Be Greedy When Others Are Fearful

Russell Brazil · 2020-03-22T09:07:39-07:00

Be Greedy When Others Are Fearful – A Lesson From The Financial Crisis “Be fearful when others are greedy; be greedy when others are fearful.” – Warren Buffett There is a lot of fear in the market place right now. There was a lot of fear in the market from 2007 to 2010. On August 9th 2007 BNP Paribas, the largest bank in France froze withdrawals from two of it’s money market funds. Imagine what that must have been like. At that time, the general public viewed money market funds as no different from any other bank account. Suddenly, and without notice, you as a banking consumer could not use, take out, or spend your own money. This is what most of us point back to as the very start of the financial crisis. From 2007 to the bottom of 2009, the DOW went from a high of 14,164.53, interestingly enough 2 months after the PNB Paribas disaster, in October 2007 to a low of 6,594.44 on March 5th 2009. A loss of 53% over the course of a year and a half. If you think the roughly 30% drop you’ve experienced in the last few weeks is bad, then you probably were too young to be investing 13 years ago. Time of fear though present opportunities for the disciplined investor. I don’t think we have hit a bottom yet, and I am not trying to. It took 19 months from the start of the financial crisis before the stock market hit it’s bottom. It took a full 24 months for housing to find a bottom from it’s peak. By the way, I think if you are waiting for some collapse in housing prices, you are likely dreaming. Now that doesn’t mean they can fall in certain markets, ones that are more prone to a boom/bust cycle; but a retreat in housing prices is simply not a very common occurrence on a national scale. But with the memory of the housing collapse still fresh, recency bias blinds us. I made most of my wealth from 2008 to 2011 by purchasing distressed assets. Those assets were both stocks and real estate. I see opportunity again. I do not think we are near the bottom yet, but I have already started to buy again. I haven't made a stock purchase in the last year until this past week. Im going to continue to dollar cost average as things continue to go

Jon S.Pro Member

Investor · Tampa, FL · Member since 2015 · 530 posts · 92 votes

6y

@Russell Brazil

Where do you find the market and asset class specific data?

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Jon S.Pro Member

Investor · Tampa, FL · Member since 2015 · 530 posts · 92 votes

6y

@Will G.

Wow! Definitely have to consider the impact of short term AirBnBs switching to standard lease rentals.

1 Reply

Kirk R.

Peoria, IL · Member since 2013 · 967 posts · 383 votes

6y

i think people are still being greedy. Nore fear to come.

like Thursdays unemployment numbers.

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Jack Seiden

Real Estate Agent · Washington DC · Member since 2016 · 847 posts · 654 votes

6y

My concern would be we’ve never seen anything like this a complete shutdown of the economy for potentially 12-18 months in a worst case scenario. Who knows if people will literally have enough money to sustain prices in that scenario. Now to be clear I would still be a buyer if I thought I was getting a good deal. But in my market (dc metro) I haven’t seen any price declines (though nothing I’m tracking is going under contact so might not be far behind.) but I don’t want to pay the same amount I did a week ago when my risk has gone up a ton since then. I would say for the time being I’m looking for about a 10% discount over what I would have payed a week ago.

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Rob Massopust

Real Estate Broker · Santa Ana CA [South Coast Metro] · Member since 2016 · 459 posts · 202 votes

6y

Originally posted by @Johnny McKeon:

thanks for bringing this up.

a 4plex in the East Valley of the PHX MSA just fell through contract and the agent wants me to submit an offer and just sent me the docs to sign but now I'm contemplating not moving forward with this purchase. I would be using a hard money lender (80% LTV, 10%, 1yr loan term) to acquire and then begin renovations and raising rents to market. and then do a VA cashout refinance or FHA and move into one of the units. so my risk is if the property will not hold its value or go down and I cant refinance and/or if my new tennat base will be able to afford the new rents ($950).

My gut is telling me to stay liquid and see how this plays out but there's this FOMO (fear of missing out) side that thinks this will blow over and I won't have a deal. I want another 4plex this year.

how would you guys feel about getting a property under contract right now? to pause and wait or to take action and buy?

Ok just fell out of escrow, find out why? Buyer, value, property. Of course he called no one else will call him back. Is that area a decent area where owner occupieds would live? There is going to be a mad rush trying to get out of multifamily, some places more than others depending on overvalution ie Los Angeles -

Hard money will kill you if you cant get out via refi. You wont be able to do a cash out refi for over a year. Rate and term at best and lenders are so backlogged good luck getting funded next 3 months+. We have never seen an unwinding of the economy this quickly ever! Will it bounce back?, I think that is the common narrative but all bets are off.

Having tenants being able to afford is a big issue going forward, unemployment is going to shoot up starting this week. I talked to 3 sellers this weekend that are all like my tenants arent working and they are asking for help. Now what. Now ask your lender if they can defer loan for 12 months, lenders are doing it without asking questions. More debt can not save us this time.

I guess it all depends on price. Dont gauge based on last 10 years, look going forward look at replacement cost, land value, repair costs, cap rate then drop it 20 % then its something to look at deal. Tread carefully for sure. I am having a hard time wrapping my head around it too, prices are not dropping yet. I dont think it will be as obvious as last time, I think lenders are going to go into zombie zone to keep the illusion going, until they cant any longer.

$950 x 4 = $3800 x 12 =$45,600 -35% =$29,640/5% = $592,800 Max Improved Value - 20% = $474,000 is where I would want to be for sure. Higher or lower adjust accordingly.

If you have to do this deal, If you can go FHA or VA as an owner I'd do that with an FHA 203 K Rehab loan. one loan for purchase and rehab. VA has similar program. Its pretty killer if you can get it, zero down. Low APR

'Forget FOMO, look to the black jack table. You know you have a few good hands double down, lose some then some more and when its gone you are like damn just should of walked away and hit the buffet! Thats where we are at.

If you cant live there and it does not make sense, Id pass, there will be more we are in the first inning of this mess. FED pumping $4 Trillion this week, WTF that has never been done. Buckle up its going to get insane.

5 Reply

Jacklyne Tesoro

Rental Property Investor · Los Angeles · Member since 2018 · 1 post · 0 votes

6y

I have started making offers on investment properties and have been seeing some of the sellers panicking already. One of the properties has tenants that are "high risk" and can not leave the house for an inspection to be performed. Things are definitely changing and I hope to get a good deal on a property while the initial panic lasts.

0 Reply

Brian Ellis

Rental Property Investor · South shore, MA · Member since 2017 · 1k+ posts · 1k+ votes

6y

Im just trying to button up my business. Secured a turnover just before all this began, need to finish up the renovation (luckily I do it all myself). Finish up my refinances, and get a couple side jobs buttoned up to carry me through the next 6 months.

Im not the one to welcome a recession. To all the people that were hoping for one, and a drop in real estate prices, will get what they want, but at the expense of peoples lives. Financially and physically. That's a tough pill to swallow...

1 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

6y

Originally posted by @Danny Kay:

Originally posted by @Jim K.:

@Russell Brazil

I see too many people here convinced that they're going to get major rehabs and new construction done within limited timeframes in the next six months, perhaps with a standard small contingency added to their original estimates. This is crazy talk. Anything you have to rehab right now, anything you need guys to show up and work on, should be a very big question mark in your portfolio right now.

One of my buddies had a 10% hike on his loose lumber package, this was last Tuesday.

when you wrote this last week I check lumber futures and I dont see a reason for the jump lumber futures are down. it sounds like a supplier maybe gouging. futures were at 320 or so.. in hot lumber markets futures can get as high as the high 400s in bad times low in the 200s so we are right in the middle.

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Account Closed

Rental Property Investor · Twin Cities, MN · Member since 2019 · 122 posts · 150 votes

6y

"Dare to go where others fear"

I thought about posting this topic on Friday, but didn't think people would be responsive to the idea. There seems to be some actual fear of getting sick, losing loved ones etc. - so thanks for jumping on the grenade and bringing this conversation to light. I agree with you, there is blood in the water and I am doing the same thing you are. Buying 1/2 positions almost daily in stocks that I have wanted to be in for years, but had been overpriced. I listen to a podcast called Invest-talk Daily for some insight" many of the stocks I am buying represent companies with good dividends, low debt and in industries that will rebound, i.e. Banks, Petroleum, Airlines, Tech. I'm staying away from the hospitality industry - I see potential for bankruptcies - and there will be no bailouts for casinos.

As for the impending vacancies/late rents - we invest in C class multifamily which is supported to some degree by section 8 payments, in the near term these guaranteed payments will be helpful. We plan to carry on with business as usual - the balancing act however is this: Operating funds for (RE Stress)/Equity Purchases (Stocks)/Future Distressed Real Estate purchases (12-36 Months) with impending struggling investors/property owners

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Andrew SyriosPro Member

Moderator

Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes

6y

I would agree with this (and we also made our best purchases around 2011-2013). That being said, I prices aren't going to bottom out in April and it's very important during this lock down phase (especially if you have rentals) to keep cash reserves high, so I would be cautious for the next month or so. But there will likely be opportunities to purchase going forward.

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Derek Magdziak

Rental Property Investor · Boston, MA · Member since 2019 · 6 posts · 4 votes

6y

@Russell Brazil, totally agree with you.

I’m comparing the market crashes in 1929 and 1987... the DOW charts certainly resemble to what is happening at the beginning of the drop.

Though no one has a crystal ball, both charts show that it can take quite years time to get though the choppy parts before a uptrend begins again. We’ll see how this crash works out.

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Bola Williams

Real Estate Agent · Rockville, MD · Member since 2015 · 39 posts · 16 votes

6y

I had an interesting call with two of my investor clients yesterday, both told me they were pulling out of the market immediately and to sell their properties to the next offer we receive. Both of these investors tend to buy roughly 10 properties a year, this wasn't a huge surprise to me but I figured this decision was made partly because of fear and partly because of their lenders possibly calling notes due? Are there any other fix and flip investors in the DC area or anywhere that are having loans called due immediate?

For all of those who are looking to be greedy in this pause in the market, how do you plan on financing any purchases you may find?

I reached out to the three lenders I've been using for the last few years I've been fixing and flipping and so far two of them have gotten back to me informing me they have paused purchases at this time until further notice.

The last of the three lenders has not gotten back to me so I'm looking for a lender who is still lending.

1 Reply

Michael Lenahan

Rental Property Investor · Philadelphia, PA · Member since 2015 · 95 posts · 53 votes

6y

@Russell Brazil This thread is not going to age well.

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Russell BrazilBusiness Member

Moderator

OP

Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes

6y

Originally posted by @Michael Lenahan:

@Russell Brazil This thread is not going to age well.

It will actually. Do you think our way of life will disappear? I dont. Do you think stocks will be lower 10 years from today than they are now? I dont. Once a decade we go through a market crash, and those opportunities of fear are when the disciplines investor can build their financial security for their families. Just like everyone wishes they bought after the dot com bubble, after the financial crisis....5 years from now everyone will be kicking themselves that they didnt have the fortitude to buy during the coronavirus crisis.

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Bill F.

Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes

6y

Originally posted by @Michael Lenahan:

@Russell Brazil This thread is not going to age well.

You've given us your conclusion, but left out the data and analysis that lead to it. Why do you think hindsight will look unfavorably upon this thread?

1 Reply

Caroline Widjaja

Rental Property Investor · Los Angeles, CA · Member since 2018 · 84 posts · 54 votes

6y

I always love of what Warren B's saying "Be Greedy when Others are Fearful". This is really true, but in real estate, you can't buy everywhere you want. Location is still important. As for stocks, I also want to jump in stock market right now. but one of my friend told me the BIG crash is not coming yet...and he also mentioned that China & Japan will be in BIG troubles. It got me thinking what kind of troubles that they have/hide from us that we still don't know at this point?

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Gavin D.

SC · Member since 2017 · 78 posts · 63 votes

6y

You want a solution? Stop reading this crap and get back to work! If you lost your job recently, my sympathy goes out to you. It sucks, take a couple nights, get hammered, and be the first to be interviewed for your next job. Or, if you can handle the risk, try and go it alone like many on this site do.

No one was gossipping and freaking out during the plague.... they were working... despite the bodies in the streets.
Kids were not off school for 2 months while polio was going around.

If you government tells you you must stay in your home, or you can not go to work, or be a productive contributing member of your community, stand up and remind them that they work for you! Public Servants --- Remember?

Work hard, be ethical, be honorable... Any who can not manage that, as simple as it is.... likely will be introduced to the concept of natural selection.

The waste of time on fear and gossip, lack of spine, and apathy of daytime tv will be the real pandemic. My family will be fine, not because I've amassed some great wealth that separates us from anyone else... but because I don't quit, and because I'm not wasting anymore repeating that which you should already know. I stated it once to help the team.... You should state it once to people who have not heard it recently, so to help the team, and then you should go back to work.

0 Reply

Brian Ploszay

Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes

6y

==Be Greedy==

Those are not choice words in times like these, when humanity is suffering. I get what you are doing, but I'd use softer words.

That being said, there are going to be tremendous opportunities to purchase some assets. If you have a five year horizon, purchasing stocks is a tremendous opportunity.

Most of us are concerned with real estate. And the picture is not clear yet.

My main prediction:

There will not be a major wave of residential foreclosures.

There has been some proactive behavior here. Moratoriums on foreclosures, landlords offering relief, etc..

0 Reply

Michael Lenahan

Rental Property Investor · Philadelphia, PA · Member since 2015 · 95 posts · 53 votes

6y

Originally posted by @Bill F.:

Originally posted by @Michael Lenahan:

@Russell Brazil This thread is not going to age well.

You've given us your conclusion, but left out the data and analysis that lead to it. Why do you think hindsight will look unfavorably upon this thread?

Bill,

Let me start by saying that I am not an economist, but I pay close attention to people way smarter than me.

An over simplification is this:

The Fed is following their 00-01 and 08-09 playbook to prevent an economic recession and that is 0% interest rates policy and Quantitative Easing (money printing) to re-inflate the economy only this time the trick is not going to work. The deficits are significantly bigger this time around. If you follow business news you can already see the extraordinary measures the Fed is taking to prop up the markets. They are talking expanding their asset purchase program to from Treasury bonds to buying corporate bonds and stocks. We are talking a trillions of dollars of money printing and we are just getting started.

Go follow Peter Schiff and Richard Duncan if you want to know what is really going on.

Cheers,

0 Reply

Henry Lazerow

Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes

6y

Except I don't expect much of a drop in prices this time. The foreclosure crises is being avoided by residential lenders allow people to forego payments up to 12 months (the lockdown from virus will be well shorter then that 12 month duration). There may be a mild drop in prices strictly from a supply/lower demand (not many people shopping right now) but I wouldn't expect more then 10-20% or so drop in C areas and in most desirable areas it to just go flat until the lockdown is over.

1 Reply

Account Closed

Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes

6y

Who cares what real estate is doing, buy the stock market while massively down. Another week or two as the virus hits peak chaos and I’m pushing all my chips in.

4 Reply

Mary L.

Rental Property Investor · Member since 2020 · 41 posts · 54 votes

6y

We don’t have any cure, and it takes at least one year to have vaccines. Question is, when can the virus be ended?

The scary part of the coronavirus is unknown and uncertainty.

https://www.google.com/amp/s/w...

According to federal plan, the coronavirus could last 18 months. It would be hard to image the huge economy loss if it last 18 months.

It also scare away the ibuyers. Opendoor and Redfin have halted purchasing homes from home owner directly.

1 Reply

Bill F.

Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes

6y

Originally posted by @Michael Lenahan:

Originally posted by @Bill F.:

Originally posted by @Michael Lenahan:

@Russell Brazil This thread is not going to age well.

You've given us your conclusion, but left out the data and analysis that lead to it. Why do you think hindsight will look unfavorably upon this thread?

Bill,

Let me start by saying that I am not an economist, but I pay close attention to people way smarter than me.

An over simplification is this:

The Fed is following their 00-01 and 08-09 playbook to prevent an economic recession and that is 0% interest rates policy and Quantitative Easing (money printing) to re-inflate the economy only this time the trick is not going to work. The deficits are significantly bigger this time around. If you follow business news you can already see the extraordinary measures the Fed is taking to prop up the markets. They are talking expanding their asset purchase program to from Treasury bonds to buying corporate bonds and stocks. We are talking a trillions of dollars of money printing and we are just getting started.

Go follow Peter Schiff and Richard Duncan if you want to know what is really going on.

Cheers,

Thanks for taking the time to write all that.

So what is it about the the tools of monetary policy that won't work this time?

1 Reply

Ryan Weimer

Rental Property Investor · Encinitas, CA · Member since 2018 · 56 posts · 33 votes

6y

I just signed closing docs last Thursday for a 4 plex off market 20% under market that was supposed to close last Friday. Got a text from my portfolio lender today at noon that their funding supply was cut off and they couldn't fund... even after everything was signed and I was cleared to close

If that's any indication of how cautious big money is right now - we can surely expect less investor buying in the near near term, which will definitely have a downward impact on prices in competitive markets.

5 Reply

Michael Lenahan

Rental Property Investor · Philadelphia, PA · Member since 2015 · 95 posts · 53 votes

6y

Originally posted by @Bill F.:

Originally posted by @Michael Lenahan:

Originally posted by @Bill F.:

Originally posted by @Michael Lenahan:

@Russell Brazil This thread is not going to age well.

You've given us your conclusion, but left out the data and analysis that lead to it. Why do you think hindsight will look unfavorably upon this thread?

Bill,

Let me start by saying that I am not an economist, but I pay close attention to people way smarter than me.

An over simplification is this:

The Fed is following their 00-01 and 08-09 playbook to prevent an economic recession and that is 0% interest rates policy and Quantitative Easing (money printing) to re-inflate the economy only this time the trick is not going to work. The deficits are significantly bigger this time around. If you follow business news you can already see the extraordinary measures the Fed is taking to prop up the markets. They are talking expanding their asset purchase program to from Treasury bonds to buying corporate bonds and stocks. We are talking a trillions of dollars of money printing and we are just getting started.

Go follow Peter Schiff and Richard Duncan if you want to know what is really going on.

Cheers,

Thanks for taking the time to write all that.

So what is it about the the tools of monetary policy that won't work this time?

Bill,

I'm not a Marco Economics expert, just a local real estate investor who keeps a purse on what is happen in the economic world.

You have to go outside of BiggerPockets and CNBC if you want to get a better understand of what is really going on.

These are people that I follow on a regular basis:

Peter Schiff, Richard Duncan, Jeff Grundlach, Danielle DiMartino, Jesse Colombo, Nomi Prins, Ray Dalio

Cheers,

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