How to invest in a down market

Question

After speaking with a buyer last night who wants to get into real estate investing but believes the market is going to go down, he asked me an interesting question. How do you invest in a market that's going down?

My response is going to tick a lot of people off so feel free to complain away. IF YOU BELIEVE THE REAL ESTATE MARKET IS GOING DOWN (and I'm pretending to know) then the only thing you need to do right now is hoard cash. Your stocks are down already sometimes as much as 50%. Your $401k will be down. It will be the absolute wrong time to be pulling out of the stock market, probably right before it rebounds. Cryptocurrency will soon be worth less than the cost to mine it meaning it will also go to 0. Anyone who previously believed that cryptocurrency was a hedge against volatility must know at some point they were absolutely out of their minds. Anyone holding crypto will go bankrupt. Real estate in a down market will be harder to sell.

Quite possibly the only thing that could and would probably go up will be gold, but, IMO that's not guaranteed either, and therefore the only way to know you'll have cash to buy something in a down market is to hoard cash. When the market goes down, you're going to need it and since nobody has the foresight to hoard it when things are up, nobody has it available when the market is cheap.

https://grow.acorns.com/why-wa...

Patrick Kaiser · Answer

@Devan J. I have 5 listings active right now and 3 in escrow so my information is limited to what I'm seeing and a few close friends. Showings are down at least 50% and offers are at least down 75% not on price but on how many we will see on a listing. If we might have gotten 10 offers a month ago, right now we're lucky to get 2. I have 3 listings priced at or below comps that I am struggling to sell. I am seeing people listing houses $25k or more below what the most recent closed comps are. It seems inevitable not to see a correction of at least 10% which would still bring us back to where we were only 6 months ago.

My main fear is what might happen if rents start to go down. With 20% of all homes owned by corporations, primarily as rentals, in my limited experience, these corps were buying as long as they broke even on rent. They were banking on rental rates rising seemingly indefinitely. If the rental rates start to go down, which imo also inevitable, we will see a dump of bottom of the market type of homes primarily below $500k. I can try to provide insight more in depth if there is something specific you're looking for or interested in. There's also a local real estate investor meetup every first Monday in Mesa put on by my broker and his friend who's very active here on bigger pockets named @Shiloh Lundahl

Eliott Elias · Answer

Flip in a up market and hold in a down market

Patrick Kaiser · Answer

you should also check out the investor meetup as well. My broker and his business partner put it on they have sold hundreds of properties here locally and have done every kind of deal including BRRR, lease options, flipping, flipping trailer parks. development, and other stuff. I'm more of a normal real estate agent I primarily do listings so I'm kind of limited to what I see on my listings but my brokerage is an investor focused brokerage so everyone in the brokerage is investors and we work with ever kind of creative finance option available.

here is the link to the monthly meetup first monday of every month

https://www.meetup.com/Real-Es...

Scooter Williams · Answer

I own lots of property in Mesa and here is my personal opinion. Prices likely will come down with rising interest rates. However the monthly PMI likely will be the same if not higher because prices I don't believe will come down as much as interest rates are increasing. At least in multi family.

Prices for the rents IMO don’t make much sense currently at least in Mesa. So, I’ve started investing in other markets for now.

I guess it might be a good opportunity if you buy low and plan to sell years down the road betting that it will be higher at that point if interest rates come down again in the future but that could be a long road ahead.

Just my 2 cents when it comes to multi family investments .

Nate Sanow · Answer

I don't often quote Dave Ramsey, but when I do, I'd use his line on rollercoasters. They way you survive them is by not getting off when they go up or down, but just riding the ride all the way through.  It's such a good analogy for how to handle up markets or down markets.  It's all long term and not exiting when things are down, in particular.

Matt Garner · Answer

Hi Patrick

I’m a newbie in North Austin, TX. Have JUST decided to sell or try to refinance to get into real estate. Are you saying you would sell, hoard cash and wait for downturn? My initial goal was to recoup losses from small business and create more secure assets and cash flow

Austin market is nuts at the moment.

Not trying to get financial certainty here and understand your giving an opinion.  just working on a consensus, so I appreciate any and all 30k ft. input. I’m sure there are dozens of options but these seem to be relevant:

OPTION #1

Sell current residence for $300k net cash profit (current market). Hold/invest and wait for downturn WHILE leasing/renting and then find BRRRR or …

OPTION #2

Pursue 2nd mortgage and locate BRRRR

OPTION #3

Get feet wet with something like a hands-off real estate investment group. 20-25% ROI type of thingEither way, I am starting down the path to putting together my “team” to do it right.

Loaded question, but appreciate any insight you can offer.

Devan J. · Answer

Hey Patrick great information you have posted.

This question is exactly what I have been wondering myself the past few months. Makes sense to start hoarding cash for if/when prices do start coming down. I noticed your in Mesa Az as well, maybe you would be able to give more insight into what you see happening in our market currently to tell if we are going to start seeing prices u turn. Are you seeing things to make you think or believe we are going to start seeing prices on RE come down towards the second half of this year in Phoenix?

Are there less buyers out there due to higher rates? Houses starting to sit on the market longer?

Also great article you have linked as well! Thanks for your insight!

How to invest in a down market

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