The real estate crash in 2008 was unique in that we saw a very fragmented industry that was burdened by large-scale systemic risk. This is not what usually happens.
It’s important to realize this situation would not be easy to duplicate; it was sort of a perfect storm of bad circumstances. Since then, we have implemented things to protect us from a similar event. Things like Dodd-Frank, better lending fundamentals, and a lot of growth left to capitalize on all make the possibility of another crash similar to 2008’s very unlikely.
Real estate is usually market-specific, so this isn’t to say prices can’t drop in the near future in your market. But it does imply that those waiting around for the next nationwide crash are going to watch a lot of success pass them by in the meantime.
This is going to frustrate many people who see inflated prices and increased competition making it a harder time to buy. However, the truth is real estate is going to be a good investment for a long time going forward. Now might not be as lucrative of a time to get in as it was in 2012, but investing now is likely better than getting in five years from now. In 20 years, it won’t make any difference at all.
Waiting for the perfect moment costs a lot more in experience and opportunity than the potential downsides could produce. As the saying goes: “Time in the market is better than timing the market.”
When Will the Next Crash Happen?
In 2016, I bought my first rental property. At the time, there were an abundance of threads on BiggerPockets that said, “Don’t buy now. We are about to see a crash.”
Luckily I ignored this noise and bought anyway. In the last three years, I’ve done very well—despite the supposedly imminent danger. Grant Cardone had a bunch of content around this time claiming he was preparing for a crash, as well, but he’s done quite a bit of business since then.
The BiggerPockets forums now reflect much of the same message as a few years ago. Don’t buy! There will be a crash soon!
Maybe those members who are spreading this sentiment are right; maybe they are wrong. Either way, I find that this message seems to have a single constant underlying motive: jealousy.
I really think much of this mindset is coming from people who are actively hoping the market will downturn so they can buy in. They are salty they missed the last big opportunity.
I’m not mad about that. In fact, I’m salty I missed the last downturn, as well! I would have much rather purchased in 2012 than 2016. But unless I create a time machine to go back to 2010 and buy assets, I’m sunk. Fussing about it is never a helpful strategy.
While another recession of some sort is inevitable, no one really knows what it will look like or when it will happen. It most likely will NOT be a repeat of last time though. So waiting for the bottom to drop out of real estate is a mistake, because you’ll be waiting forever while not learning or building experience along the way.
If you don’t have the confidence to buy in an upmarket, you don’t stand a chance to pull the trigger in the down market.
Plan Around Fundamentals—Not Luck
Over the last eight years, many BiggerPockets members (myself included) have bought low and then ridden the wave upward, making money on the sheer luck of being in a good industry at the right time. This is not a sustainable strategy for success in the long term, but it doesn’t mean that real estate only works when you stand to get outsized gains.
Do you only want to buy real estate because you think you might get lucky with an area that’s rising? Or do you want to buy a profitable asset at a discounted price that is going to make money even through market fluctuations?
Waiting for a theoretical crash is just admitting to the world that you can’t compete unless the market is unusually easy to make money in.
In real estate, you make money when you buy. This holds true no matter where we are in the market cycle.
So instead of waiting for your market to downturn, find great deals that are going to make you money no matter what. Have good exit strategies in place, and pass on deals that don’t make sense.
There are two kinds of mania surrounding real estate right now:
- Those who are so excited about real estate that they are willing to spend anything to get into an asset and are therefore blind to risk.
- Those who are so sure a crash is coming that they are sitting on the sidelines.
Neither of these two parties is going to make as much money as they could. They are too busy making decisions based on emotional hyperbole, anecdotes, and luck instead of solid financial analysis.
Focus on the fundamentals, and you can make money in any market.
Accept That Real Estate Is a Long Play
Why does everyone seem to be playing a two-year game with a 30-year investment? Even if you’re doing fix and flips, there is a long road of education and understanding that goes into this business.
Certainly there are outlier success stories of people doing 20 deals in their first year. However, it’s disingenuous to assume that is universally possible.
In many cases, chasing unrealistic gains gets people into more trouble when ambition outruns reality. Real estate is a slow business filled with complex transactions and ill-liquid assets. Even most superstars go slow!
It’s a patience game that relies on compounding. Trying to force outsized gains at the command of one’s ego is dangerous.
The long game of real estate levels out lots of short-term instability. You need cash reserves to weather economic storms, and you need to buy based on good fundamentals.
You will absolutely experience drops in the future; you can’t avoid them completely. This is why it’s best to get in now (at the right price) and start making money—money that will help you get through a recession.
Even if there were a crash tomorrow, it would be a long time before you felt comfortable at the bottom. The last bottom was in 2009, but people didn’t start buying until 2012 or so.
That’s three years later! Do you really want to wait that long to get started—just because you can’t buy at the discount the last crash offered?
You missed the crash. So what?!
Stop waiting around, nostalgically hoping that opportunity will return. Instead, enter the marketplace. Grab the opportunities that are available right now!
Source: BloggerPockets.com – by Alexander Felice