Epic Real Estate Investing - OMG! The Market is Shifting... What Do I Do? | Episode 211

Episode Date: June 27, 2016

As you may already know, here at Epic Real Estate we do not believe that there is such a thing as “good” or “bad” markets — there are only “up” and “down” markets.  And all of the signs indicate that we are approaching a “down” real estate market.  Today Matt is explaining what you what to expect as the market shifts and how to protect your portfolio and your pocketbook.  ------- The free course is new and improved!  To access to the two fastest and easiest strategies to a paycheck in real estate, go to FreeRealEstateInvestingCourse.com or text “FreeCourse” to 55678. What interests you most? E.ducation P.roperties I.ncome C.oaching Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio Media. Broadcasting from Terrio Studios in Glendale, California, it's time for Epic Real Estate Investing with Matt Terrio. Welcome to Epic Real Estate Investing, the place where I show people how to escape the rat race using real estate. This is episode number 211. I can't even believe that I've recorded 211 episodes. I remember when I first wrote my book that I was like, I don't even know if I have enough to say for to fill up a whole book. And here we are. I've filled up 211 episodes of this podcast over, I mean, I don't think 200 of the other one of the do-over podcast. We've got, sheesh, I can't believe it.

But here we are. And I owe it all to you because I would not be here for you. I wouldn't, if it weren't for you, I wouldn't be here if you didn't share this with your friends and family and your associates and you tune in each and every week. And it's been an absolute pleasure. And what you got to do here, this is the place where I show people how to escape the rat race using real estate. You just shift your focus from making piles of money to making streams of money. Change that one thing just one time. And you are on your way to financial freedom.

I love that you're hanging in here because it's not the most exciting path. It's rather dull and boring. It takes something to stay involved, to stay engaged. But it is the fastest. And once you get there, life then becomes exciting. and I am excited here to be here today. I'm excited that you're here. And, you know, before we get started, I've got a really great episode.

This is an important episode today. But before we get started, a quick announcement, if you happen to be in the Maryland area on Thursday, July 7th, I'll be making an appearance and speaking at the Hub City Ria Club, specifically that's in Hagerstown, Maryland. And I'm going to be teaching how to find deeply discounted properties in today's market. So for more information, go to hubcity ria.com. HubCityria.com. I'll be there Thursday, July 7th.

I am flying in and I am flying out. So if you can make it, I would love to see you. I would love to meet you. I'd love to have the coffee and donuts that they serve at the club and maybe we go out afterwards and we have a couple drinks, whatever it may be. Let's just talk shop and, you know, let's create something while I'm there. Okay, so I'd love for you to be there. HubCityria.com, July 7th.

That's in Hagerstown, Maryland. All righty. And this thing that I'm teaching, finding deeply discounted properties in today's market. Because today's market is very different than it was six months ago. It's very different than it was a year ago and two years ago. And it's probably going to be different again in six months from now. And I'm just really speaking to the nuances in today's market. As I mentioned, you know, on this show, it was probably, I don't know.

I think of six months ago. Maybe a little less than it, maybe four months ago. But I think six months ago. And I mentioned. to watch out for certain signs of change. Because I could, I was just like, change is coming. I can feel it. We've been on a good upswing for a while, a good uptick, and things are about to change.

And these are the things you want to look for and you want to pay attention to. Because I was there the last time the market was going really, really strong. And it turned around. And I remember what was going on at that point. And I remember when there's this mass euphoria going on in the market. And everyone seemed to be doing really, really well. Everybody's happy. No one thought it was ever going to change.

And boom. I'm going to blink if I had changed. So, knowing what I know now, I'm going to share that with you because we are going back into that season. You know, real estate, it moves in seasons and it goes in cycles. And it's very predictable cycles. And you can look for all these little indicators and you can kind of see what's going on. So that's what I'm talking about.

And what I was told you certain signs to look for. The first sign being, you know, when the news and the media, they start to speak about real estate in a more favorable light. They start talking about all the competition out in the market. They start talking about the limited inventory. They start talking about the multiple offer situations that are on every house that goes on the market. You've got people fighting for their house. They start talking about that, right? And they're starting to do that. They are starting to do that. It might be a little difficult. There's a lot of crazy things on the news right now. There's a lot of crazy things going on in the world. But that news is starting to cut through. Okay. And then I mentioned

to other signs to listen for or look for is the chatter. Listen to the chatter that's around you. For example, specifically like when you're a hairdresser or your barber or your bartender, that one guy or a girl at the cocktail party or the kid's birthday party, I've got a five-year-old about to start kindergarten now. And so now I'm interacting with other parents. And when you start hearing people talk about real estate, specifically people where real estate is not their primary business, you know something's up. And I'm not. And I'm not. I'm starting to hear that. Another indicator I told you to watch out for is when you start to see, you know, a real push in advertising and promotion for real estate investing education.

You're going to hear about the latest guru coming to town, the big free workshop that's happening at the so-and-so hotel. You're going to hear about those stuff on the radio. You're going to see it on TV. You're going to see it in your Facebook news feeds. You're probably seeing a lot of that. And you're going to see more and more infomercials on TV. We haven't seen a lot. informationals a lot lately, right, on real estate. But they're back. And it's all coming from brand new names, brand new faces, people you've never heard of or never seen before. And when I mentioned all of this, I don't know, six months ago or so, I was anticipating, I really thought we were probably a year away from it or so, probably another year before we

started seeing these signs. And I don't know about you, but I'm seeing almost all of those signs right now. It's happening. The real estate market is officially here. It's on its upswing. And that's not real news to us because we know it's on an upswing. For those of us that are in the trenches and we make a business out of this, you know, this last couple of years have been really, really good for us. But when the general population starts to take notice, that's the specific upswing I'm speaking of.

When the people that have really have had no business in real estate since back in 2005 and 2006 where they could pull out all their equity lines of credit and go buy more real estate, you know, those people that left the market after everything crashed, They're kind of creeping back and they're starting to talk about. They're getting a little bug. They're getting the itch for it. And they're coming back. And, you know, typically if you look back at real estate's history and it cycles,

when you start to notice all this stuff, typically it means, I don't know, you've got 12 to 18 months to just really dig in and get busy and sees the rest of the opportunity that exists in this cycle. And I just got back from my mastermind meeting last week. And some of the members there think it's already too late. They think it's gone for the most part. Like, you missed the boat already. I don't think so, though.

I don't think so, however. I mean, we're still doing deals on a regular basis here. And I think we've actually got probably another 18 to 24 months before we really start to pull back a bit. And I don't think we're going to have a collapse. I don't think there's going to be a bubble burst. There are some caveats there, but I really don't think there's going to be a big bubble. At the very least, I think we're really just going to come pull in and kind of slow down into

more of a normal real estate. market. You know, we, we dropped so far this last time back in 2007 that there was just so much opportunity. There was so much to ride to ride on the way up. But we've kind of probably rebounded nationally, oh, I'd say 80, 85 percent. We're almost right back there. So these are just guesses, though, by the way, I'm just sharing you might with me, my observations. I'm sharing with you what the other hundred real estate investors that I meet with every quarter, what their observations are. And there has been a consensus that we're essentially back. We better dig in and really get our operations tight and start running our business like a business

because this appreciating market, it's not going to be there too much longer to save you from your mistakes. Okay? So you're just going to have to be a little bit more of a disciplined investor. You're going to have to stick a little bit more to your minimum deal standards and you might have to settle for a little bit less volume, but there's still plenty of opportunity. You know, real estate, the roof over your head. It's one of man's basic needs.

That's not going out of style anytime soon. Not for my foreseeable future. I refile my time here on Earth. And, you know, when people sell it a discount, it's because of a life happening. Something happened in life that causes a person that needs to sell a house. They need to sell it quickly. And they don't care how much they sell it for. They just need to dump it because something happened in their life.

It was a divorce, a bankruptcy. They lost the job. They got a job transfer. Someone passed away. Whatever it may be. They inherited it. And so those things happen every single day. So that's not going to change.

It's just the massive amounts of volume that's been available to us over the last, I don't know, almost a decade now. That's going to slow down a little bit. Okay? So we all know that nobody has a crystal ball, though. So I'm always going to leave you with that. But if there were anything close to a crystal ball in real estate, what that would be is just kind of reverting back and focusing on just the absolute basics of economics. You could just look at supply and demand. And that's going to give you a good indicator of what the future holds.

There might be ups and downs along the way, but you can fairly with a reasonable amount of certainty, predict what's going to happen in the future. That's fairly easy to predict, actually. And that demand, when you're talking about supply and demand in real estate, the demand being the population, people, right? Each generation, bigger than the previous. And I believe it's, I heard the stat, and I read the stat,

and it's right around 60% of the population under the age. of 30 years old. I think I saw 56, 57 percent, under the age of 30 years old. So the demand is in place. All right. So the demand is not going anywhere. All of those people are going to need a place to live. They're all going to need a roof over their head. So the demand is in place. Now when it comes to supply, well, in most parts of the country right now, that houses for sale inventory, the houses that are for sale, averaging around two months or less. And what that means is if there are to be absolutely no new houses come on the market. So today was the last day that a new house ever came on the market based on the current consumption rate of buyers in the market, all the houses would be gone in two

months. That's what that means. And what that translates to is a seller's market. It's right around typically six months or less. So there's only like two months of inventory speaking nationally. So it's a pretty strong seller's market. So there's a lot of competition out there for these minimum limited number of houses. And so what that means when there's a lot of competition on the demand side, things don't sell as much at a discount as we might have been used to. Okay. But that's right now.

What about the future? Like what does it kind of look like tomorrow or six months from now, six years from now? How do you predict the future supply? Well, one of the key indicators is, or one of the, I guess, strategies or methods or hacks, I guess you'd call it, is you jump on the back of new. home builders. You jump on their back, look over their shoulder to see what they're doing, because they do a lot more research than you and I would ever do. So that's a good indicator of what's going on is to watch what they're doing. And you want to take a look at where they are pulling

all their new building permits. And at what rate are they pulling them? And the pulling of building permits based on what I looked at this morning, went to the Census Bureau, looked at it, still on the rise. but the rate at which they are rising is slowing down significantly. And what this information indicates, as the supply of new housing is three to five years out from the date of building permit is pulled. So what's happening right now with the building permits gives you an idea of what's going to happen three to five years

from now when it comes to inventory and what type of new housing and what the amount of new housing that's going to be available for sale. It's a backdoor way of predicting how much new housing should be coming on the market in the next. three to five years. So the question is, there's some contradicting information here, right? If housing supply is so limited right now and the demand is already here and there's going to be even more demand in three to five years, why would new home builders, why wouldn't

they be rushing to build more housing to satisfy the coming demand? They know it's coming. It's like they got their customers built in. They know it's going to be there. So why would they be slowing down a little bit? Well, there's some uncertainty in the market. And specifically, they're looking at two things. First is the affordability index.

And the second are interest rates. So the affordability index, what that means is based on what the average person or what the person in a certain area, what how much money they make will indicate how much real estate they can buy based on the lending terms. and in your A areas, those A properties in your B areas, that's starting to hit a point where the people in that area can't afford much more than what the houses are currently selling for. And with lending guidelines being so strict, and since the collapse in 2007, that the banks aren't really,

they're showing signs of coming out with some more creative products because it's slowing down because if they stick to their main, their current guidelines or what they have been over the last eight, nine years, no one's going to be able to afford the house anymore because they're not going to qualify to buy the house. So that's one thing that they're looking at.

So your A and B property areas, they're hitting that max. I know in most parts of the country, those A areas, those really nice properties, the newer properties and the nicer neighborhoods, those have kind of hit a point to where, you know, unless people are independently wealthy and they've got a bunch of cash socked away,

your typical person is not going to be able to go to a bank and qualify for that. So, yeah, so just the prices are reaching the point where the buyers of these properties can't afford them. And if interest rates, now the next next part would be interest rates, if those should tick up a little bit, which is about the only direction left that they could move, considering they're about as low as they can get, you know, that's going to cause the, that's going to impact that affordability index as well, because the interest rates, if they go up, so that means the monthly pay. payment goes up. So that means a person can't afford the monthly payment. And so what that says is the profit in new housing, it's not such a sure bet for the home builders. Right? It's not a good

enough. Yeah, it's just not good enough. It's still a good bet. It's just not good enough for them to take out all of this debt and put forth all of their money and go into this long-term projects for the next three or five years. Not enough upside for them right now until they know a little bit more about what's going to happen with the economy as far as interest rates go as far as the amount of lending that goes on so it's not such a slam dunk like like it might have been say I don't know eight nine years ago when they're like okay we got plenty of room to go up let's keep on building and because we know the demand is going to be there well we kind of hit in a point where those two things have come head to head so limited inventory available right now limited inventory

or two months of supply in most parts of the country. New home building, showing signs of slowing down a little bit. Affordability in the nicer neighborhoods approaching maximum levels. So, and then also, here's another thing to think about the last eight, nine years with banks lending guidelines so tight, they've only lent money to A borrowers, people that actually could qualify and prove it. They could prove their credit history. They could prove their incomes.

and they had their debt to income ratios, so they're not over leveraged. So these are like just the most, from a credit perspective, the most upstanding individuals in our society, the chances of them foreclosing or defaulting and going to their foreclosure, very limited.

So there's no real supply going to come from there either. So where is, what's all this demand that's already walking the planet? What are they going to do? Again, nobody knows. I mean, Like I said, we can't read the future. We don't have the crystal ball.

But there's enough information here for you to start drawing some conclusions. You know, logic would probably have you believe if the A neighborhoods are maxed out as far as affordability goes. And the B property areas are probably right behind them. There's no new foreclosures coming out. The new home building is slowing down. Where are people going to do? Where are they going to move? Where are they going to buy?

People are going to start moving into the C neighborhoods. That's where a lot of people think the next opportunity is or where all the opportunity exists right now. They're going to start looking at C neighborhoods, fixing those properties up, and turning those areas around. And that's going to be a lot of people like you and me doing fix and flips in those areas, the individual investor. And if all of the aforementioned trends are to continue in the way that they are, the D neighborhoods logically would probably be soon to follow after that. So I'm not saying go out there and dump your entire life savings into C neighborhoods. I'm not saying to shift your entire business and go into the D neighborhoods in the war zones and prepare for the future. But I am suggesting to keep your eyes and ears open.

I'm just sharing the information with you. You can draw your own conclusions. Real estate is local. Everything I just said right now might not apply in your specific town right now and you have no idea what I'm even talking about. But generally speaking, over the statistics. nationally. That's kind of what's going on. And then with Los Angeles and Phoenix, Arizona, kind of being the market leaders, not market leaders, but I say when things start going really good, they start going good in LA and Phoenix first. When they start going bad, they start going bad there

first as well. So things are good in Los Angeles and Phoenix. Things are on the rise. Properties, everything looks stable. But keep your eye on everything. Okay, because you might have to make some shifts. You know, depending on who you talk to, you know, you might want to go into those C neighborhoods right now, right this very second, because, you know, you already seen it in your area. Or maybe you want to stay the course a little bit longer, just kind of wait and see. You're going to take my information. Thanks, Matt, noted. I'm going to keep doing my business, but I am going to keep my eyes and ears open. I'm going to watch the TV. I'm going to listen to the radio. I'm going to I'm going to check out market stats in Los Angeles and Phoenix and I'm going to watch interest

rates a little bit closer. I'm going to watch the unemployment rates, whether that goes up or down. Good. So stay the course and just kind of wait and see. Or maybe you want to start kind of incorporating different property types, different neighborhoods into your existing strategy and kind of make that migration slowly, maybe kind of have a toe in the water in those C&D neighborhoods and but still maintain your current business. So like I said, this is the information that I'm giving you.

This is based off of the current statistics, the current numbers, based off of the opinions of the 100 most successful real estate investors in the country right now. And so I'm sharing that with you. This is what I do know. Housing, regardless of what happens next month or six years from now, housing is the best investment you could be in at the moment. and for the long foreseeable future, just based off of supply and demand. You just have to back it with the right strategy. Okay.

Like I said, there's enough demand already walking the earth to fuel housing for our lifetimes for sure. And I also note real estate, it's going to continue to cycle. It's just going to do it. All right, it's going to go in and out of its seasons. It's going to cycle.

It's going to go up and it's going to go down. With the upside, always being a little bit bigger than the previous upside. So it goes up and then it goes down. And when it comes back up, it's going to go up just a little bit higher than it previously did. And you can see that back for 100 years as long as they've been keeping the stats.

And, but as long as you, a portion of your investment strategy involves income property. And it better be, I would say, at least 50% of your strategy. As long as your investment strategy is income based, as long as 50% percent, you know, long as 50% of your strategy is income-based, even higher would be safer. You're going to survive the down times. Okay? So whether the market is up or down, there's always, and when it comes to the act, the other part of your strategy, whether the market is up or down, keep in mind,

there's always a relative low price that you'll be able to purchase at. And there's always a relative high price of which you could sell. So you always got a profit in there. I mean, if you ever find yourself upside down in one of those cycles where, you know, you purchased and you kind of now it dropped and you haven't been able to sell it yet, but now it's too low. It's come down too much to where you can't sell for a profit. As long as you purchase with income and mind, you're going to be fine.

So no need to panic, right? There's no such thing as good markets or bad markets. There's just up markets and there are down markets. The game is always the same. It's real estate. You buy low, you sell high. Sometimes you buy low and sell high fast. Sometimes you buy low and sell high over time.

But the strategy to win that game, that can shift, right? So, as I'm sure, competition, it's going to creep up on us all over. over the next couple of years, we've got new people learning the game. They're going to get excited about real estate and Mr. Joe population. They're going to come in. Mr. Joe Consumer is going to come in and they're going to get into the game and it's going to increase the competition. So we're just going to have to shift our strategies a bit to make sure that we continue to profit.

And keep in mind that the newbies, I guess you would call them, or the part timers or the hobbyists that are coming into the market are most of them they're getting their education from a place that teaches them to go out and find a deal and fix it up and then sell it for a profit. And if you've ever done that before, you know, that's a lot easier said than done. It's been a rather attainable by most people over the last decade. But as the market tightens up and the inventory tightens up, it gets more and more difficult to buy low enough to fix it and still sell it at a profit. So you're just going to have to get more creative.

that's why you're here. You're here at the Epic Real Estate Investing podcast at the Epic Pro Academy is the School of Creative Real Estate Investing. And I'm going to share with you one of the things that I'm doing right now to capitalize on the shifting market. I'm going to share that with you. So you can capitalize on the new people that are going to be coming into the market. And it's not taking advantage of them. It's nothing sneaky or tricky. It's just a new type of strategy where you can get some cash right now and you can create some cash flow for yourself as well. Okay. And I'm going to go over with that, over that with you next week on the next episode of Epic Real Estate Investing. So to your success, I'm Matt Terrio, living the dream.

You've been listening to Epic Real Estate Investing, the world's foremost authority on separating the facts from the BS in Real Estate Investing Education. If you enjoyed this show, please take a minute to visit iTunes and share your thoughts. Thanks for listening. We'll see you next time here at Epic Real Estate Investing with Matt Terrio. This podcast is a part of the C-suite Radio Network. For more top business podcasts, visit c-sweetradio.com.