Millionaires are Made During Recessions: What's your strategy?

Accountant · 100% Remote · Member since 2019 · 497 posts · 216 votes

It's cliché, but true. A lot of millionaires are made during recessions.

No matter what you invest in there are and will always be golden opportunities to take advantage of during every recession. For me, it's real estate and a few other ventures. For you, it may be crypto/stocks/businesses/real estate/etc.

How are you preparing to come out of this recession 10X wealthier than you are right now to be able to take your family and circle to the next level?

Do what most other people are not doing. This is the time to find that opportunity and double down.

What are you strategizing to execute during this "recession"?

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Scott TrenchPro Member

Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes

My strategy:

Every investment is a lifetime investment. Because I am investing in assets and asset classes that I expect to generate returns in excess of inflation over extraordinarily long time periods, all I have to do is:

- Make sure that I continuously maintain a large surplus net of income/expenses with each passing month

- Maintain a fortified emergency reserve that can withstand recessions (reminder that Lines of Credit dry up in recessions, as many investors are seeing right now! There is no substitute for CASH)

- Regularly deploy the excess cash, on top of my strong cash position in quality investments that are likely to stand the test of time (like the American economy in broad based index funds and real estate in excellent locations that I can maintain well. If I can't hold the investment for a lifetime or longer, I'm generally not interested (although I will pick up a briefcase full of money in the rare circumstances where they are left lying around of course).

What am I doing in the recession we are in right now? Continuing to save, earn, and invest consistently in index funds and real estate. Continuing to work at my profession (BiggerPockets) and making this company the best it can be.

One BIG note however: As interest rates rise, we are approaching an inflection point where purchasing real estate using DEBT can actually dilute/hurt returns. I am much more likely to purchase all cash real estate out of state in the coming months, than to continue purchasing property here in Denver, CO, because according to my math and the BP calculators, high interest rate debt REDUCES my CAGR on many real estate investments with conservative growth assumptions.

My long-term strategy does not change, but I will shift away from using debt if it is likely to hurt my returns AND increase my risk profile in the near-term.

If you are interested in exploring this nuance (how debt can actually REDUCE returns), run a calculator report and play with the interest rate. See where the inflection point is, based on your assumptions as the interest rate increases. At a certain point, it is worse to use debt than to purchase a property with all cash from a CAGR standpoint.

Podcast Guest on Show #223

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Scott E.
Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
4y
I was too young and inexperienced to take advantage of the last recession. The first property I bought was in 2011 but that was just because I happened to be ready to buy a house in 2011, so I was in the right place at the right time.
I'm looking forward to more opportunities ahead in residential and commercial. And my strategy is to target the paranoid and panicked sellers that inevitably will surface.
In residential we are already seeing a softening in prices and price reductions. So I'm eyeing the A++ locations in my market that I know will appreciate in value significantly over a long horizon.
And in commercial, I think that's where the rising interest rates will have the biggest impact. You can't buy a 5 cap property and cash flow anymore. Because of that, some owners who need to sell will need to align their pricing with market conditions. This will present opportunities to buy at a much lower price per foot than we've seen in recent years.
5 Reply
Max Emory
OP
Accountant · 100% Remote · Member since 2019 · 497 posts · 216 votes
4y
@Scott E. love the breakdown! Thanks for sharing! I was also too young to take advantage of the last recession so I'm looking at the more experienced investors who went through the last recession (and have been for the last few years) to see how they're moving.
2 Reply
Tyler Solomon
Lender · Austin, TX · Member since 2022 · 223 posts · 244 votes
4y
Here is my POV on the current recession. I do believe there are always deals to be found/made in the RE market, but we simply have a supply constraint problem with regard to # of housing units available on the market, and those waiting on the sidelines for a dramatic "crash" will be left behind in the next 12 months. Unless loan defaults become prevalent (which i do not see data to support this idea) I do not think there will be the same "crash" in housing prices that everyone is predicting. The other side of the argument that would support a crash in home prices would be a massive over correction on the part of builders, flooding the market with supply and overwhelming demand. This also seems unlikely and far out, as supply chain issues continue to persist, build times remain extended, and material costs remain elevated. SFR are silently becoming an institutional asset, and these homes are not returning to the MLS any time soon IMO.

I can not say the same for equity markets. Believe there will be tremendous upside opportuninty there in 3 -12 months when equities bottom, while RE is still just a "time in the market situation", rather than "time the market" situation.

what do you all think?
5 Reply
Max Emory
OP
Accountant · 100% Remote · Member since 2019 · 497 posts · 216 votes
4y
@Tyler Solomon, thanks for your input! I've heard a similar perspectives from other investors. There's still a huge shortage of housing/materials/labor/etc and will be for the foreseeable future. Some think housing prices will actually continue to rise through 2026 (which blows my young mind).
0 Reply
Deanna B.
Investor · Austin, TX · Member since 2022 · 40 posts · 30 votes
4y
I was also too young and inexperienced to take advantage of the last recession but got to buy my first house in June of 2010, at the very bottom of the market. I think what I have learned since then is the importance of diversification. I don't want to have all of my hopes in two or three main focuses anymore. I learned that when one investment vehicle is going down there is another that is going up and there are many ways to diversify within real estate and outside of real estate. It is also important to plan for the bad stuff by making sure you have the right insurance coverage as well as knowing what you need to gain advantages in your tax situation. So I am focusing on the bigger picture before these great opportunities start happening.
2 Reply
Scott TrenchPro Member
Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
4y
My strategy:

Every investment is a lifetime investment. Because I am investing in assets and asset classes that I expect to generate returns in excess of inflation over extraordinarily long time periods, all I have to do is:

- Make sure that I continuously maintain a large surplus net of income/expenses with each passing month

- Maintain a fortified emergency reserve that can withstand recessions (reminder that Lines of Credit dry up in recessions, as many investors are seeing right now! There is no substitute for CASH)

- Regularly deploy the excess cash, on top of my strong cash position in quality investments that are likely to stand the test of time (like the American economy in broad based index funds and real estate in excellent locations that I can maintain well. If I can't hold the investment for a lifetime or longer, I'm generally not interested (although I will pick up a briefcase full of money in the rare circumstances where they are left lying around of course).

What am I doing in the recession we are in right now? Continuing to save, earn, and invest consistently in index funds and real estate. Continuing to work at my profession (BiggerPockets) and making this company the best it can be.

One BIG note however: As interest rates rise, we are approaching an inflection point where purchasing real estate using DEBT can actually dilute/hurt returns. I am much more likely to purchase all cash real estate out of state in the coming months, than to continue purchasing property here in Denver, CO, because according to my math and the BP calculators, high interest rate debt REDUCES my CAGR on many real estate investments with conservative growth assumptions.

My long-term strategy does not change, but I will shift away from using debt if it is likely to hurt my returns AND increase my risk profile in the near-term.
If you are interested in exploring this nuance (how debt can actually REDUCE returns), run a calculator report and play with the interest rate. See where the inflection point is, based on your assumptions as the interest rate increases. At a certain point, it is worse to use debt than to purchase a property with all cash from a CAGR standpoint.
Podcast Guest on Show #223
11 Reply
Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
4y
There are a sufficient number of billionaires that say to be bullish when everyone is being bearish that they can't all be wrong.

For most of California (I simply can't comment either way on the rest of the country, so I'm limiting my commentary to what I know), it's a buyer's market now. But everyone is scared to buy. Meanwhile, for sellers, the party has ended, and they're frustrated, making 'wasted' mortgage payments as it sits on the market for longer (especially true of vacant/staged homes, 90 days on market means they've "wasted" 3 mortgage payments on a house they aren't even using any more!). The top appraisal blogger in the nation happens to be in Sacramento, in California, here's how he puts it in part:

"In a short period of time, we went from having three weeks of supply in the Sacramento region to ten weeks. What is causing this change? It’s easy to pin this on sellers rushing to list, but that’s NOT the case. This is actually about fewer buyers getting into contract. We’ve seen close to two thousand fewer sales since May, which means listings that normally would’ve sold are still on the market. In other words, the spike in supply came from weakening demand rather than more listings hitting the market."

10 weeks is 2.5 months. "They" say that 6 months is a balanced market. But we used to be at 0.5 months. So the situation feels a lot worse than it actually is. According to that metric, it's still a seller's market. But everyone's psychology, and the way they are behaving, says it's a buyer's market. It's a mighty elephant that's scared of a teeny tiny harmless mouse. Good time to be a mouse.

Random quotes:

“The intelligent investor is a realist who sells to optimists and buys from pessimists.” - lots of pessimists out there right now trying to sell. If you read the /r/realestate subreddit, sellers are LOSING THEIR MINDS because it's been on the market for 3 days and they don't have 20 offers in-hand yet. This is their first time selling, they have zero context but what their friends/colleagues who sold in 2016 and 2021 told them, it's absolutely normal to not have 20 offers in 3 days, but they are completely unaware of that, they think the world is ending, they're pessimistic and think "it's 2008 all over again"!

“A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices.” - OK Warren Buffett, you got it.

“You make most of your money in a bear market, you just don’t realize it at the time.” - Real estate obviously isn't going to jump 20%/yr again this year, maybe that's ok, I think this is a form of the long-forgotten saying that people used to repeat all the time right here on biggerpockets, but that's fallen into disuse over the last couple years: "you make your money when you buy."

On the buy-side, everyone still thinks it's an epic 9 month journey with 15 rejected offers, bidding wars all over the place, bla bla bla, to buy a house. It's not. Right now it's more like 1) get preapproved, 2) look at 5 houses, 3) pick one, 4) buy it, and 5) keep an eye on inflation, because rates will follow inflation down like they followed it up, and you will want to refi at that point. That's it. The most drama free market (at least if you're a buyer, the story we just told includes 4 sellers frustrated with their listing agent -- but as a buyer, that's not my/your problem) I've seen in California in my limited time on this planet.

I certainly am not selling squat right now.

No crystal balls, but this is how it may pan out for those sitting on the sidelines because rates are scary:

- wait for rates to drop

- rates drop

- everything is a multiple offer situation again

- whoops
10 Reply
Scott TrenchPro Member
Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
4y
Quote from @Chris Mason:

There are a sufficient number of billionaires that say to be bullish when everyone is being bearish that they can't all be wrong.
For most of California, it's a buyer's market now. But everyone is scared to buy. Meanwhile, for sellers, the party has ended, and they're frustrated, making 'wasted' mortgage payments as it sits on the market for longer. The top appraisal blogger in the nation happens to be in Sacramento, in California, here's how he puts it in part:

"In a short period of time, we went from having three weeks of supply in the Sacramento region to ten weeks. What is causing this change? It’s easy to pin this on sellers rushing to list, but that’s NOT the case. This is actually about fewer buyers getting into contract. We’ve seen close to two thousand fewer sales since May, which means listings that normally would’ve sold are still on the market. In other words, the spike in supply came from weakening demand rather than more listings hitting the market."

10 weeks is 2.5 months. "They" say that 6 months is a balanced market. But we used to be at 0.5 months. So the situation feels a lot worse than it actually is. According to that metric, it's still a seller's market. But everyone's psychology and the way they are behaving says it's a buyer's market.
Random quotes:
“The intelligent investor is a realist who sells to optimists and buys from pessimists.” - lots of pessimists out there right now trying to sell. If you read the /r/realestate subreddit, sellers are LOSING THEIR MINDS because it's been on the market for 3 days and they don't have 20 offers in-hand yet.

“A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices.” - OK Warren Buffett, you got it.

“You make most of your money in a bear market, you just don’t realize it at the time.” - Real estate obviously isn't going to jump 20%/yr again this year, maybe that's ok.
On the buy-side, everyone still thinks it's an epic 9 month journey with 15 rejected offers, bidding wars all over the place, bla bla bla, to buy a house. It's not. Right now it's more like 1) get preapproved, 2) look at 5 houses, 3) pick one, and 4) buy it. That's it. The most drama free market (at least if you're a buyer, the story we just told includes 4 sellers frustrated with their listing agent -- but as a buyer, that's not my/your problem) I've seen in California in my limited time on this planet.
I certainly am not selling squat right now.
No crystal balls, but this is how it may pan out for those sitting on the sidelines because rates are scary:
f

I completely agree that now may be a good time to get interested in CA real estate. The state has inherent advantages as a cultural center and absolutely perfect weather. If you can live anywhere in the world and money is no object, SoCal is a great choice.

Over the last several years, government mismanagement, high taxes, politics, and perhaps specifically rampant homelessness and associated problems have led to folks leaving the state. That won’t continue forever. In its own unique way, ÇA will get their act together and be the place to be, I’d bet.
Podcast Guest on Show #223
4 Reply
Johnny Lau
Investor · San Jose, CA · Member since 2015 · 89 posts · 46 votes
4y
Bought as many properties as I could locally in California during last crash, it was like shooting fish in a barrel, there was so much inventory; now it takes actual work to find a good deal. Networking and looking all over locally and out of state for next deals.
2 Reply
Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
4y
Quote from @Scott Trench:

Quote from @Chris Mason:

There are a sufficient number of billionaires that say to be bullish when everyone is being bearish that they can't all be wrong.

I completely agree that now may be a good time to get interested in CA real estate. The state has inherent advantages as a cultural center and absolutely perfect weather. If you can live anywhere in the world and money is no object, SoCal is a great choice.

Over the last several years, government mismanagement, high taxes, politics, and perhaps specifically rampant homelessness and associated problems have led to folks leaving the state. That won’t continue forever. In its own unique way, ÇA will get their act together and be the place to be, I’d bet.

There's always lots of people moving to and from California, March 2020 seems to have accelerated those trends. Within California, there's also been an exodus underway from urban cores to suburbs. We've seen this broad pattern before, nationwide, it takes a decade or more to pan out, and each time everyone scratches their heads and accts like we've never seen anything like this before (often times there is some unique, event or cultural shift, that comes along and "tips the scale" this way or that, which I think is about the only thing unique to each one):

- urban core deemed more desirable (1920s, 1940s, 1960s, 1990s-2020[?])

- higher income people move to urban core

- people previously in urban core displaced, move to suburbs

- suburbs see dis-investment, decline

- urban cores see investment, improvements, gentrification, all that

And then sometimes it goes the other direction, which is what it looks like we may be a couple years into right now:

- suburbs deemed more desirable (1950s, 1980s, 2020[?]-[?])

- higher income people move to suburbs

- people previously in suburbs displaced (perhaps the very same people that were just displaced last cycle), forced to move to urban core

- urban core sees dis-investment, decline

- suburbs see investment, improvements, gentrification, all that

If I were a sociologist, developing a "general theory" of these cycles might be something on the to-do list. Maybe it's as simple as kids having an innate desire to rebel against their parents, and whatever "event" or "cultural shift" comes a long when they are late 20somethings or 30somethings, they just latch onto that event/shift as the "why," and use it to go find some scenery to live in that's opposite whatever they grew up in.
1 Reply
Max Emory
OP
Accountant · 100% Remote · Member since 2019 · 497 posts · 216 votes
4y
@Scott Trench, @Chris Mason, @Johnny Lau, @Deanna B., your perspectives and experience are invaluable. Thank you for sharing within this thread!
2 Reply
Tyler Solomon
Lender · Austin, TX · Member since 2022 · 223 posts · 244 votes
4y
Quote from @Chris Mason:

There are a sufficient number of billionaires that say to be bullish when everyone is being bearish that they can't all be wrong.

For most of California (I simply can't comment either way on the rest of the country, so I'm limiting my commentary to what I know), it's a buyer's market now. But everyone is scared to buy. Meanwhile, for sellers, the party has ended, and they're frustrated, making 'wasted' mortgage payments as it sits on the market for longer. The top appraisal blogger in the nation happens to be in Sacramento, in California, here's how he puts it in part:

"In a short period of time, we went from having three weeks of supply in the Sacramento region to ten weeks. What is causing this change? It’s easy to pin this on sellers rushing to list, but that’s NOT the case. This is actually about fewer buyers getting into contract. We’ve seen close to two thousand fewer sales since May, which means listings that normally would’ve sold are still on the market. In other words, the spike in supply came from weakening demand rather than more listings hitting the market."

10 weeks is 2.5 months. "They" say that 6 months is a balanced market. But we used to be at 0.5 months. So the situation feels a lot worse than it actually is. According to that metric, it's still a seller's market. But everyone's psychology, and the way they are behaving, says it's a buyer's market. It's a mighty elephant that's scared of a teeny tiny harmless mouse. Good time to be a mouse.

Random quotes:

“The intelligent investor is a realist who sells to optimists and buys from pessimists.” - lots of pessimists out there right now trying to sell. If you read the /r/realestate subreddit, sellers are LOSING THEIR MINDS because it's been on the market for 3 days and they don't have 20 offers in-hand yet.

“A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices.” - OK Warren Buffett, you got it.

“You make most of your money in a bear market, you just don’t realize it at the time.” - Real estate obviously isn't going to jump 20%/yr again this year, maybe that's ok, I think this is a form of the long-forgotten saying that people used to repeat all the time right here on biggerpockets, but that's fallen into disuse over the last couple years: "you make your money when you buy."

On the buy-side, everyone still thinks it's an epic 9 month journey with 15 rejected offers, bidding wars all over the place, bla bla bla, to buy a house. It's not. Right now it's more like 1) get preapproved, 2) look at 5 houses, 3) pick one, 4) buy it, and 5) keep an eye on inflation, because rates will follow inflation down like they followed it up, and you will want to refi at that point. That's it. The most drama free market (at least if you're a buyer, the story we just told includes 4 sellers frustrated with their listing agent -- but as a buyer, that's not my/your problem) I've seen in California in my limited time on this planet.

I certainly am not selling squat right now.

No crystal balls, but this is how it may pan out for those sitting on the sidelines because rates are scary:

- wait for rates to drop

- rates drop

- everything is a multiple offer situation again

- whoops

Great response here Chris. Completely agree with your take on this. Others, take a read here!
1 Reply
Wale LawalBusiness Member
Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
4y
@Max Emory
Recessions inevitably happen. It’s not a matter of if a recession will hit, but when. Some investors will become paralyzed with fear and as a result, not invest in real estate if they’re worried a recession is on the horizon. On the contrary, savvy investors will continue investing but will take several steps to recession-proof their real estate portfolio.

There are many ways a real estate investor can protect their portfolio. The first thing to do is maximize cash flow. Even if property values decline in the short-term, having strong cash flow will help investors weather any economic downturn. Increase rents to market rate if you haven’t done so already and identify any other low-cost ways to boost revenue (e.g., separately metering utilities or installing coin-operated laundry machines).

A second strategy is to reduce your debt load, if possible, and to pay down any oversized loan balances. This way, if a recession were to hit, you’ll have enough equity to weather a decline in values. Less debt will also help improve your cash flows.

All the best!
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2 Reply
Luka Milicevic
Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes
4y
This is one of the best threads on here that I've seen!
I am now focusing on surrounding areas (tertiary markets) away from the urban core. I'm doing this as it's a way to get into affordable housing which is in desperate need right now in my market...and all over the country really. I believe it to be a safe bet as more people get scared because they watch the news too much, affordable housing will be something that's in great demand.
I'm also going to be offering on properties well below asking price. Properties that are on the MLS. Most real estate agents have no clue what they are doing. Most got their license in the past 2 years and have never seen a price drop. By offering low, agents will think "The market is speaking" when in fact the house just needs to be on the market for another week and they would probably get the asking price.
I'm buying a rental next month that I was initially planning on wholetailing. I'm keeping it because the appraised value is going to be higher than what I can sell it for (Being a buyer's agent the last 2 years I feel crazy saying that)...but literally the comps around me are higher than what I could sell that house for so I'm going to refinance instead and keep it.
Overall, I'm very excited about the next year.
-30% of real estate agents are going to quit
-Buyers will have some relief and be able to choose where they want to live instead of accepting what they can get
-Finding deals is going to be easier as people will panic sell
-Stocks are cheap right now relative to their 52 week highs
There is going to be a TON of opportunity over the next year and the folks that have prepared and been patient with their capital are going to reap the rewards of these discounted assets.
2 Reply
Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
4y
Quote from @Luka Milicevic:

This is one of the best threads on here that I've seen!
I am now focusing on surrounding areas (tertiary markets) away from the urban core. I'm doing this as it's a way to get into affordable housing which is in desperate need right now in my market...and all over the country really. I believe it to be a safe bet as more people get scared because they watch the news too much, affordable housing will be something that's in great demand.
I'm also going to be offering on properties well below asking price. Properties that are on the MLS. Most real estate agents have no clue what they are doing. Most got their license in the past 2 years and have never seen a price drop. By offering low, agents will think "The market is speaking" when in fact the house just needs to be on the market for another week and they would probably get the asking price.
I'm buying a rental next month that I was initially planning on wholetailing. I'm keeping it because the appraised value is going to be higher than what I can sell it for (Being a buyer's agent the last 2 years I feel crazy saying that)...but literally the comps around me are higher than what I could sell that house for so I'm going to refinance instead and keep it.
Overall, I'm very excited about the next year.
-30% of real estate agents are going to quit
-Buyers will have some relief and be able to choose where they want to live instead of accepting what they can get
-Finding deals is going to be easier as people will panic sell
-Stocks are cheap right now relative to their 52 week highs
There is going to be a TON of opportunity over the next year and the folks that have prepared and been patient with their capital are going to reap the rewards of these discounted assets.

I'll just go ahead and regurgitate more "old stuff" that we used to see all the time on bigger pockets years ago.

- You mentioned finding the noob realtor who doesn't know what they are doing. Yes, find that noob listing agent. Your state has a space where you can look up someone's license. Here's California's so everyone has an idea of what to look for. The "COVID vintage" realtors (loan officers too, for that matter) are going to have very little relevant experience for the market we are in, "everyone is a genius in a bull market," but we are no longer in a bull market.

- Poor marketing. Bad pictures, someone acting like it's 2021 and quick cell phone pictures with wide angles and cheesy filters is all it takes? Awesome, great news for a buyer.

- Ugly house, lack of "curb appeal." Great, less of your competing buyers will be emotionally motivated, awesome. Things that "look" bad but don't actually have anything to do with the "bones" of the house are also great.

- (The Redfins and Zillows don't always make this easy) Have your realtor send you listings for vacant and/or staged real estate, with high days on market. Pick a number like 90 or 120 DOM, looking for price drops is great too (was literally just on the phone with a dude who is buying a home listed for $1.8m for $1.6m, this isn't fiction, this isn't made up, it's what's happening now, before the CNNs and FOXs of the world have picked up on it, my person that closed earlier this week [can disclose numbers now that it's closed, too late for a seller "google searching the loan officer's name on the preapproval letter that came with the offer" to find/read this thread and have second thoughts] paid $1.15m for the SF Bay Area fourplex, the independent appraisal came in at $1.5m!). Vacant/staged means it's unused, and the 3 or 4 months on the market means they've "wasted" 3 or 4 mortgage payments on a "house I'm not even living in any more!" - note that some of these sellers will be "motivated" by this point, others will simply dig their heels in and refuse to see reason. That's fine, your fishing line can only hold one fish at a time anyways, if someone has their heels dug in, simply don't buy that house. In nearly all cases, >90 DOM means someone is pissed off at their realtor, and trusting them less, but stuck in a 6+ month contract, a lot of them will be "sick of it" and "just ready to be done with this house," and that's where you come in. If the zillows and redfins do start to make it easy to get DOM notifications (someone may be reading this thread months in the future), say they have or introduce a dropdown for 90 and 120 days exactly, cool, then have your realtor send you them at the 80 and 110 day mark to edge those folks out a little, and put a deadline on your offer so that the seller has to make a yes/no decision before your competing buyers get those 90 or 120 day notifications.

"-30% of real estate agents are going to quit" - lots of huge mortgage companies have already laid off >20% of their staff. Woot woot, the great culling is well underway, should be good news for those of us left on the other side.

3 Reply
Tom McDermott
New to Real Estate · Littleton, CO · Member since 2021 · 19 posts · 16 votes
4y
I am just starting but I am laying the ground work in preparation for the correction. Strategic patience for the right opportunity at the right time combined with being ready to move quickly. "profit is made at the purchase, not the sale". I look forward to putting that to the test!
2 Reply
Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
4y
Buying property in good locations with prudent debt that the masses can afford works in most all cycles. I am putting my money where my mouth is and building high density lodging that supports short, medium, and long term stays that is tech enabled, convenient, affordable to the masses, and centrally located in growing markets. Hopefully, the recession will reduce labor and materials costs but the business model is not dependent on it...it's dependent on the first sentence. My primary opportunity cost could be the stock market as rising rates and costs could provide stock buying opportunities over the next year.
4 Reply
Eric Bilderback
Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes
4y
Buy real estate that cash flows in solid areas, fill it up with good tenants, long term fixed solid debt, and take care of it. Let the Fed do the rest.
4 Reply
Marcus Auerbach
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
4y
A lot of people draw the conclusion recession means lower home prices, which is historically incorrect. Home prices usually go up or at worst sideway during recessions. 2008 is on everyone's mind, but it was not a recession that caused home prices to go down, in fact it was the mortgage melt down that eventually spiraled into a recession.
It is not very likely that we are going to see a reduction in home prices, at least not across the board or more than a few percent. Nor are we going to see a reduction in labor or material costs. We have now two quarters with negative GDP, which technically makes it a recession, but the labor market is more than strong. So there is no reason for a housing sell-off causing prices to go down.
The historic opportunity I see is inflation. It does not discriminate, inflation does not care of your dollars are savings or debt, it erodes both the same way. This is not an argument to over-leverage, but it makes sense to look at investments through this lense, knowing that the dollars you you to pay for it today will be worth less tomorrow (or in 3 years).
1 Reply
Ricardo Hidalgo
Real Estate Agent · Member since 2019 · 569 posts · 257 votes
4y
Quote from @Max Emory:

It's cliché, but true. A lot of millionaires are made during recessions.

No matter what you invest in there are and will always be golden opportunities to take advantage of during every recession. For me, it's real estate and a few other ventures. For you, it may be crypto/stocks/businesses/real estate/etc.

How are you preparing to come out of this recession 10X wealthier than you are right now to be able to take your family and circle to the next level?

Do what most other people are not doing. This is the time to find that opportunity and double down.

What are you strategizing to execute during this "recession"?
Continue to flip and build to turn profits every 3-6 months. If the margins are too low to sell then I will hold for 2 years and start to DCA every 3 months with a new property to 1031 exchange in the future to allocate for bigger projects tax free. Rental income will be used to buy more properties and I may allocate 70% of my income into real estate property to accumulate quickly before we start to rise in the next 3-5 years which could bring a 2-3x return in our area.
1 Reply
Jonathan R.
Investor · Wichita, KS · Member since 2017 · 584 posts · 813 votes
4y
Not changing jobs. Not taking on too many rehabs at once, instead selling if I’m a bit nervous because the market is still hot to make sure I have enough cash for rehabs and reserves. Waiting for there to be actual deals, like when I could get people to almost give me their houses because they were such a burden. Then pouncing.
2 Reply
Steven Foster Wilson
Rental Property Investor · Columbus, OH · Member since 2017 · 3k+ posts · 3k+ votes
4y
Quote from @Max Emory:

It's cliché, but true. A lot of millionaires are made during recessions.

No matter what you invest in there are and will always be golden opportunities to take advantage of during every recession. For me, it's real estate and a few other ventures. For you, it may be crypto/stocks/businesses/real estate/etc.

How are you preparing to come out of this recession 10X wealthier than you are right now to be able to take your family and circle to the next level?

Do what most other people are not doing. This is the time to find that opportunity and double down.

What are you strategizing to execute during this "recession"?

One thing I have started to focus more on is the cash flowing heavy rentals. I am still finding great deals and making them happen, I have not changed too much of my strategy other than focusing on the cash flow like I said. I want to stay steady and consistent.
1 Reply
Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
4y
@Marcus Auerbach I follow, agree with, and enjoy your feedback on the forums.

Materials costs are down significantly in 2022 due to rising rates and the large drop in new home sales. Lumber is piling up at sawmills and home improvement stores. The labor market has been strong and has a long way to go before getting stressed but it's moving that direction with hiring freezes and layoffs. Two large non-prime public consumer lenders communicated earnings this week and reported credit losses and delinquency rates well above pre-pandemic levels. That's the canary in the coal mine...the talk about a technical recession is just noise, we're there. The open question is going to be the depth and magnitude...and the impact of stagflation.

I will leave what this means to the housing market to the experts. I am making my largest investment to date; so, I'm still moving forward based on opportunity.
3 Reply
Marcus Auerbach
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
4y
@Mike Dymski - likewise! What you point out makes sense to me; consumer lenders cater to the demographic segment that has zero disposable income and is all the sudden facing higher prices for gas, groceries and rent! And if it is the choice between food for the kids and making the monthly payment for the couch they have financed, the children win every time.

This is part of the one thing that concerns me the most about the future of our country, to the extend that I worry about society as we know it breaking apart: the wealth gap and the social tensions it creates. There is a breaking point. Covid has accelerated the wealth divide; most of the stimulus money ended up in the pockets of the wealthy (even if it was first spent by the poor on disposable items).

Then home prices started going up, creating huge amounts of equity for home owners (and investors), while renters got the short end. And now this already struggling part of the population gets hit by the next blow: inflation. And again, the (leveraged) wealthy benefit from it, while relatively untouched by a couple hundred dollars more for gas and food.

Where do you think defaulting consumer loans will lead us? First it will destroy their credit, so they loose the ability to buy a home. If they own one and they can't make the payments, they can probably sell their house with some proceeds to avoid foreclosure, but now have to rent at higher cost. I see this impacting other parts of the economy, and increase in homelessness, but not really the real estate market.
1 Reply
Scott Mac
Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
4y
Quote from @Marcus Auerbach:

... the wealth gap and the social tensions it creates....most of the stimulus money ended up in the pockets of the wealthy (even if it was first spent by the poor on disposable items).

... And now this already struggling part of the population gets hit by the next blow: inflation. And again, the (leveraged) wealthy benefit from it, while relatively untouched by a couple hundred dollars more for gas and food.

There is a wealth gap, I'm not sure it's creating (very much) ((social)) tension.

I'm guessing the middle earners (because they really are not Middle Class by American standards of a few decades ago), W2 Wage slaves living paycheck to paycheck, more resent the people on Welfare who they work to support,than the wealthy--who they have almost zero contact with, other than in certain service jobs.

Culturally there seems to be a bigger divide between the welfare's and the W2's than between Welafare's or the W2's and the High Income/High Net Worth individuals, who also use mortgages and make payments on cars and furniture.

Just more expensive homes, cars and furniture than your standard paycheck to paycheck W2 Wage Slave.

I think the divide is between the Welfare Class and the so-called Middle class who supports them with their IRS tax payments.

But in reality I think there is not much animosity between any groups, that is not stirred up by the media.

Most people treat me decently, no matter what their group--and I do my best to treat them decently as well.

Of course there will always be those who are jealous, or Hate for other reasons, but most people have it pretty good as far as getting what they want.

And there is no way to fix jealousy or Hatred--it's been with us since time forever.

As far as the W2's and the welfare's, there needs are met, and no one is standing in their way of getting more other than their own inability to motivate themselves to do more to get more.

The one's who get the bad end of the stick ore the Homeless People--that's a tough life, poor devils.

Just My 2 Cents.

2 Reply

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