Oct 10, 2019
There has been talk about a looming recession in our industry for some time now, but what’s surprising is that many people don’t believe it will happen. That’s because they are looking in the wrong places for signs. What are some of the biggest misconceptions about recessions? How do we get an actual read on the signs of the market shifting downward? What investing strategies should we be using in these market conditions?
On this episode, I’m joined by BiggerPockets podcast host, real estate investor and author of the book Recession-Proof Real Estate Investing, J. Scott. He goes deep on the signs of a coming recession, what economic markets look like before downturns and how to turn downturns into opportunities for growth.
Instead of looking at the real estate market and trying to gleam where the opportunities are, look at the economy and gleam where the opportunities are going to be. -J Scott
Four Things We Learned
Recession deniers aren’t looking at the proven data on recessions
Many people are missing the fundamental concept of economic cycles. They see recessions as optional things. It stems from not being familiar with the data, and having never lived through more than one recession. Recessions are inevitable. In the last 160 years, we’ve had 33 full economic cycles. Every 5.5 years, on average we have had a downturn. The time between recessions varies, right now we’re at 11 years since the last, but that doesn’t mean it’s not coming.
The economy tells us if a down turn is looming
The economic signs that a recession is on its way include a shrinking GDP, an inverted yield curve, stagnation in wage growth, a reduction in business spending, and a drop in luxury car sales. These are all signs we’re seeing and experiencing right now.
The real estate market shouldn’t be how we get a read on recessions
Real estate is a lagging indicator, it doesn’t get affected until after the economy has turned. Real estate is NOT what drives recessions but the economy has a huge impact on real estate.
How to handle flips pre-recession
New investors shouldn’t do flips, they are just too risky. If we’ve been flipping for years, keep our projects quick so we’re not caught mid-transaction when the market shifts. We should have an understanding of what happened in our market in 2001 and 2008 because that will show us the worst case scenario and what we can expect to happen in the next recession.
The writing’s on the wall, and there’s a recession coming. In terms of our economy, things aren’t nearly as robust as they once were, and historically that has always been a sure sign of a shift. It’s not about reading the real estate market, it’s about reading what’s happening in the greater economy, consumer habits and buying habits. We don’t have to be afraid of the recession, it’s actually a great opportunity for growth. In order for us to capture these opportunities, we have to optimize our businesses to maximize profits, minimize risks and take advantage of where we are in the cycle.