How would the Stock Market crash have an effect on RE Investors?

Question

Should I invest in Southern CA Properties during the stock market crash or NOT??

Aaron Knoll · Answer

I've only been through two cycles before, but here's what I've observed last time:

After a crash, it takes up to a year for people to lose jobs.

After job loss, it takes up to another year for them to fail to sell homes and start to default.

After defaulting, it takes another year for the bank to foreclose and auction off your home.

It's not like property values tanked immediately in 2008: it's just that no one was buying and no one was selling because no one could get a mortgage. It took until 2011 when foreclosures were flooding America for the MLS prices to start to come down.

Before we get hasty, this may not be the "big crash" everyone's been waiting for. Yes, everyone knows stocks are overvalued and China is having trouble. But the US is (currently) the lone bright spot in the world economy (aside from places like Switzerland), and we're still recovering from the last recession...

That said, a foreclosure is a foreclosure. If you can get a good deal in CA, numbers work and vacancy isn't a huge risk, go for it regardless of what the stock market is doing.

Hersh M. · Answer

@Simon Elwardany

Recently I am hearing that there is a huge influx of investors from China buying properties in major cities with all cash! Many of these homes are more than a million dollars. Has such a thing ever happened before? The crash in Chinese markets will surely impact that cash flow, though I dont know what would be the long term impact. Will they start selling their all cash homes here to repay debt back home? Will the buying slow down? Thats just 1 facet of many in our complicated economy.

Also I dont think USA has seen zero interest rate policy (The ZIRP!) after the FED was created, right? We are in exciting uncharted territory.

Steve Marshall · Answer

I think this small correction highlights exactly why REI makes sense.  A 3/2 in NW florida, purchased below market value and renting with a $100-200/mo cash flow is not going to crash like the stock market can (is?)  If you invested in the stock market a couple months ago, you've lost 10%.  You had no control.  Sure, you can do your DD and pick stocks using all available information, but in reality, unless you have access to information that no one else has, you're probably not going to beat the market.

REI is different...you can pick and choose your deals, buy below market, add value, put sweat equity into property.  Plus you have tax advantages...  If you don't buy into a super-hot market and bet on appreciation...REI is relatively safe.

This is why I pulled most of my money out of the stock market a few months ago...  I'll probably put it back in at some point, but right now...Real Estate (bought correctly) is a much better investment in my opinion.

David Roberts · Answer

i don't like that our markets are so sensitive to global stupidity.   Sure its always been a part, but technology has really made everybody on the globe a click away.  That,  the government feeling they need to meddle in every situation,  computers trading,  all makes for drastic moves in the market.   I don't think this has much to do with real estate right now.   Real estate had their nightmare.  If anything i think it will just level off a bit.  A lot of existing homes in decent areas are still 30% off their highs.   In my area,  subdivisions that are 15 years old or less have gotten back to 2006 levels though.

Jade S. · Answer

I agree with @Aaron Knoll...I wouldn't be running around with my hair on fire about a "crash" just yet.  The sell off over the past couple of market sessions was quite ordered, and we really haven't had any significant correction to speak of in a couple of years.  Stocks *have* been a bit ahead of themselves, but we are not neck deep in cataclysmic economic news.  But some areas around the globe are not in optimal shape.  As for the US...this is more like the most lazy & tepid economic recovery we known in our lifetimes.

How would the Stock Market crash have an effect on RE Investors?

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