Market crash wisdom to overcome limiting belief

11 Replies

Hello BP!

I think most would agree on three things:

1. We can’t time market cycles

2. We are currently at the top of a market cycle which means a downturn is inevitable

3. The best investors can make money regardless of what the market is doing.

So my question is this:

For you experienced investors out there, what advice can you offer a newbie buying his/her first rental property within the next 90 days as it relates to market cycles? Looking back at the last crash what did you learn? What were you happy you did correctly (prior to 2007)?

I am asking this because it is my biggest limiting belief keeping me from getting started. However, every investor I talk to says to not wait. Your help is greatly appreciated.

First, drop the 90 days from your stated goal.  Focus on the deal...not the timeline.  Focusing on the timeline will cause you to accept a poor deal (and rationalize it as a good one) as you get closer to your 90 days...without a deal yet.  This is a sure way to have any downturn impact you in a negative way.

REI isn't a race. It's not a sprint or a marathon. It's a mathematical problem, with dollar $ign$ in front of the numbers (not percentages).

If you are buying to hold long-term, a downturn will not affect you if you do the following:

1. Make sure it will at least break even with a 25% rent reduction, reasonable repair budget, etc.
2. Hold a reasonable amount of reserves in case of large repairs or vacancy

If you pick up a buy and hold today that cash flows, and then we have a terrible downturn and property values drop by 30%, the values do not matter to you. The only day that the property value matters is the day you sell it. Just go into it expecting a downturn at some point, and expect that you will just ride it through. The cost of waiting is too high to sit around and wait for it. People were telling me in 2014 to stop buying because a downturn was coming.

@Joe Villeneuve your absolutely right. The 90 day timeline came from the 90 days of intention journal I just picked up. By no means will I buy a bad deal to hit a deadline, but I just need something to shoot for to keep me moving forward. That is good advice though and I will definitely consider what you said before purchasing (am I rationalizing a bad deal to hit my deadline?).

@James Debenham this is great advice. I should have mentioned I my original post that I am looking for a SFR or small multi family to buy and hold. I have a question

Where did the 25% number come from? Just curious.

Market crash only hurts those who sell. So if the market crashes, simply dont sell.

Market crashes are also incredibly rare. There was roughly 80 years in between the last 2 crashes.

Originally posted by @Michael Fucillo :

@James Debenham this is great advice. I should have mentioned I my original post that I am looking for a SFR or small multi family to buy and hold. I have a question

Where did the 25% number come from? Just curious.

Oh, it's just a rule of thumb I use to run a stress test of what my numbers would look like if rents dropped. While not impossible, it would be extremely rare for rents to drop by more than that amount and stay that low. 

Depends on how resilient your market is, too. Rents in the market I was in (Salt Lake City) went up during the last recession as there were more renters. In my current market (Grand Rapids), rents and vacancy were hit hard in the recession but have since skyrocketed. 

 

Originally posted by @Russell Brazil :

Market crash only hurts those who sell. So if the market crashes, simply dont sell.

Market crashes are also incredibly rare. There was roughly 80 years in between the last 2 crashes. 

Morning Russell,   that's kind of what I have been thinking lately a normal recession and we always have them can be pretty short lived.  

In my mind the risk to rental real estate is where your tenants work..  loss of JOb is the risk to the tenant base.. Not that the property has a gone down..  Also declining populations were you have net out migration this can cause surplus of rentals and rents to drop and stay down. 

So I guess choose wisely is the operative thought at least to where U do buy your rental. 

 

@Michael Fucillo

If you are buying with 30 year fixed rate debt at a low interest, in an area with a diverse job market and growing what risk could there be? Maybe a a 10 percent drops in rent but if your margins can't handle that then its not the right deal.

You should always be buying, just not over leveraging and make sure you buy right. This is not a time to go for broke but buying your first property now will give you the knowledge to go for it all when necessary.

Originally posted by @Michael Fucillo :

@Joe Villeneuve your absolutely right. The 90 day timeline came from the 90 days of intention journal I just picked up. By no means will I buy a bad deal to hit a deadline, but I just need something to shoot for to keep me moving forward. That is good advice though and I will definitely consider what you said before purchasing (am I rationalizing a bad deal to hit my deadline?).

If you want something to shoot for to help you move forward, frame a number...a large one, with a dollar sign on your wall.