If the housing market drops .... strategy

23 Replies

In general there is a lot of speculation that the housing market prices are going to drop.... at least in California, it does feel that way I see home sales slowing down, prices haven’t really dropped a lot but it definitely slows....

What advice do you have.... what signs can we look for to know that the market is dropping & what strategy is best to get those great deals...

Thanks BP

Most obvious sign that the economy has dropped? ...all the "experts" that were predicting it for the last 10-12 years will be pointing to the drop and saying, "I was right...see I told you so"...completely ignoring the facts that they were wrong the previous 10-12 years.

Suggestions when it "does eventually" happen?... keep doing what you're doing.  Good deals are good deals...in any economy.

@Joe Villeneuve

A good deal is a good deal....

I’m tryna keep my eyes open so I don’t miss out on the opportunity when it does drop there are going to be great deals..

From your experience does it become harder to get loans during a down turn or are the sellers/buyers just frantic which causes prices to drop

Originally posted by @Habbak Burs :

@Joe Villeneuve

A good deal is a good deal....

I’m tryna keep my eyes open so I don’t miss out on the opportunity when it does drop there are going to be great deals..

From your experience does it become harder to get loans during a down turn or are the sellers/buyers just frantic which causes prices to drop

 The answer is the same as it was for the original question.  "A good deal is a good deal".

Lenders don't loan you money...they "rent" it to you...for a fee (interest).  That's their business.  Just because the economy goes down, doesn't mean they're out of business.  It just means that qualification to rent their money, and the terms they give, are impacted.  They are still looking for the same thing you are...a good deal.

I think some of the responses are oversimplified, when the market adjusts, each individual investor needs to adjust with it. By adjust, I mean your strategies, your underwriting, and perhaps your market if need be. It does not mean your business stops, it simply means you need to adjust based on what has changed. If you are flipping, you definitely need to adjust your underwriting and perhaps the specifics inside your business model to function at a profit in a downturn.

@Habbak Burs

Downturns are when the most money can be made as you can pick up properties cheap, hold on to them, rent them out and when the market picks up you have a ton of equity so you can sell at a profit or pull the money out via refi to pick up more.

Right now everything is at peak prices, but a basic rule of real estate economics is that we go on a 10-12 year cycle. In 2008 we crashed but the last few years we’ve been in a sellers market cause the prices have been so high.

There’s money in every market but you need to adjust strategy accordingly. If you aren’t finding any deals it just means you don’t understand the market you’re in so keep up the research.

Originally posted by @Will Barnard :

I think some of the responses are oversimplified, when the market adjusts, each individual investor needs to adjust with it. By adjust, I mean your strategies, your underwriting, and perhaps your market if need be. It does not mean your business stops, it simply means you need to adjust based on what has changed. If you are flipping, you definitely need to adjust your underwriting and perhaps the specifics inside your business model to function at a profit in a downturn.

I agree...kind of. I say "kind of" because the REI should be doing all of this anyway. None of this should change just because the economy tanks. If they aren't doing all of these things when the economy is good, they aren't finding good deals in the first place. They shouldn't start doing all of these things just because the economy went "south".

i notice a trend with these types of topics . It always seems to be folks on the west coast worried about the “!impending recession “ Seems I never see investors from Ohio Pennsylvania or Michigan post these threads . That tells me There’s something to be said for buying on cashflow and not just appreciation .

Originally posted by @Dennis M. :

i notice a trend with these types of topics . It always seems to be folks on the west coast worried about the “!impending recession “ Seems I never see investors from Ohio Pennsylvania or Michigan post these threads . That tells me There’s something to be said for buying on cashflow and not just appreciation .

 What is this appreciation this you mentioned? ;-)

We do not see the pull backs or insane west coast appreciation up here but we had a guy @ a BBQ last night tell us that after some major rehab he doubled his money on his 1st house & bet none of us have done that. I didn't have the heart to tell him (my wife kicked me under the table) that we have done that many times after we buy a foreclosure or tax lien property & re-sell it 'as is' to an investor, (sometimes holding the note at the higher price @ 12-14%). Our indication of a recession or pull back is the increasing number of properties listed for foreclosure or tax lien auction.

You need a bunch of a cash then look for under value properties when the time comes which may or may not happen. I think everyone thinks it will be the Big Short 2.0.  I really don't think that will happen I would be shocked.  

@Dennis M. I could not agree with you more. Are my quads that I paid $230,000 and $247,500 for really going to be worth that much less when a recession hits? I cash flow $1,500 on each of them. I think any investor would buy them from be regardless if we are in a recession or not.

@Habbak Burs

Make sure you have some cash ready for the eventual rainy day. 

Keep in mind, however, that states like California and New York have high taxes and aggressive tenant laws. These don't disappear in a recession. The drop that makes a 'deal' in these markets has to be larger as a percentage of the property than in other markets. I would happily buy a 20% drop in Indiana over a 30% drop in NY.

@Trevor Ewen

Awesome tips!!!

Just wanted to get different pointers, I’m currently investing in TX with 1 unit and looking for more. I live in CA now so looking at the market here just to see if it’s worth investing & trying to prepare if it does drop then the buy and hold strategy seems to be best.

Thanks for all the advice

Heh, "buy low, sell high."  Anyone can tell you that!

If we could predict the economy, we would either be loading up on property or shorting the market, depending on which way the crystal ball points.  People make money regardless of boom or bust.  They key is to be in the position to first hold on and second take advantage of opportunities.

I was in "hold on" mode from 2008 - 2011.  Next time around (who knows when that will be?), I hope to be more in the "take advantage of opportunities" mode.  How did I get there?  Paid down a lot of debt and built up cash reserves.  Meanwhile, cautious, continued acquisition is the standard operating procedure.

P.S.  You'll know when the market is dropping based on how much interaction you have with the market.  You should be scouting deals daily and that will provide you the necessary feedback.  Don't wait to see it on CNN or Facebook.  By then, everyone who has been paying attention will already be fully engaged and/or have scooped up the best deals.

Originally posted by @Habbak Burs :

In general there is a lot of speculation that the housing market prices are going to drop.... at least in California, it does feel that way I see home sales slowing down, prices haven’t really dropped a lot but it definitely slows....

What advice do you have.... what signs can we look for to know that the market is dropping & what strategy is best to get those great deals...

Thanks BP

Fundamentally prices of anything come down to supply and demand. Job loss is one major way that housing supply is increased in a given market. When people lose jobs, they either can't afford their current home or need to move to a different location for work. Either way they end up selling and the more people selling versus buying, the more downward pressure on price. Usually prices are first to fall on higher priced properties, because "downsizing" will generate demand for lower priced properties. The other thing that increases supply is new construction. This very much depends on supply of buildable land. In California land is in low supply, so you see most the house value is held in the land. In the Midwest there is ample land, so the price of new construction is what drives housing costs. Overbuilding caused much of the bubble back in 2008.

As the economy cools, we are likely to see a drop in interest rates. This will help stimulate housing. Recession does not equal housing crash. Even poor stock market performance is just likely to drive even more people into real estate, so that will just create more demand. 

With so many people sitting on the sidelines with cash, any pull back will be met with investors swarming to prop back up the market. This all leads me to conclude that people waiting for a crash, will never see one. 

@Austin Gainey

My opinion is .... if it makes sense do it...

If the numbers line up and your time frame to fix and flip works go for it..... if you have a specific situation in your market that indicates you should wait then wait but I am not familiar with that market.

One way to help protect is have multiple options for exit so let’s say you try to flip and it doesn’t sell due to any reason would your deal work as a rental or vacation rental...

It’s good to have a couple other ways out just in case.

Good Luck!!!

Strategy if market flops:  A) wait for panic to peak, Hit the clearance rack. Buy as many properties as you can on owner contracts (preferably), or with cash if necessary. Once broke head to Mexico and load up on Margaritas until sale ends. Come back and get to work rehabbing.

B) Chill out (the out of cash option)

Basically enjoy life because using the principles on this web site, you made wise BRRRRR purchases and no longer have anything left in them. Cash flow is huge and every day is a cause for celebration and a great appreciation for a financially free lifestyle.

Shawn Coverdell

Homes in the hood