627: Seeing Greene: The Real Estate Winners and Losers Of The Next Recession

Podcast Summary

• Understanding the Differences Between a Recession and Market Crash: A recession can lead to a market crash but isn't guaranteed. Wealthy individuals may still own performing assets during a recession, making a market crash less likely. The podcast offers insights and strategies for new wholesalers, home system replacement, dealing with difficult agents, and understanding economic environments for real estate investors.

  A recession and market crash are not the same thing. While a recession can lead to a market crash, it's not guaranteed. During a recession, wealthy individuals may continue to own performing assets, making a market crash less likely. The BiggerPockets Podcast 627 covers various topics, including ways for new wholesalers to keep costs down, when to replace major home systems, dealing with difficult agents, and understanding the economy and investment options in different economic environments. The podcast also features a quick tip to check out the BiggerPockets forums and an opportunity to invest with no money down through Rent to Retirement. Overall, the podcast provides valuable insights and strategies for real estate investors in various stages of their journey.

• Staying informed and making informed decisions: Focus on building a diverse investment portfolio and staying informed about market trends to mitigate potential risks, as the economy and real estate market are unpredictable.

  The economy and real estate market are unpredictable, and trying to constantly debate the direction they will go with others can be unproductive. Instead, focusing on building a diverse investment portfolio and staying informed about market trends can help mitigate potential risks. Regarding the specific questions about the real estate market's future direction and the impact of a recession on short-term rentals, the text suggests that the economy can only go one of three ways: get better, get worse, or stay the same. However, it's impossible to know for sure which direction it will take. As for short-term rentals, the text does not provide a definitive answer but suggests that investors should stay informed and be prepared for potential challenges. Overall, the text emphasizes the importance of staying informed and making informed investment decisions rather than relying on speculation or debating with others.

• Preparing for economic downturns in real estate investing: Maintain a frugal lifestyle, keep a job, and have financial reserves to weather economic storms. Understand the difference between a recession and a market crash, and stay informed to be prepared.

  Successful real estate investing involves preparing for economic downturns and understanding the difference between a recession and a market crash. The speaker emphasizes the importance of maintaining a frugal lifestyle, keeping a job, and having financial reserves to weather economic storms. While a recession and market crash are related, they are not the same thing. The last recession was caused by a market crash, but the current economic climate is different. We have too much demand and not enough supply, making a market crash less likely. However, those at the lower end of the economy may still face financial challenges as costs for essentials continue to rise while wages remain stagnant. It's crucial to remember that investing involves risk and that downturns are inevitable. The key is to be prepared and stay informed.

• Wealth Gap Widens During Economic Downturns: During economic downturns, the wealthy tend to grow their wealth, while the poor may lose more. New investors should be aware of potential conflicts with buyer's agents and clear about their investment goals.

  During economic downturns, those with assets tend to grow their wealth while those without may lose more. The speaker expresses concern that the wealthy will continue to grow their wealth through the recession, while the poor may suffer. He also mentions the potential impact on short-term rentals, suggesting that focusing on luxury markets could be a good strategy. The speaker regrets the economic decisions leading to inflation and the potential consequences for the housing market. For new real estate investors, the speaker advises being aware of potential conflicts of interest with buyer's agents and being clear about one's investment goals. If an investor realizes their agent isn't acting in their best interest after the termination deadline, they may have to accept the situation and learn from the experience.

• Agents' Fiduciary Duties and Conflicting Interests: Agents work on commission and may not always act in clients' best interests, making clear communication and understanding roles crucial. Losses can occur, but informed decisions are key.

  The relationship between real estate agents and their fiduciary duties presents an inherent conflict of interest. Agents, who work on commission, are motivated to sell properties and may not always act in the best interest of their clients. This can lead to situations where clients feel misled or unsatisfied with the service they received. To prevent such situations, it's crucial to have clear communication with your agent about your expectations and for both parties to understand their roles and responsibilities. It's also essential to remember that losses, such as earnest money deposits, are sometimes a necessary part of the home buying process. Ultimately, it's up to the homebuyer to weigh the potential benefits and costs and make an informed decision.

• Assessing location, age, and theft risk for HVAC replacements: Considering a home warranty, evaluating the HVAC system's age and functionality, and assessing the property's location and theft risk can help landlords save costs and ensure tenant comfort when deciding on HVAC replacements.

  When deciding on replacing HVAC systems in rental properties, considering a home warranty and assessing the property's location and potential for theft can help save costs and ensure tenant comfort. The age of the system and the availability of replacement parts also play a role in determining the best time for replacement. If the system is still functioning, it might be wise to wait and save up for the replacement. However, in situations where a replacement is not feasible due to supply chain issues or theft concerns, it might be prudent to replace the system earlier. Additionally, securing the HVAC unit with a cage can help prevent theft in areas with high risk.

• Simplifying Insurance and Lending for Real Estate Investors: Specialized companies like NREIG and Host Financial help investors save time and resources by offering bundled insurance and streamlined mortgage applications.

  Real estate investors can simplify their insurance and lending processes by utilizing specialized companies like NREIG and Host Financial. NREIG offers insurance for various types of real estate properties under one monthly bill, while Host Financial streamlines the mortgage application process with frictionless transactions. These solutions save investors time and resources, allowing them to focus on growing their portfolios. Additionally, the entertainment value of the podcast was highlighted with a humorous anecdote about Siri and a request for listeners to share funny comments. For those interested in alternative investing strategies, it was mentioned that lease options may not be as popular due to rapidly increasing asset prices.

• Lease options and selling homes directly to tenants: In a slow real estate market, landlords can save on repairs and tenants can build equity through lease options and selling homes directly to tenants.

  The popularity of lease options and selling homes directly to tenants may increase when the real estate market slows down, as it allows landlords to save on repairs and helps tenants build equity. Stephanie Clemens discussed this, sharing her experience with lease options and her dislike for a high-pitched quick tip that was once a tradition on the show. Jonathan Hawthorne asked about Brandon Turner's return to the podcast, and David Green announced that Brandon would be back on episode 629. Ladi Sinabari asked for advice on estimating after repair value cost-effectively for wholesaling, and David suggested consulting a realtor or learning to run a comparative analysis. Other topics included home warranties, selling or buying houses, and submitting voice call questions for the show.

• Estimating ARV in complex markets: Gather market info from investors/agents and online resources to build a baseline understanding in complex markets. Consider refinancing to a fixed-rate mortgage for rate stability.

  When estimating the After Repair Value (ARV) of a property, the ease or difficulty of predicting the ARV depends on the market. In simpler markets, a baseline understanding of standard home values can be established, making it easier to predict ARV. However, in more complex markets, it can be challenging to determine the ARV due to a wider range of home sizes, conditions, and prices. Therefore, it's crucial to gather information from other investors or real estate agents and verify it using online resources to build a baseline understanding of the market. Regarding mortgage options, adjustable rate mortgages (ARMs) can be risky, especially when the borrower is concerned about potential rate increases. In such cases, refinancing into a fixed-rate mortgage may be a better option, even if it means sacrificing some cash flow in the short term. Ultimately, it's essential to be aware of market conditions and mortgage options before making a decision.

• Considering Multiple Scenarios: The Importance of a Backup Plan for Real Estate Investors: Incorporating flexible strategies like purchasing properties with adaptable zoning or acquiring used furniture for short-term rentals can help investors minimize losses and maintain financial stability in a changing market.

  Having a backup plan or considering multiple scenarios is a wise approach for real estate investors, especially in a changing market. Stacy's question highlights the importance of considering "plan b" strategies, such as purchasing properties with flexible zoning or acquiring used furniture for short-term rentals, to minimize potential losses and adapt to market shifts. David agrees, emphasizing that while maximizing returns is important, it's equally crucial to protect against downside risks. By incorporating creative plan b strategies, real estate investors can mitigate potential losses and maintain financial stability in the face of economic or regulatory changes.

• Considering more than ROI in real estate investing: Focus on business-friendly markets, flexible floor plans, and having backup plans to ensure safety and stability in real estate investments.

  Successful real estate investing goes beyond just finding properties with high returns on investment (ROI) based on numbers in a spreadsheet. Instead, it's essential to consider factors like time commitment, risk level, and potential challenges. Investors should prioritize safety and stability by focusing on markets and properties that are business-friendly and have flexible floor plans. Having backup plans, such as converting a short-term rental to a long-term one or renting out rooms, can help mitigate risks. Chad, when starting out, should aim to have a sufficient reserve before entering a deal, but the exact amount depends on individual circumstances. Always remember that the floor plan's suitability for tenants is crucial, and not just the price and location.

• Six months' worth of mortgage and utility payments as a reserve is a general guideline: Individual circumstances, earning potential, and job stability impact the ideal amount of emergency savings for homeowners.

  Having six months' worth of mortgage and utility payments as a reserve is a safe amount for homeowners. However, if you live below your means and can consistently save money, you may be able to have less than six months in reserves. Your ability to earn additional income is also a factor to consider. For instance, if you have a stable job with opportunities for overtime, you might be able to go below the six-month mark. Conversely, if your income is less stable, it's crucial to have more reserves. Remember, 6 months is a baseline, but individual circumstances should be taken into account.