Is the economy improving or is a tsunami on its way?
Are we heading towards recession or is there some time to prepare?
What do the results of 2020 mean to You and What are You going to do about it in 2021?
There are many experts in the industry that watch the market daily, observe the economy trends, interview millionaires and study various topics religiously. I am big fan of Rich Dad Poor Dad Radio Show with Robert Kiyosaki, Rod Khleif podcast, shows with Harry Dent, Jim Rickards, George Gammon, Ken McElroy updates, and, of course, Peter Chief. The experts’ points of views may vary, therefore, lets overview the current market update and let you form your own opinion and how are you going to hedge and pivot, and get ready for the upcoming changes.
Where are we now in this end of the year?
We got a new president, which by the way it would provide entrepreneurs lots of opportunities including real estate investors and business owners. We as investors know how to adapt very well and get a head of the curve, create wealth for ourselves and our families.
Yes, we are certainly in a bubble, will it explode now or later – we can only speculate.
Have you heard of Barbell Theory?
Prepare BOTH: Continues inflation and upcoming deflation.
Jim Rickards, former CIA consultant, the author of the book “Aftermath” has been talking about it for a while.
In inflationary market we know what to do: Buy Gold and Buy Real estate and hard assets – these are inflationary hedges.
In deflationary market we want to get cash, 10 year treasury notes because bonds do better in deflationary markets (rates come down, bond prices go up). Cash, Stocks and Notes are the hedge against deflation.
One side you have hard assets, on the other side of a barbell you have treasury notes and Cash is the connector. If you are the guy with Cash you can pivot and have choices. The point here is that it looks like deflation is coming after QE, stimulus will run out but we do not know if we get more stimulus, most likely we will, just be prepared for both: 30% Cash, 30% paper asset, business, and 30% Hard assets.
The reason I bring it up, as you should have the strength and ability to pivot no matter what happens and be pre-prepared.
The artificial economy, how Covid effected the real estate market.
Let’s just take a look at our local market here, Boston Ma and Fall River Ma:
We have LOW inventory for 2 Family and 3 Family and high inventory for 5-6 Multifamily. Investors are selling at the pick of the market. Therefore, we have more inventory than ever, the prices still going up. It is not natural supply and demand. Artificial in other words. The inventory for large residential multis is up, and the market is still on the rise.
Besides selling at the pick of the market and getting liquid for deflation, what are other reasons investors are selling their cash flowing properties?
Mortgage delinquencies are a massive indicator of the challenges ahead. The Cares Act rolled out forbearance programs which many people participated in. So as a real estate investor, you can do a deep dive into those numbers. These delinquencies are going to add massively to the housing inventory, which is extremely low and begin to have downward pressure on prices. Real Estate Blog as of November 11th, 2020 mentioned: Attom Data Solutions just announced U.S. foreclosure filings jumped 20% from last month … in spite of foreclosure moratoriums still in effect in many places.
Mortgage delinquencies are happening on commercial buildings, retail buildings, malls, office space, multifamily, and residential already. Without getting income no one can serve the operating expenses and debt. 16% of all FHA loans are 60 days delinquent, over 2M pp that are over 90 days delinquent. Forbearances will run out in March.
Watch your default by market.
Be prepared to start buying from banks as they discount the properties in that they foreclose on. So these mortgage defaults are coming.
Prices will go down as inventory goes up. Dig into the numbers for your state, city and submarket, watching delinquencies and its impact on markets.
Evictions will have real impact. Over 30% of all Renters are not paying their rent timely. The Aspen Institute, is an estimating that 30 to 40 million people in America are at risk of eviction due to the Covid crisis. So what does it tells us?
Evictions are a real thing. Currently there continue to be moratorium on evictions but these will begin to ramp up as we move into 2021. Ken says Tsunami happens after the earthquake and it happened with a lockdown. Be careful not to buy something at the pick.
U.S. was already facing an affordable housing crisis prior to the Covid health crisis. Given this situation, people are going to be evicted and lose their homes, which is incredibly unfortunate. However as in 2008, this will put pressure on multifamily units and some rental housing. So over the mid and long term this will drive up multifamily values, while having downward pressure on single family prices, very similar to the period after the 2008 financial crisis where 10 million people got displaced from the fallout. In 2021 it will be 4 times bigger number.
Unemployment and migration.
What is the real rate of unemployment and are we really in a recovery mode?
Where people are going to due to unemployment, where are they moving to? Say, in your market you have high unemployment rate, high forbearance – this investment is going south. Or it could be the opposite.
In his latest video, Ken McElroy, one of the most experienced and kind investors that America knows, is going deep in details about the way unemployment is measured and what does it mean to you?
Ken shows the breakdown of unemployment based on 6 measurements that government uses and it is all in BLS.gov From U1 to U 6. What is government is showing us is U3 – official unemployment rate. 7.9% which is 12.6 M.
U-6, total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers. 20.4M almost 8M people more varies state by state. The highest Cali 15.1%, Hawaii 15.8% , Nevada 17% and NY – 14.3% – Big cities always get hit first.
Pay attention to migration patterns.as we mentioned before, 40 million people will be moving and misplaced. Which is again, 4 times more than in a crash of 2008. When people move that is trackable primarily by moving companies and driver’s license applications. A good resource for this is the North American Moving Lines website, but there are others you can research. Are they going from New York to Phoenix? That’s trackable. That’s a data point. Pay attention to these migration patterns. Cause it’s going to help you to make sure you can differentiate between the cities and the submarkets that are going down and the ones that are going up, potentially causing small bubbles and minor depressions in various places.
Robert Kiyosaki says: “If you are not paying attention, you are going to be wiped out”
Pay attention to demography. Harry dent says: “Demography is density”.
With new president, we want to pay attention to energy stocks, there will be more stimulus, and interest rates are being low and fed says it will stay low till the next 5 years.
Therefore, on a positive note, For Multifamily investors: Rents hold up. All Properties will go down in value to some degree in a real estate cycle. Medical and residential will go down the least.
When we are about to get to the downturn, there are two things Harry Dent, US economist and historian, actually is suggesting to do:
Sell your over inflated properties to get cash! Stocks, businesses- anything you can to create cash. Sell Properties that has the least debt, not the most. You may want to sell it at the high and then rebuy something similar 2-3 years from now.
Cash Flow. Keep properties that cash flow now. They will be cash flowing later.
The combination of Cash flow and Cash makes you the king when stuff hit the fan and you will have choices.
Opportunities in nursing homes, etc. boomers selling off mansions and getting into the rental market.
Do we agree, if your multi is cash flowing now, it will cash flow later?
Look at your assets, how they preform, pivot and stay ahead of the curve and you will become wealthy and happy!