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We all remember what real estate was like in 2006 (and, subsequently, the years that followed). Today I talk about how 2021 is a parallel to 2006, how we can take advantage of it, and how to prepare ourselves for a potential downturn.

Between 2003 and 2006, real estate investors, and even people who were not familiar with real estate, we're able to buy properties and turn around and sell them quickly for a large profit. Basically, they were selling on speculation. We are seeing the same trends right now, in 2021. I’m sure we all remember the crash in 2008, and most of us were probably affected by it.

The truth is, we may have a few more years of this kind of appreciation and speculation, BUT we’ve got to be careful. And we can be; the real estate market isn’t like the stock market, things don’t change on a dime, and you can usually see the trends three to six months out.

What should you watch for? If someone who doesn’t know a thing about real estate is able to go in, buy a property, and sell it quickly for a hefty profit, that’s a sign. That’s not real estate investing; that’s luck and speculation. That’s a trend that can’t last forever. Watch the market.

You should know three to six months out when the market is going to slow down, and that’s when you get out.

Stick to your investing fundamentals:

  • Don’t count on appreciation.
  • Make sure the property can cash flow.
  • Keep multiple exit strategies in case you need them.
  • Maintain your financial reserves.
  • Do not take out debt to buy down payments.

The market is on fire right now, and you should be taking advantage of it. But take advantage of it carefully and use discernment. Don’t overextend yourself or your resources and be a student of the market; you’ll see the slowdown coming.

Listen and learn:

What’s inside:

  • Why you should NEVER borrow money to buy a pre-construction condo.
  • Remember the investing fundamentals to avoid being burned when the market slows down.
  • What should we watch for to avoid getting burned in a downturn?


Download episode transcript in PDF format here…

What's up, everybody, this is Joe, REI In Your Car podcast. And I'm going to be talking about I think it's like 2006 all over again, I'm going to be talking about what's going on in this crazy market from my perspective and what you can do to make sure you're safe, protected and not going to be making the same stupid mistakes everybody else was making. Not everybody, but most people, what they were making back in 2005 and 2006. So, yeah, it's a beautiful morning today as I'm driving. It's cloudy and overcast in the low 50s, but there's flowers, my goodness. Everywhere I live in St. Louis, Missouri, if you didn't know and there's flowers we on three acres, we've got some acreage and our house is kind of back behind the road. And my wife is just amazing. She plants these beautiful flowers. A lot of them were here already when we moved here, when we bought the house. But I just love the spring. I love seeing the flowers. It's a sign of new life and my wife is so cool, too, because she plants these flowers that like Bloom all throughout the summer. So we're always a surprise to see which flowers are blooming when. And I just wish they were. I wish some of these lilies and stuff were here all year round in orchids and stuff like that is just incredible. So anyway, I am driving right now to pick up my golf clubs. I'm going to be playing some golf with some friends on Monday. But anyway, I wanted to talk about the other day I was watching some Instagram stories and a friend of mine. I can you know, we're acquaintances, not super good friends. But he just got back from a little trip to Florida and he had bought preconstruction. In other words, he went down there and he bought probably a year ago, six months ago, I don't know, bought an option on a preconstruction condominium. So this was a condo that had not been built yet. And he bought the rights to buy it. He bought the option to buy it at I forget the exact time, but I think 1.3 million, that's what it was, 1.3 Million. Right. And then he just flew down there because the construction is done, the condo is beautiful and it's in a beautiful area of Florida and, you know, decides he doesn't want to buy it. So he sold it for 1.99 Million. So he just made a quick seven hundred thousand dollars on this condo. And I was thinking, oh, it's awesome. I'm super happy for him. You know, that's amazing. But I'm thinking, oh, my gosh, here it is. 2005, 2006 all over again when. And you guys, some of you've been around longer than I have and this is nothing new. You've seen this for a long time, but you remember. Right, you remember what was happening back in 2000 I'd say between 2006, I'd say maybe two 2003 and 2006 and then even on for the next couple of years after that. But people were out there buying preconstruction and then selling it after it was done or even maybe selling it a month later. And you remember the lines I'd hear about these lines and we were doing some of this myself. I remember being pitched these opportunities in Las Vegas and Phoenix, even in St. Louis, Missouri, where it's not a hot market. And the idea was, listen, you just buy this option, put ten thousand twenty thousand dollars down for five, four or five hundred-thousand-dollar property. This he was working on was a million-dollar home. So maybe he put down one hundred grand or something like that. But the idea is you buy this option in the hopes that it appreciates. It's more than just a hope. It's the firm expectation. It's like everything always goes up. This is a sure bet. Everything I touch turns to gold. Right? So you buy it with the expectation that it's going to appreciate by the time it's done. And then when it's done, you sell it, you don't actually buy it. Or maybe you do buy it, but you turn around and immediately sell it to somebody else. Well, man, I don't know. I may be wrong. I hope I'm wrong, but it seems like we're seeing this all over again. And so I wrote a Facebook post about it. I just wanted to kind of share some of my observations on this because, you know, who knows? It's 2021 as I'm recording this right now. And I think personally, I think we have a few more years of this one or two more years of this kind of appreciation and speculation. And I'm not saying you should sit on the sides. I think you should take advantage of every opportunity you have. But you've got to be careful, because when you start seeing the hairstylist bragging about how she bought some property and sold it a month later and made fifty thousand dollars, you need to be scared. You need to. Be thinking, all right, it's time to get out, and the great thing about real estate is that it does not move on a dime like the stock market does, right. The stock market down, up, down one day, up the next day, you know, and it just drops five, 10 percent one day cryptocurrency. You know, the real estate market is not like that. It's much slower, which is good, because if you're a student of the market and you're paying attention to inventory and days on market and price drops and, you know, the percent of sale price versus compared to the list price, if you're a student of the market and you can watch these things you have, you can have at least three to six month advanced warning when you start to see the market slow down. Right. And so I remember, you know, back in '06, people talking even back then, oh, we're in a bubble. The bubble is going to burst and get out of the real estate. But it was like still 2006. And all of the real estate experts, quote unquote, the you know, especially the National Association of Realtors Economists were saying, no, no, this market is fine. It's strong, you know. And then once we started seeing some weakness, it was know it's just plateauing. It's just softening up a little bit. Don't worry. The market is still strong. Prices won't. They'll maybe go down five or ten percent this year. And then we all know what happened. Right. The market crashed and yeah, maybe nobody could have predicted that, but I think a lot of people did. Right. And so the good thing here's my point, though, is that you can if you're watching the market, there's a few things you should watch out for it. Right. No. One, watch for that person who is not doesn't know anything about real estate. Right. And they're making fifty hundred, seven hundred thousand dollars flipping real estate and not adding any value to these properties. Right. They're just getting in there, buying it early with the hope of appreciation and then selling it six months to a year later, making a huge profit. That's not real estate investing. Right. There's nothing wrong with it. I think it's smart if you can do it right. It's speculation. It's just speculation. And you're lucky. You're just as I said in my Facebook post, you're just this fly riding on the bulls back. Right? The nope. It's hard to lose money when you're in a strong market like this. All right. But it's not going to last like this forever. So if you're studying the market, you can tell when it's you know, you should be able to tell with at least six, three to six months advance notice of warning, reading the warning signs, things starting to slow down, and that's when you get out. OK, so here's my advice. You see opportunities like this right now in Florida, right? Buyers are just going crazy. You can buy properties right now at eighty, nine cents on the dollar. You don't need huge discounts anymore. And you can turn around and sell them for one hundred and five hundred and ten cents on the dollar a month later. So if you see any new construction in condos and things like that, and if you got the money and you can afford to lose the money, go ahead and buy the option. Right. Take that risk because you can afford to lose it. However, when people get in trouble is when they ignore the fundamentals, OK, when they ignore the fundamentals. So be careful with debt. Be careful with getting over leveraged. You need to make sure that you have multiple exits. If you're just relying on one exit, you're going to be in trouble. All right. Where people got in trouble in '06 is when they got into debt over their heads. Right. And they were counting on future appreciation. Now, that's why I like options. Right? Because if you buy an option on a property and you know you don't have to exercise your option, you can if it comes time to buy your option to buy this property. Five hundred thousand dollars, but it's only worth four fifty. Well, you can walk away. You lose your option. Deposit money. Right. But not a big deal. That wasn't money that was borrowed anyway. So you don't never, never, never, never borrow money to pay an option, to buy an option on a property. Never borrow money to buy a preconstruction condo. But if you have the money to lose, that's OK. It's fine. Right. That's the that's the price of risk that you have to pay sometimes to get those kinds of returns. But, man, don't ignore the fundamentals. You know, the fundamentals are what are the fundamentals? Number one, don't always count on just appreciation. That's one profit center. But that's not your only if that's your only profit center, you're in trouble. You're in trouble. Right. You need to be aware of things like cash flow. So if you can't sell it and you have to buy it, well, OK, you can rent it out and your rent will cover your mortgage payment. Right. You can do a short-term rental vacation rental. Right. And you make sure the. This is a property in an area that lets you rent the property out, if this is an area that does not let you rent in case you have to buy it, right? Well, maybe that's something you shouldn't be doing. Maybe something he shouldn't be messing with. So make sure you can rent it out either as a regular rental or as a long term vacation rental. You know, make sure that you know, you're not in it so deep with such thin margins that you can't sell it. Right. You can't even afford if there is no appreciation, you can't even afford a realtor commission. So those kinds of fundamentals. And then the other big fundamental you've got to be aware of and I'm speaking from experience, guys, this is how I got hurt. And I've seen so many other people get hurt back in that last crash. You don't have any reserves. You've got to have reserves. If you don't have any money in the bank, then you've got to be super careful. Right. This is why I said watch out for the hairstylist who's bragging about how what an expert in real estate they are when they just bought a property and made thirty forty, fifty grand on it in a couple of months. Right. You've got to be super careful because those are the people that are going to get burnt. And I'm starting to see that over and over again, that they're not getting burnt. But people that are inexperienced, don't know anything about real estate, are just throwing their money at these preconstruction deals. And, you know, if they're not careful, if they're not at a place where they can get in and out quickly, they're going to be in trouble. So some of the big again, just the fundamentals that you have to be aware of. Right. Make sure the property cash flows, make sure you have multiple exit strategies. Make sure you're not just counting on appreciation. Make sure you're being very, very careful with leverage and you're not using debt to buy the down payments or the options on these properties, OK, these preconstruction condos and stuff like that. And then make sure you have reserves. Make sure you have something to fall back on. You know, because of the people that did survive the last crash, who were they? They were people who had multiple exits. You know, they had if if they had a worst-case scenario planned out, they knew, OK, well, if this doesn't work out, I can do this or I can do that. And they weren't over-leveraged, they knew they could handle the debt, so, yeah, you know, there's always speculation and risk in real estate. There is no business that has zero risk. I understand that. So I'm saying with what was going on in the market right now, it's so crazy, right? Take advantage of it. Take advantage of all this opportunity that we have. You've just got to be careful, right? What's the worst-case scenario? If you buy if you put one hundred thousand dollars down on a condo that's being built on the beach in the beautiful area. Right. What if it doesn't appraise for the million dollars that you have it under option for you? Can you walk away from the hundred thousand dollars that if you had to or are they going to be you know, is it something else where, like, it's not an option? Maybe it's more of a, an actual contract that you have to exercise or you have to buy it? Is that a good place to be in? Is that something that you're going to be comfortable with if the market crashes or if the market the prices don't maintain? Are you OK with having to get being forced to get financing or having to buy it? Like, I don't know how they can force you to buy it anyway, but you understand what I'm saying. Got to be careful. Got to be careful. I'm driving right now around this golf course community and there's a lot of huge multimillion dollar homes here. And I remember back then in the day when this area was being built, a lot of people were buying homes out here on speculation. And I remember very early on in my podcast one of the reasons I started my podcast, because I met this guy who built he was a speculator and he only had one exit strategy. He was always counting only on appreciation. And he built this huge multimillion dollar house out in the country, complete one hundred percent leverage. It was just an appreciation play because real estate always goes up and he got burnt hard. He was one of the first to fall and he was written up in The Wall Street Journal as a speculator who has been losing his money and all of that. And yeah, that was about six to twelve months before the crash when everybody, the small guy, was getting hurt. So here's my point. And I hope I hope you get I'm hoping picking up what I'm laying down here. I'll be a student of the market, OK? Take advantage of these opportunities while you can. But be ready. Be prepared. Be make sure you're your agile. Make sure you have the flexibility to pivot when you need to pivot. When you start seeing guys like this in the Wall Street Journal who start losing millions of dollars on bad speculative real estate. When you start hearing the hairstylist that is making a lot of money doing real estate while they're cutting hair, be prepared, be ready to pivot. Be in a position where you're like, oh, no, there's nothing I can do. You can't do that right. You've got to be flexible and nimble being. You got to be in a place where you're not using debt in a bad way that's going to get you in trouble. So always be thinking worst case scenario, right? Remember the fundamentals. Remember cash flow, remember reserves. Remember having multiple exit strategies and you're going to be fine. So you can invest in these speculative things. Right. But because it's not your last penny, because you're not borrowing the money for the down payment or whatever, you're going to be fine, you know? Yeah, I think it's about it. I think I've beat a dead horse. I hope you guys are doing well. I sure appreciate you all. And if listen, I'm look, I'm out here watching these golfers right now. If any of you guys are have the time or the money or the desire to hit some golf balls, man, it's so much fun. It's such great exercise. I love getting out here and playing. And you don't have to be rich to play golf. It's not a rich man's game and it's not a white man's game, although, yeah, it's kind of weird. Pretty much only white people play, but anybody can play women, minorities. It's such a great sport to get outside and enjoy nature, get some get some of your frustration out and get some new frustration while you're golfing. I just love golf. I'm a huge fan of it now and I'm always looking for people to play with. All right. So we'll see you guys take care. Bye bye.

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