How Close is a Market Correction? & What Should We Be Doing?Feb 17, 2020
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It's crazy to think that some real estate investors out there have never held investments through a period of a market correction. Regardless, where we are in the market cycle is obviously a topic of significance.... everyone keeps asking about it.
For the beginners out there: If you're wanting to know an exact day and time of when the next downturn will be, good luck! However, understanding in a generality when the next correction will be and what to do when it comes is fairly straightforward (I didn't say easy.)
No one says it better than The Real Estate Guys...
"Cycles are as much psychological as fundamental.
So when everyone sees it and moves in anticipation … it’s their very movement that makes it happen. It’s a self-fulfilling prophecy. You see it play out all the time in the paper markets.
Like a high-speed tailgater … even a flash of brake lights causes the lemmings of Wall Street to rush from one position to another ... all trying to outrun each other to the exit of the entrance of a trade. The rush pushed prices up or down depending on which way the crowd's running.
Of course, as we often point out … real estate investing is boring by comparison … in a good way. Real estate is slow, steady, and relatively stable. That's because real estate is not a commodity. Real estate can’t be traded in large lots at lightning speed ... because every deal is different."
Don't misunderstand. This does not mean real estate do not experience the same reactions. They just tend to play out over longer periods of time. So much so, that we tend to lose focus and forget what signs we ought to pay attention to...
Where Are We In The Market Cycle?
What Should We Be Doing About It?
If you'd like to start preparing now: This episode just might be the thing you need to avoid making catastrophic mistakes before, during, and after your next investments.
Not only does the Real Estate Guys radio show cover the questions above; they also discuss proactive things you can do if you conclude that we're at the top of the market, opportunity zones, the affects of new tax law, etc.
"Regardless of where we're at in the cycle, the new tax law is likely to push us out a bit farther." - RE Guys
Some Things We Learned
Key ingredients to understanding what drives pricing:
Supply (and capacity for supply to expand)
Demand (in terms of number of people chasing the supply)
Capacity to pay (generally a factor of incomes, interest rates, and loan availability)
"the truth is no one knows for sure."
"That’s partly because real estate is highly local. And there are many niches ... each with their own unique dynamics.
Still ... there are some basic principles to apply to whatever product niche and market you’re investing in.
It comes down to the willingness and capacity to pay more. And it’s important to note those are NOT the same." [Watch Full Podcast Here]
Q&A (ft. The Real Estate Guys)
The Real Estate Guys recently invited our very own Steve Olson to host a webinar to answer live questions about FIG, our process, and much more.