price would going skyrocket again til 2025 lol
Do you have data to back what you replied?
Jerome Powell says the economy and employment markets are strong.....so it must be true. LOL.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes3y
Quote from @Eric James:
At present one issue is commercial loans that will have interest rates adjust in the next year or so. Those owners may be forced to sell for a loss/ be foreclosed on.
The residential market is hanging on, with many not selling to hold on to a low rate mortgage. This is helping keep prices up. But what if conditions change? For example, unemployment rising several percent, forcing an increasing number of people to seel their homes into a high interest rate environment? We may only be at the beginning of difficult times.
First off, unemployment going up "a few points" wouldn't have this effect, not at all. The effect your talking about requires unemployment going up by ten's of points.
On top of that, we have a labor SHORTAGE today, with ton's and TON'S of unfilled worker demand. So any large unemployment actions would first have action of migrating workers, not $0 income. So, you'd not only have to pump unemployment north of 10%, you'd also have to wipe out all the current worker demand. How do you do that? In an economy still working to resupply from covid shortages and wiping out stocks of EVERYTHING.
Demand would have to some how drop by 30%+, because keep in mind SHORTAGE of supply is the environment today.
Fact is the economy is "front-loaded" to keep running along because of the net-shortage it is running at. Shortages that will take years to recoup, not weeks or months.
So to get a world where people are forced to sell their homes, in-mass, because they have no income, because they were laid off, and there is no other jobs to get, because there is little to no demand...... Exactly how do we get to this world from the one we are in now of worker shortages, housing shortages, everything shortages?
What we are faced with is a Neo-Stagflation.
- Rental Property Investor · Western NC · Member since 2023 · 16 posts · 15 votes3y
Just joined the community and my intro post was all about the 08 crash. I had just finished getting my real estate license and just got a loan for my first investment property. I used equity on my primary to fix it up and put the sign in the yard to sell it the week before the banks stopped lending. It was grueling but hey, we moved into it and rented the other property out and that’s really what started our journey into investing. We held on and that house is a great investment now. We turned it into an Airbnb and we still get to stay there if we’d like.
- 3yCorby GoadeBusiness MemberInvestor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
This is the type of stuff that scares novice investors from taking action. The fact is that the only people who got "crushed" in 2008 were those who HAD to sell. Being overleveraged is only a small piece of that equation.
The short answer is that if you are upside down in an investment, but it is at least cash flow neutral, you wait. That's it. I'm not one of these people who tell everyone that cash flow is the only thing that matters, quite the contrary, but you have to understand the dynamic between equity and cash flow so you can protect yourself from this impending "crash" that has been looming for the last 10 yeras that everyone seems to be so excited about.
The people who will get "crushed" are the ones following these gurus telling them to do OWC deals with zero down, over market value in order to get some positive cash flow- don't worry about the 5 year balloon, look over here, you are $200 per month in positive cash flow! When those balloons start hitting, they are going to be extremely painful if you have no reserves, no credit and no equity. Those are the people who lost everything. There were plenty of lenders out there offering terms like that to investors, builders, developers, etc. Equity is vital, more important that cash flow in the long term, no matter what the BP calculator tell you.
- Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes3y
Quote from @James Hamling:
Quote from @Eric James:
At present one issue is commercial loans that will have interest rates adjust in the next year or so. Those owners may be forced to sell for a loss/ be foreclosed on.
The residential market is hanging on, with many not selling to hold on to a low rate mortgage. This is helping keep prices up. But what if conditions change? For example, unemployment rising several percent, forcing an increasing number of people to seel their homes into a high interest rate environment? We may only be at the beginning of difficult times.
First off, unemployment going up "a few points" wouldn't have this effect, not at all. The effect your talking about requires unemployment going up by ten's of points.
On top of that, we have a labor SHORTAGE today, with ton's and TON'S of unfilled worker demand. So any large unemployment actions would first have action of migrating workers, not $0 income. So, you'd not only have to pump unemployment north of 10%, you'd also have to wipe out all the current worker demand. How do you do that? In an economy still working to resupply from covid shortages and wiping out stocks of EVERYTHING.
Demand would have to some how drop by 30%+, because keep in mind SHORTAGE of supply is the environment today.
Fact is the economy is "front-loaded" to keep running along because of the net-shortage it is running at. Shortages that will take years to recoup, not weeks or months.
So to get a world where people are forced to sell their homes, in-mass, because they have no income, because they were laid off, and there is no other jobs to get, because there is little to no demand...... Exactly how do we get to this world from the one we are in now of worker shortages, housing shortages, everything shortages?
What we are faced with is a Neo-Stagflation.
There is so much evidence that any increase in unemployment leads to increased foreclosures that this isn't even debatable. And apart from foreclosures there are other reasons such as needing to sell a home to relocate for a job. Every one of those house sales will be into a high interest rate environment. That doesn't mean the world would end, but it would affect the real estate market.
I'm aware of the official unemployment rate. Just as I'm aware that for the past 13 months the official number of "new jobs" has beaten the projected estimates....only later to be revised down below the estimates (which gets little publicity). So Id say governments portrayal of the state of the economy should be taken with a grain of salt.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Eric James:
Quote from @Francisco Milan:
Quote from @Carlos Ptriawan:
Quote from @Eric James:
At present one issue is commercial loans that will have interest rates adjust in the next year or so. Those owners may be forced to sell for a loss/ be foreclosed on.
The residential market is hanging on, with many not selling to hold on to a low rate mortgage. This is helping keep prices up. But what if conditions change? For example, unemployment rising several percent, forcing an increasing number of people to seel their homes into a high interest rate environment? We may only be at the beginning of difficult times.
unemployment data in all sector is showing that the job market is too strong and unemployment is reduced.
please do note that these "so called recession" is not a natural recession, but a "technical recession" created by gov. policy , the real economy itself is just fine , prior to 2020 Fed is already doing QT but then due to covid they printed money too much (not accidentally), now they have burnt the money , but they already announce they would print the money again next year. It's not that complicated.
price would going skyrocket again til 2025 lol
Do you have data to back what you replied?
Jerome Powell says the economy and employment markets are strong.....so it must be true. LOL.
you got it, it's from the chief itself LOL
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @James Hamling:
So to get a world where people are forced to sell their homes, in-mass, because they have no income, because they were laid off, and there is no other jobs to get, because there is little to no demand...... Exactly how do we get to this world from the one we are in now of worker shortages, housing shortages, everything shortages?
What we are faced with is a Neo-Stagflation.
in last month alone:
- future's interest rate going down
- stock market started to skyrocket (this is would be fun run until EOY)
- unemployment went down
- CPI going down
two years from now people complaining why in the world I didnt buy in end of 2022/2023 LOLthe biggest crisis is on banking sector okay, the highest vulnerable bank is FRC but they already contained by JPM.
The next inline is PACW, yet their stock recovered 100% yesterday, PACW's bank run is 1/3 of FRC btw.There's potential crash but so far it's 'contained' and short term only, the bear market only lasts 6 months for residential ; but maybe 2 years or so for commercial. For banking the big gov. already has plan for you, it's not even the gov. that would save the economy, but still the biggest private bank that would absorb their losses thru M&A process.
I guess bank like JPM is making lot of profit these days, gain so much money for 0 percent and got 5-6% from gov.
- Encinitas, CA · Member since 2011 · 192 posts · 252 votes3y
My experience from 2008-10 as a hard money lender was that loans where I was the only lender and had to foreclose did fine, although it was more work and time then I bargained for.
The real problem loans I had tended to be the loans I was in on as a fractional interest, and it was like herding cats in dealing with fellow lenders, some of which just wanted to stick their head in the sand and not communicate. One of the lessons I learned from that period was to be very cautious in investing in loans on a fractional basis.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes3y
Quote from @Eric James:
Quote from @James Hamling:
Quote from @Eric James:
At present one issue is commercial loans that will have interest rates adjust in the next year or so. Those owners may be forced to sell for a loss/ be foreclosed on.
The residential market is hanging on, with many not selling to hold on to a low rate mortgage. This is helping keep prices up. But what if conditions change? For example, unemployment rising several percent, forcing an increasing number of people to seel their homes into a high interest rate environment? We may only be at the beginning of difficult times.
First off, unemployment going up "a few points" wouldn't have this effect, not at all. The effect your talking about requires unemployment going up by ten's of points.
On top of that, we have a labor SHORTAGE today, with ton's and TON'S of unfilled worker demand. So any large unemployment actions would first have action of migrating workers, not $0 income. So, you'd not only have to pump unemployment north of 10%, you'd also have to wipe out all the current worker demand. How do you do that? In an economy still working to resupply from covid shortages and wiping out stocks of EVERYTHING.
Demand would have to some how drop by 30%+, because keep in mind SHORTAGE of supply is the environment today.
Fact is the economy is "front-loaded" to keep running along because of the net-shortage it is running at. Shortages that will take years to recoup, not weeks or months.
So to get a world where people are forced to sell their homes, in-mass, because they have no income, because they were laid off, and there is no other jobs to get, because there is little to no demand...... Exactly how do we get to this world from the one we are in now of worker shortages, housing shortages, everything shortages?
What we are faced with is a Neo-Stagflation.
There is so much evidence that any increase in unemployment leads to increased foreclosures that this isn't even debatable. And apart from foreclosures there are other reasons such as needing to sell a home to relocate for a job. Every one of those house sales will be into a high interest rate environment. That doesn't mean the world would end, but it would affect the real estate market.
I'm aware of the official unemployment rate. Just as I'm aware that for the past 13 months the official number of "new jobs" has beaten the projected estimates....only later to be revised down below the estimates (which gets little publicity). So Id say governments portrayal of the state of the economy should be taken with a grain of salt.
That's not true; there isn't much nor any evidence of such because that is a false statement, one that is a common emotional-based misconception of the factual economics.
It is a widely known understanding by economists and others of similar field that lack of equity AND unemployment, combined, are the "witches brew" for foreclosures. Unemployment alone is not a catalyst of foreclosure, just for a potential sale. And in an equity position, a sale does not = foreclosure does it, no.
And again, in todays market unemployment is an event, not a status. There is mass SHORTAGE of workers and mass DEMAND of workers of various kinds, so much that in fact the current trend is to hold multiple remote FT jobs, with employers knowing and reporting they turn a blind eye as long as things get done because that is the reality they are faced with. SO, as I stated, you'd have to wipe out employment potentials ADN-THEN drive unemployment on top of that. But still yet we have massive equity GROWTH not decline.
I understand the emotional nature of your statements, and how popular outlet's are pumping such emotional messaging to induce actions. But fact is the DATA and fact's are very different.
The below data comes from FRED.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @James Hamling:
Quote from @Eric James:
Quote from @James Hamling:
Quote from @Eric James:
At present one issue is commercial loans that will have interest rates adjust in the next year or so. Those owners may be forced to sell for a loss/ be foreclosed on.
The residential market is hanging on, with many not selling to hold on to a low rate mortgage. This is helping keep prices up. But what if conditions change? For example, unemployment rising several percent, forcing an increasing number of people to seel their homes into a high interest rate environment? We may only be at the beginning of difficult times.
First off, unemployment going up "a few points" wouldn't have this effect, not at all. The effect your talking about requires unemployment going up by ten's of points.
On top of that, we have a labor SHORTAGE today, with ton's and TON'S of unfilled worker demand. So any large unemployment actions would first have action of migrating workers, not $0 income. So, you'd not only have to pump unemployment north of 10%, you'd also have to wipe out all the current worker demand. How do you do that? In an economy still working to resupply from covid shortages and wiping out stocks of EVERYTHING.
Demand would have to some how drop by 30%+, because keep in mind SHORTAGE of supply is the environment today.
Fact is the economy is "front-loaded" to keep running along because of the net-shortage it is running at. Shortages that will take years to recoup, not weeks or months.
So to get a world where people are forced to sell their homes, in-mass, because they have no income, because they were laid off, and there is no other jobs to get, because there is little to no demand...... Exactly how do we get to this world from the one we are in now of worker shortages, housing shortages, everything shortages?
What we are faced with is a Neo-Stagflation.
There is so much evidence that any increase in unemployment leads to increased foreclosures that this isn't even debatable. And apart from foreclosures there are other reasons such as needing to sell a home to relocate for a job. Every one of those house sales will be into a high interest rate environment. That doesn't mean the world would end, but it would affect the real estate market.
I'm aware of the official unemployment rate. Just as I'm aware that for the past 13 months the official number of "new jobs" has beaten the projected estimates....only later to be revised down below the estimates (which gets little publicity). So Id say governments portrayal of the state of the economy should be taken with a grain of salt.
That's not true; there isn't much nor any evidence of such because that is a false statement, one that is a common emotional-based misconception of the factual economics.
It is a widely known understanding by economists and others of similar field that lack of equity AND unemployment, combined, are the "witches brew" for foreclosures. Unemployment alone is not a catalyst of foreclosure, just for a potential sale. And in an equity position, a sale does not = foreclosure does it, no.
And again, in todays market unemployment is an event, not a status. There is mass SHORTAGE of workers and mass DEMAND of workers of various kinds, so much that in fact the current trend is to hold multiple remote FT jobs, with employers knowing and reporting they turn a blind eye as long as things get done because that is the reality they are faced with. SO, as I stated, you'd have to wipe out employment potentials ADN-THEN drive unemployment on top of that. But still yet we have massive equity GROWTH not decline.
I understand the emotional nature of your statements, and how popular outlet's are pumping such emotional messaging to induce actions. But fact is the DATA and fact's are very different.
The below data comes from FRED.
In previous Greg's posting, folks keep saying if there're mass tech layoff there would be mass foreclosure. What happened is other way around LOL
There're just 2 months spike of layoff but since the number is normalized now, home price keeps going up. For very high salary in tech industry, nobody really afraid of layoff (except if they use visa) but not just you could get work again in the next day, but you also got severance for 6-12 months, that sometimes layoff is blessing. Layoff however create problem for non-immigrant worker. I'm not sure why folks keep talking about foreclosure when in 5/8/2023, the number of foreclosure keeps hitting new record low. People just has lot of equity, most RE transaction occured between 2010-2018 and all of them are doing fine by now.The very actual reason why we have a dip of real estate price between June 2022-Dec 2022, is not because of foreclosure/employment, but because there're too many FOMO supplier trying to catchup a bid. The market between Jan 2022-May 2022 is very abnormal. Now the circumstances are very different, almost everyone afraid selling their homes, makes them trapped with their equity LOL
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes3y
Quote from @Carlos Ptriawan:
Quote from @James Hamling:
Quote from @Eric James:
Quote from @James Hamling:
Quote from @Eric James:
At present one issue is commercial loans that will have interest rates adjust in the next year or so. Those owners may be forced to sell for a loss/ be foreclosed on.
The residential market is hanging on, with many not selling to hold on to a low rate mortgage. This is helping keep prices up. But what if conditions change? For example, unemployment rising several percent, forcing an increasing number of people to seel their homes into a high interest rate environment? We may only be at the beginning of difficult times.
First off, unemployment going up "a few points" wouldn't have this effect, not at all. The effect your talking about requires unemployment going up by ten's of points.
On top of that, we have a labor SHORTAGE today, with ton's and TON'S of unfilled worker demand. So any large unemployment actions would first have action of migrating workers, not $0 income. So, you'd not only have to pump unemployment north of 10%, you'd also have to wipe out all the current worker demand. How do you do that? In an economy still working to resupply from covid shortages and wiping out stocks of EVERYTHING.
Demand would have to some how drop by 30%+, because keep in mind SHORTAGE of supply is the environment today.
Fact is the economy is "front-loaded" to keep running along because of the net-shortage it is running at. Shortages that will take years to recoup, not weeks or months.
So to get a world where people are forced to sell their homes, in-mass, because they have no income, because they were laid off, and there is no other jobs to get, because there is little to no demand...... Exactly how do we get to this world from the one we are in now of worker shortages, housing shortages, everything shortages?
What we are faced with is a Neo-Stagflation.
There is so much evidence that any increase in unemployment leads to increased foreclosures that this isn't even debatable. And apart from foreclosures there are other reasons such as needing to sell a home to relocate for a job. Every one of those house sales will be into a high interest rate environment. That doesn't mean the world would end, but it would affect the real estate market.
I'm aware of the official unemployment rate. Just as I'm aware that for the past 13 months the official number of "new jobs" has beaten the projected estimates....only later to be revised down below the estimates (which gets little publicity). So Id say governments portrayal of the state of the economy should be taken with a grain of salt.
That's not true; there isn't much nor any evidence of such because that is a false statement, one that is a common emotional-based misconception of the factual economics.
It is a widely known understanding by economists and others of similar field that lack of equity AND unemployment, combined, are the "witches brew" for foreclosures. Unemployment alone is not a catalyst of foreclosure, just for a potential sale. And in an equity position, a sale does not = foreclosure does it, no.
And again, in todays market unemployment is an event, not a status. There is mass SHORTAGE of workers and mass DEMAND of workers of various kinds, so much that in fact the current trend is to hold multiple remote FT jobs, with employers knowing and reporting they turn a blind eye as long as things get done because that is the reality they are faced with. SO, as I stated, you'd have to wipe out employment potentials ADN-THEN drive unemployment on top of that. But still yet we have massive equity GROWTH not decline.
I understand the emotional nature of your statements, and how popular outlet's are pumping such emotional messaging to induce actions. But fact is the DATA and fact's are very different.
The below data comes from FRED.
In previous Greg's posting, folks keep saying if there're mass tech layoff there would be mass foreclosure. What happened is other way around LOL
There're just 2 months spike of layoff but since the number is normalized now, home price keeps going up. For very high salary in tech industry, nobody really afraid of layoff (except if they use visa) but not just you could get work again in the next day, but you also got severance for 6-12 months, that sometimes layoff is blessing. Layoff however create problem for non-immigrant worker. I'm not sure why folks keep talking about foreclosure when in 5/8/2023, the number of foreclosure keeps hitting new record low. People just has lot of equity, most RE transaction occured between 2010-2018 and all of them are doing fine by now.The very actual reason why we have a dip of real estate price between June 2022-Dec 2022, is not because of foreclosure/employment, but because there're too many FOMO supplier trying to catchup a bid. The market between Jan 2022-May 2022 is very abnormal. Now the circumstances are very different, almost everyone afraid selling their homes, makes them trapped with their equity LOL
How many times over last 3yrs have we had to listen to gross-over-simplifications of economics with the various "impending collapse(s)"..... If one reviews the archives of BP there will be no less then what 1,200 post's all telling how a "collapse" is eminent, from reason of lockdowns too moratoriums too "shadow" foreclosure inventory "about to hit and collapse everything" too more recently talk of "collapse" due to rise in mortgage rates; and not 1-single time has it happened YET people are so certain because so-and-so-on-YT-said......
I don't understand the 08-Doomsday-Cult, that every time a chipmunk fart's it's a knee-jerk reaction of "Oooh-Oooh-Oooh THERE IT IS, SEE-SEE-see, everything is going to collapse!".
Mass foreclosures, economic collapse, don't happen from a simple 1, 2, 3 factor issue. How many collapses before '08'? Yeah, that's right, the Great Depression. So in the last 3+ lifetimes 2-times something like that has happened, TWO, in 3+ lifetimes. How many recessions, inflation events, wars, assorted economic events and "bumps in the road'..... umpteen's.
The recipe for "collapse" takes a LOT of things, hitting in perfect coordination.
Ever notice how EVERY talk of "eminent collapse" conveniently skips the full facts of things? We are in a MASSIVE net-shortage existence today. We have jobs needing people galore, with no easing of that trend for foreseeable future. Housing shortage, widget and what-not shortages with a wiped-out logistical chain thanks to our existence in a J.I.T. logistical economy that covid-lockdown wiped out stocks of everything. A movement to repatriate various manufacturing. MASS equity and the vast majority sitting on 30yr locks at half if not less then current market rates....
The only "collapse" on the radar in terms of "potential" is a USD collapse, and in such event ASSETS skyrocket, because the USD is only a tool for trade, it can be changed, and has changed many many times over history INCLUDING U.S. history. And life continued.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @James Hamling:
Quote from @Carlos Ptriawan:
Quote from @James Hamling:
Quote from @Eric James:
Ever notice how EVERY talk of "eminent collapse" conveniently skips the full facts of things? We are in a MASSIVE net-shortage existence today. We have jobs needing people galore, with no easing of that trend for foreseeable future. Housing shortage, widget and what-not shortages with a wiped-out logistical chain thanks to our existence in a J.I.T. logistical economy that covid-lockdown wiped out stocks of everything. A movement to repatriate various manufacturing. MASS equity and the vast majority sitting on 30yr locks at half if not less then current market rates....
Use that as contrarian indicator.
When every news article from Forbes is talking about recession and everyone talk about recession in biggerpocket, that's usually the best time to buy.When every newbie buying real estate with 100% OPM, then it's time to sell everything LOL
On serious note, I think problem with average Joe is they think too much into secondary or third indicator like unemployment and expect a what-if scenario ; while in every business , the one that moves the price really is primarily supply and demand factor only.
- 3yBonnie LowPro MemberLender · Asheville, NC · Member since 2016 · 1k+ posts · 1k+ votes
Midterm rentals are a growing niche that is still being defined. Some people seem almost offended by the concept, which makes no sense, but so be it. While it shares a lot of similarities with LTR, it is a HOSPITALITY niche and if you don't treat it as such, you're going to struggle to be successful. Sure, furnished month-to-month rentals have always existed. Most are pretty basic to downright sad, but there is a need nonetheless. However, MTRs are essentially catering to much the same crowd as those booking short term rentals and with the same expectations of the STR crowd - even more so. Your MTR guests are going to be staying for a while and they're going to be using your property just like they would your home so it has to be outfitted as such. You can't get by with an underequipped kitchen and uncomfortable furniture. You're going to need to supply some staples and at least a starter kit of miscellaneous goods like paper products. You're also going to need to supply some basic cleaning products and equipment if you want people to be able to pick up after themselves - which you absolutely do! These thoughtful and practical additions are what make MTR unlike any other niche. People are finding all sorts of creative customer segments to market to and many are doing very well!
- Chandler, AZ · Member since 2020 · 295 posts · 272 votes3y
I was in AZ since 2006 so I experienced the situation here with you. It was earlier in our rental career so I really can't speak for other landlords but I can speak about plenty of neighbors around me. At the time, I lived in a brand new neighborhood on the outskirts of town. Home was purchased in 2006 for just under $300k. Crash happened and eventually the value of our property settled down to around $165k or so. Everybody was in the same situation. Plenty of the neighbors just walked away from the home and gave it back to the bank effectively wiping away $125k or so of their negative equity in the property. For many, it seemed like a wiser choice to start over with bad credit than owe $125k greater than the current value of your home. It makes sense. That $125k saved (not counting interest) was equivalent to the value of about 110 months rent for a similar home. Add interest and probably equivalent to 15 years or rent. Did the neighbor's income change? No. I'm not aware of any of them loosing jobs. Many were retired. Did rent change? No, but it was stagnant after this for years, but it didn't go down. It was just the easiest financial decision.
One of my tenants on the other hand had owned a home, values went up, they refinanced it to cash out all of the equity, and spent that and then decided they couldn't afford the home. I let them rent from me and guess what? That was a problem and thus learning opportunity for me also. They couldn't afford to pay my rent. They had their same jobs and income, but just bought foolish stuff all the time and at the end of the month didn't have the rent.
We were also, near the bottom of the market, able to pick up a nice property in Gilbert for $210k that had last sold for $399k.
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