How bad was it to be a cash flow investor in 2008?

Question

For those of you who were around then, what was it like to be a cash-flow investor in Phoenix in the last recession? There were plenty of stories of house-flippers losing a ton, but was it that bad for people with more conservative, buy-and-hold strategies? Just trying to get an understanding of worst-case scenarios.

Bill B. · Answer

@Cody LeCates

Hey Cody.

People use Las Vegas as the worst place. Prices fell 30-40%. But that’s the only time in the city’s History they fell more than 4%. And I actually increased rents every year right through it.

I owned a few before so I just kept buying more when prices dropped I think interest rates will drop this year. That wasn’t even a possibility last year. That will help prices.

If your plan is to hold for 20-30 years/rest of your life I don’t think it matters. The values will have doubled or quadrupled by then. If you put 20% down you’ve got 10-15x the money you put in. All tax free. Then the income skyrocketed as loans are paid off or you refinance and take money back out. Imagine they are stocks and think long term.

Caleb Heimsoth · Answer

@Cody LeCates I guarantee you a recession is coming within 25 years, so best wait 50 years just to be safe before you do anything.

Bill B. · Answer

In Vegas I cashflowed right through raising rents yearly. i’ve heard that multifamily got hurt but my single family did waaay better during the recession than before. Renters came out of the woodwork. The quality of renter went way up and the number to choose from as well. They also stay much longer. I still have several renters in place since then.

IMHO it’s much harder to be a landlord during a real estate boom when everyone’s doing it and everyone wants to own.

Stone Jin · Answer

@Lisa Rayle

We bought our first investment in 2008 November.   We paid 75K for a 1bed 1bath condo.  It rented for $725 for a couple of years 2009/2010.  We cash flowed since we paid cash however if you were to finance that project it would probably have broken even at best.

Looking over the past 10 years, our biggest losers are the two properties we bought in 2005 and 2006 as personal residences.  When we converted them to rentals in 2011, we lost money each year on the SFH for about 4 years before the rents rose enough to make a little bit.  The condo we bought we had to Short Term rent it to just break even.

Given my experience, I would suspect that many buy and hold investors who bought before the crash probably had very lean years if they held on.  The properties we bought from 2009-2014 are working out fantastic.

I hope this provides some insight.

Stone

Ryan Swan · Answer

Owned my oldest student rental through the entirety of the crash. Rents dipped a little bit in the 2008/2009 cycle, but I didn't see any softening of the tenant demand. Rents were back up to pre-crash level by about 2010/2011.

I wish I would have bought more around 2011/2012...SFHs in Tempe were actually selling well above the 1% rent/price ratio. I had just left my W2 job and didn't have two years of tax returns as a self-employed landlord to get a loan Oh well...next time.

Craig Jeppesen · Answer

I would add that it depends on how leveraged you are and if you count on that cash flow to survive. I would say true investors did just fine, but those doing it for an extra $100-$200 a month to spend  or live off each month will have issues. If you can pay the mortgages with your own w2 cash flow or reserves you will be just fine in a recession.

Cara Lonsdale · Answer

These are good things to consider when determining a strategy for RE investing.  So, the conversation is a good one to have.

Casualties of the recession were not exclusive to sales.  The rental market saw a hit too.

1 of my higher end rental properties in Scottsdale, that at one point fetched $3,200+ per month, was then reduced to $1,850.

1 of my average rentals that used to get $1,400, was then barely able to fetch $995.

So, depending on how close your margins are, you may be able to ride out a recession even with lower rental rates.  Also, if you have aggressive pay down options, that will help.  Best not to be so leveraged that you can't wait out a storm, because when 1 comes, either the property needs to support it, or your personal finances must.  Otherwise, you will be in trouble quickly.

Dale K Poyser · Answer

Interest rates have already gone down a bit I think. There is a mad dash right now on the refinancing process

Cody LeCates · Answer

@Bill Brandt Maybe my inexperience is showing, but do you believe we're in a similar "real estate boom" as we were during 2008? I know a lot of people in my generation are being forced to rent because of student loans and higher house prices. Do you see any warning signs that right now might not be the optimal time to invest?

Thanks!

How bad was it to be a cash flow investor in 2008?

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