Is It a Bad Time to Invest in Real Estate?

blog Jan 27, 2020
Talk of a recession is growing. Successful investors know how to recognize opportunities that may present themselves during a recession. Charles Dobens discusses how you need a solid business foundation to withstand these market downturns.

So recession talk is growing. This is the other article that I have in the in the Slack room: recession talk is growing. Is it a bad time to invest in real estate? All right, let's talk about this for a second. You know recession is always coming at some point. The recession is going to hit a recession is going to hit at some point. Who knows if it’s going to be a big one or a little one. I know they were saying that we are already in one already during the Trump administration - that we are already in a recession. I don't think so. You know maybe a recession of 20 years ago is not the recession of today.

There are opportunities and deals to be had in every market. Remember, more millionaires were made during the depression than any other time going. Successful investors who know how to work a recession never sit on the sidelines but rather know how to recognize these opportunities.

Folks, read Warren Buffet's book. He, you know, pessimism is his friend. When people get out of the market he gets IN and that's what happens so just always think about how these other guys do it. You don't want to do what everybody else is doing. You know how I say in the first part of my course, "Let me show you how to find deals where no one else is looking." You don't want to go where everyone else is looking, like Loopnet.

In 2008 real estate prices dropped significantly not as a result of the recession but because the housing collapse is what caused a recession in the first place. Real estate performed relatively well in the prior recession. All my properties still cash flowed - I never missed a mortgage payment once always had money for the ones that we bought the ones we bought the right way. But even if the recession didn't hit the properties that we didn't buy the right way would still not of cash flowed.

So it all has to do with buying it the right way and being able to withstand those recessions, those downturns. That's the key. You’ve got to build a solid business. The only way you're going to get to 1000 units is if you build a solid business.

When in a recession, not every property gets impacted equally. So when investing in rental properties a drop in property value usually does not have a big impact on the rental rates. Two things I want to say about this.

The recession hit different properties in different markets differently in the Midwest: Yes, they got hit by the recession. It was later than everyone else and it was a slow and steady growth back. But they didn't lose as much as the coasts lost. I mean think about when you look at it. You know there was an exception in what I was saying the best way to think about it is when when Fannie Mae and Freddie Mac went south, when they filed bankruptcy they started to protect themselves. They came up with what are called pre-review areas. If you don't know what that means, there's a coaching call when we talk about. I think it was with Kevin Jenkins I think. We talk about pre-review marketplaces. And those are areas where Fannie Mae said too risky, too risky. We're not going to give out 80 percent LTV loans. We're going to give out 65 percent LTV loans. If you want to do business in these markets using our paper, you've got to come to the table with more cash because this area is risky. When the recession hit they didn't make the whole country a pre-review marketplace.

They only picked out certain areas where they said now these areas are too risky even for us. So that's the thing we're looking at here is when in a recession not every property gets impacted equally. So when investing in rental properties a drop in property value usually just not having a big impact on the rental rates.

This is true except - and after the crash, my rents remained pretty stable. Some of them had to come down. I was always able to you perform in the black but sometimes my rents had to come down. And the reason why they had to come down was because of the housing crisis, because I was now competing against the guy trying to grab customers to come into my two bedroom two bath light and beautiful apartments and not go out with a three bedroom single family house with a yard that some investor came in and scooped up on because it was in foreclosure. So that is what impacted my rental rates. You know had the housing crisis not happened, I would have had that problem. So what we're seeing here - the flipside - is that in any of these upcoming recessions we're probably not going to have a problem with the rental rates. They're going to remain steady. That's all because of the customers and the type of customers that we want.

So is it a bad time to invest in real estate? No, it really isn't. There's always deals to be had. Anywhere you look.

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