All Forum Posts by: Francisco Milan

@Francisco Milan it's an interesting question. Are you asking because you are expecting the pending recession to look like the '08 recession? Dave Meyer has been putting out a lot of great information on the state of the economy through the On the Market podcast. The economy and the drivers of the last recession are nothing like the current economic situation so I'm not sure how relevant the answers will be. I forgot who said it (I've heard Ken McElroy and others attributed), but one thing you can count on when the economy turns down is that there are always a large group of individuals looking to move down market. Few people are trying to move up (housing wise) during a recession. I think our ability to work remotely and the demographic heavily utilizing MTRs may also make this very different than the '08 recession. 

Because they are over-leveraged. This means - unlike Bill or Joe - they bought property with 80% - 100% financing and the rent payment barely covered the mortgage, taxes, and insurance. They had nothing left over for other expenses like vacancy, maintenance, or capex. If a property is losing $100 a month and then the property value drops from $200,000 to $160,000 in less than a year, people panic and sell to cut their losses.

Why did some lose?

1. They didn't actually do the hard work and save up. As property values rose in the crazy market, people learned they had a lot of equity in their primary home. They thought they were wealthy and that real estate only goes up, so they cashed out their equity and bought investment property. Now they are leveraged on the investment and on their primary home.

2. They had no idea how to buy smart. They heard that real estate is a great investment, so they bought something without crunching the numbers, researching the location, etc.

3. After buying the property, they failed to learn how to manage it. They get bad tenants that don't pay rent or trash the property, they start bleeding money, and suddenly their golden egg turns out to be a lead weight they can't wait to unload.

Look at the recent market. The market went crazy and prices skyrocketed. A lot of homeowners suddenly realized they had a lot of equity in their primary home. They also saw a video that said they could buy a short-term rental in the Smokies or Florida and make $150,000 a year. Who wouldn't want that??? They cashed out their equity (bringing their mortgage payment higher than they want, but they can swing it with all the profit they'll be making) and they buy something for top dollar in a market they are unfamiliar with during a peak season. Eventually, they will learn that the property nets 1/3 what the YouTube guru told them it would, it's more work than they thought, and the shine will start to wear off. 

If the market turns, people in this situation will drop that property for a loss and run with their tail tucked just to stop the bleeding. Tens of thousands of new investors will follow suit. 

What could cause that panic? An economic depression. Prices rose astronomically and they could drop quite a ways to more reasonable values. War with China. Another COVID-like farce. There are many unknowns. Wise people flourish while the foolish lose.

 unemployment data in all sector is showing that the job market is too strong and unemployment is reduced.

please do note that these "so called recession" is not a natural recession, but a "technical recession" created by gov. policy , the real economy itself is just fine , prior to 2020 Fed is already doing QT but then due to covid they printed money too much (not accidentally), now they have burnt the money , but they already announce they would print the money again next year. It's not that complicated. 

price would going skyrocket again til 2025 lol