What if there is no housing "recovery"?

Investor Mindset
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What if there is no housing "recovery"?

Timothy W.
Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes

One of the things I always try to be conscientious to is herd mentality. Recognition of herd mentality and the pure luck of a well timed divorce kept me from investing in real estate in 2007 and waiting until 2008 when I could get property at 20% of 2007 prices. Recognition of herd mentality also pushed me to start flipping a rental here and there in the past couple years when post sub prime fallout out, everyone thought the answer was in buying steady, secure, cash flowing rental properties rather than flipping.

There's a new herd mentality and you can see it by reading what the majority of posts assume here and any other place on real estate investing is discussed. It's the assumption of recovery. Just like everyone assumed in 2006 that every flip could be profitable (look in the old posts on here - it's in there) everyone is assuming that these new lows in real estate pricing are just waiting for a market correction to bring them back up. That may be true but it's to the point now that your barber can tell you REOs are a good investment. When your barber can give you just as good investment advice as a financial professional that's not a good thing.

What if things don't change? What if these prices are the new norm for real estate? Are you mentally ready for that? Is your business ready for that? What are you doing to be ready for the chance that the herd mentality is wrong? What's your attitude, plan and strategy going to be?

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J ScottPro Member
Moderator
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
16y

Historically, Real Estate has provided gains pretty much equivalent to pure inflation, though not along the same curve. Given the scarcity and the integrity of the underlying asset involved (land), this will most likely continue forever (in many economist's opinions).

For a long time (the past 50 years or so, inflation adjusted home prices diverged significantly from nominal prices, but in the past 25 years, the curves have started to converge, and are now pretty much aligned:

http://mysite.verizon.net/vzeqrguz/housingbubble/

In my opinion, if you believe inflation is a given over the long-term, then you should assume that real estate will appreciate over the long-term. If you believe deflation will reign over the long-term, then you should assume that real estate will depreciate from here.

As for what I'm doing, I'm just doing whatever is profitable in today's market. Currently, that's a focus on rehabbing and flipping lower-end SFHs to first-time FHA buyers. I also have some cash invested in a couple big apartment complexes, in the case the rental market rebounds. And I'm always looking for good commercial deals. In other words, diversification on a small scale (actually, within a small market space), with a cash and effort focus on the strategies that are working today.

If tomorrow there is a more lucrative investment strategy, I'll move my focus in that direction, while still maintaining some diversification.

Or, if MIkeOH's predictions come true, we'll retire, move the family to another country and sit on a beach until we die or get bored again...

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  • Eddie Ziv
    Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
    16y

    I'm going back to my "day job" on February 16. I will start working on the second season of "JONAS", Disney Channel's series with the Jonas Brothers.

    0Reply
  • Kenneth Johnson
    Real Estate Investor · Fremont, CA · Member since 2010 · 68 posts · 19 votes
    16y
    Originally posted by Eddie Ziv:
    I'm going back to my "day job" on February 16. I will start working on the second season of "JONAS", Disney Channel's series with the Jonas Brothers.

    Wow, are you pictured with Hulk Hogan?

    0Reply
  • Timothy W.
    OP
    Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes
    16y

    "If you are saying will RE prices ever make it back to 2004 level? My answer to you is "Why worry?" "

    No one's worried. We're talking about planning here. Real planning requires formulating a strategy to face bad scenarios.


    "Better yet you'd better check your 401K which is supposed to be the answer to the fact that maybe Social Security might fail is bleak."

    I don't know. I haven't had a 401k in at least 5 years. A 401k never struck me as an income stream - more as something that took income out of my stream and gave it to someone else to play with.


    "Also did you know that more millionaires and billionaires were created in The Great Depression that in any other period in US history?"

    "Millionaires" have stopped impressing me. I've known too many who can't afford a tank of gas. I don't know about billionaires. Perhaps I just don't frequent where they do. I mean think about what being valued based on an appraisal means. What does that really, truly mean? You could be like Trump who would have made more money in the long run by putting his dad's wealth in a money market account. Valuation really doesn't really mean anything - which kind of goes back to the point of what a "recovery" really is. It's just a recovery of perception. That's not financial stability. That's a popularity contest.

    What I do know is about people living in paid off homes, cars with a combination of paid off rental property, bars, patent royalties and online businesses bringing in more money than they spend each month. This is more of what I was leading too, something that doesn't rely on the real estate market that's making you money each month.

    Personally, it's insurance adjusting for me. Lot of money in that at the level I'm dealing with. I need something else though and I'd like it to be either online or related to agriculture - been looking into the game bird business. Game bird seem to thrive when all other hunting operations are seen as cruel. We'll see.

    0Reply
  • Eddie Ziv
    Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
    16y
    Originally posted by Kenneth Johnson:
    Originally posted by Eddie Ziv:
    I'm going back to my "day job" on February 16. I will start working on the second season of "JONAS", Disney Channel's series with the Jonas Brothers.

    Wow, are you pictured with Hulk Hogan?


    Yap. Worked on a movie with him in St. Pete FL. Some years ago. :wink:
    0Reply
  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    16y

    I usually stay away from the political threads as I just don't enjoy them but I will have to say this:
    I agree with Tim on this notion - Worrying about something you have no control over is futile. "Planning" is a whole different story.

    I personally believe that the sky is not falling and we will at some point have recovery. When that is I don't know and don't really care at this point. I am killing the RE market right now in one of the worst recessions we have ever had. When recovery hits, I should be semi-retired.

    Podcast Guest on Show #130
    1Reply
  • Rich Weese
    Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
    16y

    Tim- Good question! I had to stop and think about where my income does come from. The majority comes from rents. I have some that comes from notes, but most of those are backed by real estate.
    I bought quite a bit of gold and silver. I could create income if I needed it by selling a portion each year.
    There is another way I'll share in a separate post, where it won't be buried in the bottom of this thread.
    I do have an investment in a start up company. Don't know if the stock will be worth anything, when it finally becomes unrestricted, and I'm able to sell it. Rich

    1Reply
  • Shaun Steckler
    Foreclosure Specialist · Lafayette, LA · Member since 2009 · 68 posts · 31 votes
    16y

    Obviously economic conditions affect our real estate businesses. Our industry is closely tied to the job market.

    But savvy property investors are great at adapting their business models to take advantage of current market conditions.

    When the money dried up for retail buyers, the investment risk that goes along with flipping houses increased substantially.

    This still doesn't mean you can't make good money in this business. It just means you have to become more adaptable.

    0Reply
  • Richard Warren
    Real Estate Investor · Las Vegas, NV · Member since 2008 · 1k+ posts · 447 votes
    16y
    Originally posted by Tim Wieneke:
    I'm curious how many people here have any income stream that doesn't involve real estate. I know a couple buy gold...though that seems more of a hedge than an actual income stream. How many of you have something else operating?

    I have multiple income streams, some large and some small. I had eight different streams of income but my wife has been unemployed for 1½ years (she hates being referred to as an income stream). Of the seven remaining streams, three are related to real estate. Having diversified sources of income keeps me from panicking if something happens to one of them.

    :cool:

    4Reply
  • Account Closed
    OR · Member since 2008 · 1k+ posts · 845 votes
    16y

    (shrug) The economy goes up, it goes down, it goes up, it goes down. Rinse and repeat throughout history.

    Real estate goes up, it goes down. It goes up, it goes down......

    Real estate will recover, by which I mean that the people who can afford a house will start buying again. The market will stabilize and find it's natural level, and we can all go about our business.

    Will prices ever again reach what they were at the top of the bubble? Perhaps not. Many bubbles have never ever again reached the heights: silver when the Hunt brothers tried to corner the market, chinchillas, llamas, tulip bulbs.

    With superheated inflation (which is not out of the possibility), prices will reach and exceed the top bubble prices, but it will be due to loss of purchase power.

    The economy normalizing is all I want, and it will.

    0Reply
  • Timothy W.
    OP
    Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes
    16y
    Originally posted by Richard Warren:
    I have multiple income streams, some large and some small. I had eight different streams of income but my wife has been unemployed for 1½ years (she hates being referred to as an income stream). Of the seven remaining streams, three are related to real estate. Having diversified sources of income keeps me from panicking if something happens to one of them.


    I imagine that once you develop one income stream to the point it supports you, the temptation to "quit" there with all eggs in one basket is pretty strong..... Much respect to you for developing multiple streams.

    BTW - I have told my girlfriend she needs to finish school so she can be a good I.P.W. (income producing wife :wink: )

    1Reply
  • Mark N.A
    Real Estate Investor · North Carolina · Member since 2008 · 1k+ posts · 483 votes
    16y

    For me as an entrepreneur multiple streams of income just seems like sensible diversification.

    Aside from RE, my oldest stream of income is from freelance writing. When the economy's good I do videos, brochures, magazine articles, and so forth. When the economy's in the crapper I ramp up with high-dollar resumes.

    0Reply
  • Eddie Ziv
    Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
    16y
    Originally posted by Tim Wieneke:

    BTW - I have told my girlfriend she needs to finish school so she can be a good I.P.W. (income producing wife :wink: )


    It doesn't work that way Tim. You have to make her W before she becomes IPW.... :mrgreen:
    0Reply
  • Eddie Ziv
    Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
    16y

    The Real Estate market will recover, period! It may not be tomorrow and it may not return to the level it was before the burst, but it will recover well. People are now talking about the possibility of duplicating the Japanese lost decade. I seriously dubt it. We are not Japanese. American love the good life. They will always strive for better and richer lives. People may clutch their fists for a while and not spend, but eventually, they will. Once that happen, the demand for housing will go up as well.

    0Reply
  • Scott R.
    Real Estate Investor · Amarillo, TX · Member since 2008 · 547 posts · 214 votes
    16y
    Originally posted by Eddie Ziv:
    I'm going back to my "day job" on February 16. I will start working on the second season of "JONAS", Disney Channel's series with the Jonas Brothers.


    Good thing my little sister im out in AZ visiting is sitting on the other side of the room when I read that.. lol she said the forum was boring and went to watch tv.. otherwise she'd probablly be trying to call you right now. lol
    -Scott
    0Reply
  • Timothy W.
    OP
    Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes
    16y
    Originally posted by Eddie Ziv:
    The Real Estate market will recover, period!

    Will any of us live to see it?

    0Reply
  • Eddie Ziv
    Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
    16y

    Tim, you never struck me as a pessimist. Unless you are like MikeOH who are stacking his air-sealed bunker with food water and ammo right now, I don't see a reason for such great pessimism. We passed 1984 despite Orwell, we were drunk on optimism when the year 2000 came thinking that the world is coming together - we became sober of that too. I'm sure we will survive the Mayan's 2012. No one can predict the future. We can only extrapolate and based on the past, the future doesn't seem so bleak.

    3Reply
  • Eddie Ziv
    Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
    16y

    Oh and one more thing. You are at least 15 years younger than I am. You have much better chance to see the return of the RE market than I have

    0Reply
  • Kenneth Johnson
    Real Estate Investor · Fremont, CA · Member since 2010 · 68 posts · 19 votes
    16y
    Originally posted by Tim Wieneke:
    Originally posted by Eddie Ziv:
    The Real Estate market will recover, period!


    Will any of us live to see it?

    Not me I was born old according to my dad. My wife says I'm older than dirt. I think my dad's opinion may be true but he's in heaven before me and I discount my wife's opinion.
    I was the oldest of four children and went to work in a steel mill when I was 15 yeras old. I'm a baby boomer born in 1946. My dad came home from the war with a real desire to tell my mom how much he missed her. If I am still kicking Tim I give you a call and we can talk about the recovery, but you'll probably have to talk real loud.
    Love Ken


    0Reply
  • Demos Loizides
    Real Estate Investor · Dale City, VA · Member since 2008 · 317 posts · 77 votes
    16y

    Every industry has a small percentage of the mega successful people and a lot of people who aren't. Decide which you want to be and keep tweaking your systems.

    0Reply
  • Michael Rossi
    Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
    16y

    Wake up Eddie. This doesn't have anything to do with the Mayan Calendar, 2012, 1984, or any other end of the world nonsense. What is does have to do with is the extreme debt the US is accumulating; the transfer of our jobs overseas; the move toward socialism; the takeover of the banking system and many private industries by the federal government; the desire of the governent to control every aspect of our lives, etc. Our country and our economy is simply NOT sustainable. It's common sense.

    0Reply
  • Timothy W.
    OP
    Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes
    16y
    Originally posted by Eddie Ziv:
    Tim, you never struck me as a pessimist.


    Hardly pessimistic (I don't need the recovery to make money) but certainly very pragmatic. I've yet to see one person show me a single shred of conclusive evidence that a recovery is imminent. Regional recoveries based on market demand sure - for example Branson. An overall "recovery"....I don't buy it. We're in for another bubble but it's not going to be real estate.
    0Reply
  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    16y
    I don't think anybody will either Tim because they can't. NOBODY has a crystal ball and nobody can say that recovery is imminent, however, IF history has taught us anything, it is that there will be many recessions and recoveries to follow. I don't see this one any different. I do agree that things wil be getting much worse before they can get better.
    Podcast Guest on Show #130
    0Reply
  • Scott Nachatilo
    Real Estate Investor · Oklahoma City, OK · Member since 2009 · 86 posts · 39 votes
    16y

    Very good posting and replies.
    It took the housing market of the early 2000's for me to decide to quit my day job to flip properties for cash. My decision to quit my job was a more important result than the money.
    It took the change in the market to reinforce my belief in buy and hold.
    It doesn't take a rocket scientist to see the wisdom in a combination of the two as a winner in any market any time anywhere.

    0Reply
  • Eddie Ziv
    Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
    16y
    Originally posted by MikeOH:
    Wake up Eddie. This doesn't have anything to do with the Mayan Calendar, 2012, 1984, or any other end of the world nonsense. What is does have to do with is the extreme debt the US is accumulating; the transfer of our jobs overseas; the move toward socialism; the takeover of the banking system and many private industries by the federal government; the desire of the governent to control every aspect of our lives, etc. Our country and our economy is simply NOT sustainable. It's common sense.

    Although I do agree that the country have seen better days (Socialism or not...) I'm not ready to carry any obituaries yet. Only a year ago, we experienced the worse economic debacle since 1929 and yet the skies didn't fall. No, the recovery will not happen overnight. It took the country 12 years to recover from the great depression and now, all of a sudden, we all became a collective case of ADD (Attention deficit disorder). We want recovery and we want it now!! There is lots of economic healing to be done and change in our way of thinking.

    Traditionally, the country experienced its great innovations as the result of personal disparity. At this point the country will not only have to create innovation, but also to reinvent itself.

    0Reply
  • Timothy W.
    OP
    Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes
    16y
    Originally posted by nationwidepi:
    I don't think anybody will either Tim because they can't. NOBODY has a crystal ball and nobody can say that recovery is imminent, however, IF history has taught us anything, it is that there will be many recessions and recoveries to follow. I don't see this one any different. I do agree that things wil be getting much worse before they can get better.


    Tim's comments start here: (formatting out of whack)

    That's the thing Will. If you ask for conclusive evidence to the contrary that things are going to get worse.....that's not hard to find....jobless or cut salaries on a devalued dollar combined with the largest "stimulus" package we've ever seen spent with nothing to show for it.... I'm not pessimistic but I'm not high either. This ain't good.

    On top of that, we have the Rich Dad book no one wanted to read "Rich Dad's Prophecy" timing massive legislatively mandated sales of stock shares care of ERISA coming when the baby boomers hit 65 within the next couple years. What happens when you have more stock sellers than buyers?

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