[Jan/2023 | RE] Recession Proof Real Estate Investing
Long-term Debt Cycle (Dalio style) : 50-100 years.
Deleveraging event.
RE cycle – usually 18 year, last time 2008. Marked by developer buy land.
Non-RE signals
Yield curve
Longer term higher interest rate in normal condition.
Yield is determined by supply/demand, when people worry about economy, change shorter term risky asset into longer term one, this is one reason why inverted yield curve is signal for bad econ ahead.
Unemployment “fully employed” when 4%
Buffet Indicator: Market Cap of stock mark vs. GDP – i.e. Market Cap should increase linearly with GDP.
US GBP (some think) should grow 3-4% annually.
RE signals:
Housing supply : Inventory / DOM signal
Housing starts / building permits signal
Buyer vs. Seller Marketing
1. Avg time on market
2. Number of house listed for sale
6-months to sell is considered equilibrium
Cap rate with cycle – Bullish market lowers cap rate
Profit margin for flipping/wholesaler : higher when mkt expanding.
Risk for lenders
Market risk: i.e. type of loan for flipper – goes with cycle
Deal risk : 1. LTV; 2. Experience of investor; 3. Total asset of investor.
Cost of labor & material: higher when mkt expanding.
Avg Property Size: when mkt expanding, usually avg property size bought is bigger.
Wholesaler end buyer is likely flipper, 所以wholesaler与flipper一荣俱荣. 当然recession是可以卖给landlord
Note Investing: buy non-performing notes at deep discount to either negotiate for repayment or foreclose it.
Judicial Foreclosure: takes about 1 year to foreclose because of slow legal process.
IL is judicial foreclosure state, AR is non-judicial foreclosure state.
Commercial properties:
Traditional vs. Recession-proof: for example: self-storage unit is recession-proof.
Peak Phase
Observations:
Banks for offering more risky loans to homeowners (sold to secondary market to Wall Street), but have lower risk appetite of loans to investors (in-house)
A lot of new investors, and subsequently gurus.
Tactics
If flip, good school district is important – because it has a healthy demand that will persist
Be conservative when buying, assume 10% lower rent, 10% more vacancy.