Thoughts On Buying Property Ahead Of A Potential Recession

Thoughts On Buying Property Ahead Of A Potential Recession

Recessions tend to hit every 7-10 years. We had a massive recession in 2008-2009. We've had another unforeseen recession in 2020. Therefore, let me share some thoughts on buying property ahead of a potential recession.

There is a growing probability we will end up in a recession over the next 12-24 months. After aggressive Fed rate hikes since 2022, it takes 12-18 months for such higher rates to slow down the economy.

Therefore, buying a property ahead of a recession is a tricky situation. Let's learn from history.

My Experience Selling Property Before A Recession Hit

When I sold a key SF rental property for 30X annual rent in 2017, I was both ecstatic and sad. On the one hand, I was pumped someone was willing to pay 59% more than what I would have sold it for when I first tried to sell it in 2012. A small recession did hit in 2018 in SF.

On the other hand, my wife and I had lived in that house since early 2005. Our long-term vision was to raise a family there and live happily ever after. But our child never came. Therefore, in 2014, we downsized by buying 40% cheaper house and rented our old property out. We contemplated a simpler life without children. Then, as fate would have it, my wife got pregnant in 2016, and our son was born in early 2017.

After his birth, we really considered moving back to our previous larger house, which was in a much busier part of the city. However, we just couldn't bring ourselves to pack our things again and relocate so soon. So I set up a race between myself and a real estate agent. I was to find a new set of tenants and she was to find a qualified buyer. Whoever found new occupants first would win. I lost.

Once the global pandemic hit in 2020, I felt better about my decision to sell rental property. It felt great not having a $815,000 mortgage and so much exposure. However, the recession was violent and quick. We soon recovered and property prices took off again.

I decided to buy a forever property in mid-2020 because we needed the space due to two children and work from home. But what about buying a property ahead of another potential recession? Let's discuss.

Buying Property Ahead Of A Potential Recession

Let's see what we can learn about buying property ahead of potential recession. A lot of us have families to feed and lives to live. We can't base all of our decisions on where we are in the economic cycle. Here's a recession preparation checklist for good measure.

These are my thoughts on buying property ahead of a potential recession. The Fed has hiked aggressively and GDP growth is slowing down.

1) Real estate is cyclical.

If you end up buying property in a softening market, expect real estate prices to stay flat or go down for the next 3 – 5 years. You will not catch the bottom.

It takes 3 – 5 years for the market to work through inventory and find price stability. There are always delusional sellers in the first couple years who believe they can still get peak prices. It's only after seeing their property sit on the market for months that they finally acquiesce to cutting prices.

You can read about what happens if you buy a home at the top of the market.

Below is a simplified chart of the SF Bay Area real estate market cycles.

San Francisco Bay Area Real Estate Market Cycles

2) Real Estate Is Seasonal

The best time to buy property is in November, December, and January. The weather is generally terrible during this time of year, nobody wants to move during the holidays, and any seller listing during this time period is more motivated to make a deal.

As the weather gets better and people get paid their bonuses, the real estate market heats up in Spring.

Take a look at some housing data from the Federal Reserve, the Census Bureau, and Zillow. If you want to buy a house despite a potential recession, the fourth quarter of each year is your best bet.

Best time to buy property in the year

3) The inherent demand for real estate is strong.

Why does the real estate market always seem to heat up in the first half? It's the same reason why Financial Samurai gets more traffic in the first half than in the second half. Hope and goal setting!

This is the year we will buy property might be as common a thinking as This is the year I will workout, eat better, and lose 10 pounds. As people come back from the holidays and get paid their bonuses, they get motivated to make positive changes in their lives.

The government also knows about human nature, which is why it makes us pay our taxes by April 15th before we run out of money.

Given owning real estate is one of the best ways to build long term wealth, buying real estate is always one of the most popular financial moves people want to make.

If you want to sell property ahead of a recession, it's best to list in the first half of the year when more people have more money and are looking to buy.

4) Follow a real estate buying rule

The homeowners who suffer the most during a recession are those who've simply bought too much house and lose their main source of income. It's important to follow the 30/30/3-5 rule of home buying.

Cash flow. Spend no more than 30% of your gross income on your monthly mortgage payment.

Down Payment. You should have at least 30% of the value of the home saved in cash. 20% is for the downpayment to avoid PMI insurance, and the other 10% is for a healthy cash buffer. 

Value of the home. Cash flow affordability is a function of the price you pay. If you are able to meet the first two hurdles of cash flow and down payment, then you can tie it all together with a proper multiple of your yearly gross income to see what you can afford.

I recommend buying a property no greater than 3X your annual gross income. However, with interest rates so low, stretching up to 5X may be reasonable for some with larger cash buffers.

Remember, you can always refinance your home, but you can never change your initial purchase price!

Another real estate buying rule is called, Buy Utility, Rent Luxury (BURL). The idea is to rent in a low cap rate city and invest in a high cap rate city. This type of arbitrage is now feasible thanks to private real estate investing online through platforms like Fundrise and CrowdStreet.


5) Consider paying cash for a house.

If you can pay cash for your house and can comfortably cover all the ongoing maintenance expenses and taxes, then you've got the best house buying scenario if we enter a recession.

Being a cash buyer also helps you get the best price possible. Not having to depend on a bank to give a buyer a loan can easily shave off 1% – 5% from another buyer's offer who requires a loan.

It is much more stressful being a property seller than a property buyer. Each day a house goes unsold after an offer due date hurts the value of the house. Cash buyers can also offer quick closes that can also help get them a lower price.

If the property market proceeds to decline by 20%, a cash buyer is only down 20%. Having a paper loss of -20% won't feel pleasant, but it will feel much more pleasant than if a buyer put down 20% and lost 100% of his or her equity.

Another hedge against buying property before a recession is to sell stocks to buy property. This way, you are trading one riskier and more volatile asset for a less risky and less volatile asset. At least with a house, you can enjoy it! With stocks, their values generally plummet in a recession and provide no utility.

See: How To Pay All Cash For A Property Without Having All Cash

6) Buy property to fit your life.

I used to often wonder why anybody would get into a bidding war and overpay for a property, especially after an already massive appreciation in prices. But overbidding happens all the time because people have needs that are even more important than wants.

When couples have their first child or another child, they'll often want to buy a larger home. Sometimes, parents and in-laws need to move in to be cared for. These type of buyers can't wait until the perfect time to buy a house. They need to live their lives today.

I'd like to get a larger house for guests to stay longer term. Besides, I'm very bullish on single family homes with panoramic ocean views in San Francisco. If there are deals to be had, I'm pouncing because I've got a 20+ year time horizon.

So in reality, we are always buying property ahead of a potential recession if we buy long enough! And if you end up buying a forever home, then even if a housing recession comes, you won't mind because you plan to live in the house over many cycles.

7) Prime locations will suffer less in a housing recession.

The farther you have to commute to a major job center, the more likely your home price will drop during a recession. Vacation properties will likely suffer the most, so please avoid buying a vacation property until there is really blood in the streets. Finally, excessively large and expensive properties will also suffer

Heartland real estate with already high cap rates may outperform coastal city real estate with low cap rates. However, no area will be immune to a recession. The only difference will be the magnitude of declines. Please carefully study the demographic trends, job growth figures, upcoming inventory, and health of the major industries in the area you want to buy.

If you must buy before an impending recession, focus on the best location possible. Look to buy property priced no greater than 20% of the median price home in your area because that's where the demand is greatest. If you want to save money and get a deal by buying a property farther out, then you should wait until you can't go a day without seeing a bearish real estate headline.

8) Lower mortgage rates will create a soft landing.

In general, when we are heading into a recession, mortgage rates decline because investors buy Treasury bonds for security. Therefore, lower mortgage rates helps increase affordability and bring back demand into the real estate market. As a result, prices bottom and tend to rebound.

With rising inventory, softer prices, tough lending standards, strong employment, and lower mortgage rates, it's hard to see prices collapsing by more than 15% – 20%.

I just finished refinancing my mortgage and my payment is going from $3,920 down to $2,820 a month. A $1,000 increase in cash flow is significant. Thousands of other homeowners across the country will experience similar types of cash flow boosts as well that will enable them to more comfortably afford their homes.

Make Sure You Buy And Hold For The Long Term

Buying property ahead of a potential recession is suboptimal timing. I lost a bidding war ahead of a small downturn and I felt great in retrospect!

However, if you do buy property and a recession hits, you'll be fine so long as you keep paying your mortgage and property taxes. If you buy your property with cash, you probably don't have anything to worry about unless the property took all the cash you had.

Make no doubt about it. You will feel bad buying property before prices decline. But if you hold onto the property long enough and enjoy it, things will likely turn out ok.

Life goes on as usual during a recession. Recessions generally only last between 6 – 18 months anyway. Sometimes, by the time you realize you're in a recession, it's already over.

What Happens To Your Credit Score If You Foreclose Or Short-Sale

If you can't hold on during a downturn and decide to foreclose or do a short-sale, then you simply lose 100% of your downpayment. You also hurt your credit score by the following according to FICO:

  • 30 days late: 40 to 110 points
  • 90 days late: 70 to 135 points
  • Foreclosure, short sale or deed-in-lieu: 85 to 160
  • Bankruptcy: 130 to 240

Before you buy a property, please discuss and follow all the items in the post above. If you've crunched the numbers, are OK with taking a 15% – 20% hit, and plan to own your property for 10 years or longer, chances are high you're going to be fine.

Start looking at homeownership as a way to improve your lifestyle. If you end up making money over the long run, fantastic. Most people usually do. If not, it's OK because you were too busy making great memories.

Diversify Your Property Investments

Buying property ahead of a recession can be a bummer. However, to increase the chances of making a positive return, you should diversify your property investments.

I've invested in 17 real estate crowdfunding deals across the country, two REITs, and two real estate ETFs. It feels great to earn income 100% passively without having to deal with tenants or maintenance issues.

My favorite real estate platform is Fundrise, where they've created private diversified funds for passive income. Historical performance has been steady, especially during down years in the stock market. For most investors, investing in a diversified fund is probably the best way to go. Fundrise is free to sign up and explore.

For those of you who like to invest in individual real estate deals, check out CrowdStreet. CrowdStreet focuses on real estate projects in 18-hour cities, those cities with potentially faster growth and better valuations. With technology and the growth of work from home, I believe there will be continued migration to 18-hour cities. CrowdStreet is also free to sign up and explore.

I've personally invested $954,000 in real estate crowdfunding to diversify and earn income 100% passively. It's been great to diversify my expensive San Francisco real estate portfolio.

43 thoughts on “Thoughts On Buying Property Ahead Of A Potential Recession”

  1. Sam, are you still bullish on RE from a crowd funding perspective? If I’m 24 and maxed my 401 and IRA, is it a bad idea to put leftover money to work in a conservative eREIT? (i.e. Fundrise). I’m not sure I’m super bullish in the 5-7 yr term right now on CRE, but investing in the debt portion of the capital stack for a deal with solid fundamentals is at least safer than equity, and still beats the 1.78% I get risk-free.

      1. Got it – thanks! Was just curious if you are bullish specifically on “Physical Real Estate” where you can hold and build equity even thru a recession, or it you also were still bullish on crowd-funded, being that it behaves a little differently. Thanks again for the awesome content.

  2. Very long term SF renter

    Hi Sam and readers, Great post.

    Wondering what you think of this situation. We live in a decent rent-controlled apartment; if we bought a house in San Francisco, the property taxes alone would be 80% of our rent.

    We have more than 30% for a down payment (now in low-yielding places like money markets and treasury bonds). That represents less than a sixth of our wealth (mainly in the market and retirement funds). We figure that we could cover a 15-year mortgage/carrying costs on our current income and keep up with our retirement savings but not any additional savings, and we’d have to watch spending a bit more than we do now. We have no children to support but do cover the bulk of expenses for a disabled family member.

    On the one hand, we’d like a nicer place to live and to build equity. On the other hand, we hope to retire in less than 15 years and the thought of doubling to tripling our monthly expenses makes us sick to our stomachs. So does the prospect of a housing market crash.

    Where would you put your money?

  3. We bought our condo right before the last crisis. I mean…right before. Like Summer of 2006. We refinanced (can’t remember the year) and our home was appraised 30% lower than our purchase price. yikes.

    As the article suggested, because we weren’t planning on moving, it was just a paper loss. Luckily, our place is really close to a major metro area and the price recovered. We eventually sold 11 years after we moved in at 25% above our original purchase. I know people who purchased further out and those home struggled to recover.

    One example doesn’t make a trend. But I agree with this article that you should look to buy a home that you plan on living in long-term. In the event of a recession, buying near a major metro hub will not only cushion the fall, but it will also accelerate the recovery.

  4. Great post, we’ve had subdued prices where I live (Oxford, UK) for a couple of years now.
    Likely at least a 4% drop if you take into account inflation. Is this because of a cycle, or Brexit or both?

    Certainly the market isn’t moving at the moment with not a lot on the market (often overpriced and on the market for long durations) and many buyers
    sitting on their hands (me being one of them).

    Problem is prices are so high, if they do increase next year your average starter home is going to go up so much beyond your saving ability you may be stuck out the property ladder forever.

    I’ve met a few people this happened too! And remember well the last boom about 7 years ago when we saw 25% plus per year, auctions going on and guzmping left, right and centre. It was a stessful
    time to be a buyer!

    Personally, I think we’ll see an uptick next year we’re due to come out of the ‘mid cycle wobble’ plus Brexit may well have passed (who knows!).

    Caveat emptor.

    1. How’s the housing market in Oxford this year? I used to live there too, and saw how crazy things went for OX1 & OX2. But the good thing of UK property is that the council tax is sooooo affordable compared to the US’s property tax. The interest rate is much lower too. The problem is that the salary is low so you can’t borrow much, and the price is so high for normal people to get started. My conclusion is that Southeast England is for rich people to retire, not for working families, b/c it’s so much harder to get on the ladder. What do yo u think?

      1. I looked at Land Registry data only last week, it’s dipped a little recently so hasn’t increased since 2015 but like you said we had a huge ramp up before then!

        I pay circa £180 a month council tax for a small 2 bed. Yes I agree with the salaries, the US is much more generous but we get more benefits here (holiday, free healthcare etc). Oxford is also a great place to live, I get to swim in the river and cycle in the countryside, plus the city is beautiful.

        You can make it work but it’s not easy particulary if you are unskilled, thankfully I’ve continually learned to improve my salary, invested well and grew up in a safe environment. I think we have more house price falling to come here so a year will be a good time to buy – right when I plan too.

  5. Thanks Sam. This is probably one of the most wholesome article I have read around this topic. I am in the market to buy and saving and waiting for the right time. Folks I know tell me, “Now is the right time”. But somehow when I look at the data, I think even a 10-15% market down, is a potential saving in the long run for a good single family house. When you add up PITI, how much do you think would be a safe monthly payout for folks that make between $150-$200k gross annual. Current monthly rent $3k.

  6. This article seems to address purchase of a primary residence, especially for growing families. I’m curious about rotating out of our current primary residence to purchase a *smaller* property, and then renting the existing homestead. How should one approach this in a slowing real estate market?

    We’re in Tampa, and one concern is the predicted increase in tropical weather system intensity. The current home is not in an identified flood zone, but looking at the worse-case scenario planning map that the local emergency management experts have prepared shows the home being flooded (we’ve purchased flood insurance). Any new home would be outside the flood/inundation areas on the planning maps. But right now there is very little inventory for the price / features / locations we’re interested in. I’m inclined to wait for the predicted softening of the market, but that may not translate to an increase in inventory.

    My assessment is that Florida is going to remain an attractive destination until it isn’t (because of multiple major storms, like in 2004). Even then, any falloff in demand may be temporary. The existing home is in a desirable neighborhood, and it seems unwise to just sell it and then try to figure out what to do with the proceeds, when I can probably rent it for $3-3.5K/mo. (We have another rental we could reclaim for our primary residence.)

  7. We SOLD in the heartland recently — 5 properties in Indianapolis to 1 buyer. While the cash flow seems high, the headaches outweigh the gain, and in a recession I expect the tenant issues to be much worse than in the major metros. We kept our properties that are in neighborhoods attracting a higher income tenant.
    We are open to buying in all markets, recession or not, as long as the deal makes sense. Real estate is hyperlocal.

  8. Sam-what are your thoughts on the new 5 percent rent cap law in CA? Do you see that affecting rental property values? In the coastal San Diego area I live in the SFR real estate market has hit the skids since late spring/early summer and inventory is way way up (worst since 2013 IMO). But now the multi family mkt has also tanked post rent cap legislation at least for properties where landlords have kept their rents very low unless closing can be done pre-December. And btw-I very much appreciate your insights and what you do. I only wish you had started doing this earlier!

    1. The media reaction should be negative. But longer-term, it’s a positive because it gives more stability and sticky rents.

      I personally would not be able to raise my rent by more than 5% a year anyway. And that having not raise my rent for three years. Any more than 5% feels a little too much.

      Landlords will also be pickier and try to charge as close to market rent as possible for new tenants.

      Expect a multi year decline in the San Diego market.

  9. We bought a nice place in Alexandria, VA just outside Old Town in early 2017.

    Our son was born almost exactly two years later.

    I am working from home in a new job and my wife is going to negotiate to work from home four days a week.

    We are thinking of moving to Richmond where we can get a similar home for 40% less. The schools are either cheaper (private) or better (public).

    In December, the government approved more and faster rail lines between Richmond and DC.

    While we can afford to stay inside the beltway, we could supercharge our savings and live in a neighborhood more like the one I grew up in if we move.

    It seems the best thing to do would be sell in March – June. Rent until October and then buy. Not sure that would work without a month to month rent. Maybe we could do an Air BNB.

    Biggest risks to this plan are 1) ending up not liking Richmond, 2) losing a job and having to move back to DC to an inflated market, 3) our son not having the same opportunities in Richmond.

    Interested in your thoughts.

    1. Yeah, if a recession hits, the work from home crowd will be culled or called back to HQ.

      I’d try before you buy first and go vacation in Richmond for a couple weeks beforehand, twice.

      Can you buy the Richmond property without selling your Alexandria property in order to build a semi-passive real estate portfolio?

      If you stay, maybe things will get financially easier as you both get paid and promoted over time. That’s what I’ve found. It always feels most expensive in the beginning… then after 5+ years, the cost of the property doesn’t feel like much at all.

      1. I went to school there and my Dad lives there. Your advice to spend some extended time in or near neighborhoods where we’d buy is sound however.

        We both have internal lobbyists/policy/advocacy jobs and don’t need to be in DC every day. My company is in California and hers is in Roslyn, VA.

        The geo arbitrage of Richmond is tough to turn down.

        Buying a property and renting is a great idea. Richmond is heating up but perhaps there are good deals to be had.

        I agree it will get more affordable. My wife just got a raise after coming back from maternity leave and I am doing really well in my new job.

        However, we just don’t like DC. We don’t like our neighborhood and can’t find one where we feel there is value and community – especially that doesn’t require a 1 hour plus commute for my wife.

        These are great “problems” to have and maybe we stay put and see what happens.

        Thanks for all you do with this site and your analytical thinking.

    2. Drew – Our family was in a similar situation as yours living in downtown DC. We negotiated full time remote work and moved to Philadelphia suburbs. Same exact lifestyle (probably better when factoring in less traffic and less competition for amenities) as Alexandria or Arlington but at a 40% discount.

      Look at Baltimore and Philly burbs as well. Still come down to DC occasionally for work and am so glad I moved. I actually loath coming down here and can’t believe i lived in this horrible metro area for 10 years! get out now while you have the chance!

      1. Hey Ed – I appreciate the data point! Glad you got away and are enjoying the new locale! Hope to join you as an ex-Metro area resident soon.

        1. I did the Northern VA to Richmond move. Negotiated remote work and bought a house down here to lock myself in. Wife quit her job and found a good paying job locally. If my company ends up calling me back to HQ one day I’ll negotiate a severance and leave. The same job opportunities are down here in Richmond and the area is a lot prettier, less traffic, big rivers, the coast and mountains nearby. After I’m done working for the day I sometimes head to the James river and paddle the rapids downtown, could never have done something like that in the Northern VA traffic horror.

  10. Sure. It sounds like you can afford about $700,000-$1 million for a property based on your metrics. 2000 a month for rent is pretty darn good for a family of three in the bay area.

    If you like the place, then keep on renting and keep on saving and investing elsewhere. I didn’t start looking more aggressively if you have another child. You have time.

  11. Every house that I have bought in the past I went with the mindset of “Ok, I’m going to live here for more than 10 years”.

    But what ended up happening was the following;

    2007 – bought property A.
    2013 – sold property A for a 10% loss.
    2015 – bought property B.
    2019 – sold property B for 20% gain.
    2019 – bought property C.

    I really, really think I’m going to stay here for more than 10 years, but let’s see how this one plays out. Lol.

    1. Time to hold on! If you have the itch to move, how about just renting out your old place before buying a new one? Do that three times and you have a nice property portfolio January some semi passive income.

    2. Jeff in VA – The problem I have is I can’t afford to live anywhere nice or at least somewhere that I would want to live for ten years. Shocking that $700K-$1M will only get you a modest house in a marginal area at this point.

  12. TheEngineer

    I never find direct own rental properties as the best option for passive investing.

    The litmus test has always – can you sleep at night without any worry that the tenants are SHITTING on your hard earned asset? For my wife and I, the answer is consistently NO.

    A close friend of mine who has been in the landlord business for over 20 years and it wrecked his HEALTH. Ironically, when I ask him that question, he always said YES with a big smile on his face.

    I guess for many investors, it is about the number and HEALTH is not part of the detail plan and execution.

  13. Financial Freedom Countdown

    Sam, over the longer period how bullish are you on SF given the political interference? My friend bought a condo at Embarcadero and now with the city deciding to build the HNC, it could depress prices with that area turning into the Tenderloin. Given that most of the local SF population is renters; I can see a situation where the politicians cater to the majority.

    1. In 20 years, we will look back on today and wish we would’ve bought all the property we could. But over the next three years, I see prices softening or going nowhere.

      Buying downtown when there is so much supply I don’t think is a good move. Do you wanna buy west of the city where you cannot build and it’s mainly single-family homes.

      1. “In 20 years, we will look back on today and wish we would’ve bought all the property we could. But over the next three years, I see prices softening or going nowhere.”

        This, pretty much sums it up, especially for San Francisco real estate. It’s more secure however when you do so as an investor rather than a homeowner. As an investor I create value by repositioning properties to highest and best use. So even if the market goes nowhere for a few years, the property becomes more valuable due to improvements and higher rents. And some of the repositioning can be significant (adding several hundred thousands in value per project) such as: legalizing units, condo conversion, changing out low rent tenants for much higher rents, etc. If you’re also talented enough to ferry out gentrifying neighborhoods, then that is another driver that will add outsized value to your projects.

        You just need to understand landlording, and position yourself to mitigate the headaches. In my case all tenants are professionals, and most have been great. A few were perhaps dirtier than I’d like, but they pay for the deep clean anyways, and I charge them if there is wall damage, etc. I’ve never had any issues, even with the (much maligned) tech bros of SF :) Personally I love tech bros…who else will pay me $4000 for a small 2 BR? Matter of fact they sort of look up to me, the knowledgeable uncle for future home buying tips, etc.

        The nice thing about the SF market is that you can make so much money, you really don’t need to own too many properties or units for true financial independence. Small portfolio footprint but very high profit per building is my investor-slacker motto. So I actually don’t mind putzing around and trying to fix small things. It gives me something to do (besides tabulating rent money at the beginning of each month), and a sense of accomplishment when I manage to avoid having to call the handyman for backup ;)

        Plus half my portfolio is now condos and the other is in TIC ready buildings, so if I do decide to sell, I’m selling at maximum retail value to homeowners, and not to other investors. This is an SF thing that probably can’t be replicated in most markets however.

  14. I’ve been thinking about this a lot recently. My wife and I made a snap decision to buy a new home three weeks ago. We’ve been looking at real estate in our area regularly for the last 6 years as my wife does side work as an agent and we run a rental property business for semi-passive income. This is our favorite house we’ve ever seen and it checks off marks that we both never thought we’d have in a home. We’re also getting close to when we’ll start trying to have a child.

    That said, I’m having a lot of heartburn over making potentially our biggest personal purchase (we may buy a bigger investment property someday) right before a likely recession. Our numbers check out great. The house payment is less than 7% of our monthly income, we’re putting 20% down and have 25% more in cash, and the house purchase price is 1.1x annual gross income. Additionally our five current rentals cover the monthly house payments and basic utilities with their cash flow.

    Still, I feel like we’re not making the best decision. But ultimately what Sam says in the last paragraph rings more true than my misgivings.

    1. 1.1X Your annual gross income is very conservative, especially if you have A decent cash buffer after buying the house. If you have found your dream house and it will improve your quality of life with those ratios, I wouldn’t sweat it. Enjoy it!

  15. It’s always difficult, if not impossible, to time the market. It pays to educate yourself and always look. That way you’ll be able to recognize a good deal when it comes. Also, if you have a particular town or city you are looking in, spread the word to friends and family if they live there. It’s a long shot, but you never know when you may get lucky and find someone doing a for sale by owner at an attractive price. And as far as timing goes? If homes have longer days on market then that should give you a good indication of softening home prices. Zillow also gives a good heat index score to give you an indication if it’s a buyers or seller market, look in the neighborhood section on a home in the area you are looking to buy. If you are looking for an investment property then stick to a cap rate / positive cash flow after vacancies and expenses. Again, you’ll know a good deal when you see it. Don’t stretch the numbers.
    Same, great guidance on the 30/30/3. I think the 30% for the down payment is kind of low. Maybe overlay that with a 50% net worth of the home price, implying that it doesn’t all need to be cash.

  16. When I saw this article title I hoped you would dive deep into the pros and cons of investment real estate as an asset class compared to stocks and bonds in a recession. We bought a rental property this year precisely because we want to get some money out of the stock market, anticipating a looming collapse. We had other lifestyle-related reasons too (we bought our future downsize home), but diversification was a main driver. Wondering if we made a smart choice and was hoping this article would tell me, but it didn’t really get there for me.

  17. So far, I’ve fallen into the “wait and see” camp, but I’d love your thoughts on if I’m just being way too conservative. Part of the difficulty is figuring out what we can afford (and not just what the big websites say we can afford).

    My wife and I have very stable gov’t jobs in which we gross ~$225k with good health and retirement benefits (pensions!). We have been very diligent savers for 14 years and are lucky to have NW of $1.75m ($1m in after tax equities, $300k in syndicated real estate deals, and the rest in (mostly) post-tax retirement accounts). We’ve got a toddler and there’s talk of at least one more baby. We live in Oakland (no plans to leave the Bay), and we’ve managed to keep rent below $2k. Our place is fine for now (neither of us loves it, but it’s safe and stable and close to family), but if and when we have another kid, we’ll outgrow our space. Are we being too conservative by waiting on the sidelines. If we are, how much would you say can we really afford?

  18. Everyone predicts recessions like they do hurricanes. Just because we haven’t had one in a while “we are due” and every year they come and go. No one knows when the next “one” will hit. No matter what it is. In hindsight people will say they knew it was coming and present cherry picked info. But the best advice and best take away from this.

    Avoid PMI like the plague

    Make sure you can afford to pay the mortgage in a cash flow crunch.

  19. It’s almost like you read my mind. Currently in a good spot having sold our home and now renting. My wife just found a place that she fell in love with and thinks would be great for our kid. Despite the market softening where we are, this house attracted multiple bids over asking. We could afford to pay all cash for it and have the winning bid. It’s the perfect size, area, and condition for us and having looked for about a year now this is the first place we’ve both liked. Although we’d be fine, it bugs me to go into it knowing that we could lose 20%. I had fantasized about waiting until the recession begins, but my wife is itching to get out of current rental (too small). Think we’re just going to bite the bullet.

  20. Michael Lee

    With some of the price reductions I’m seeing (East Bay), very tempted to buy a 2nd home as an investment. With 25-30% down the expected rent could cover the mortgage payment.

    I’ll hold off for now though, and wait for ever increasing FUD. Luckily my wife and I bought our first home that’s about 18% of our gross income, so we have wiggle room for a 2nd property.

    We also refi’d recently too!

  21. Great article. Weve been approved for house #3 now, and taking our time to find the right situation that fits our lifestyle and financial expectations. A house is a purchase that’s not easy to return. Choose wisely. Your points reinforce my decisions to be patient. There is always another house if you dont put yourself in a position of urgent need.

  22. Sam

    It’s eerie sometimes how in runs with topics my family is dealing with.

    After a series of stops and starts over the last 18 months, my wife and I decided to move forward on the purchase of a duplex. Our thinking was that it was the best use of our cash given the extremely low interest rates, our plan to hold the property for the long term and 10%+ cap rate.

    I have to admit being pessimistic in the economy over the next 24 months and investment properties have always felt like one of the more stable investments over the longer term.

    I couldn’t agree more with your comments in the post above, especially keeping at least a 10% cash cushion. It’s served me well in the past even if it took some belt tightening to get there.

  23. What are your thoughts on Agricultural real estate given the traditional mix of cash vs appreciation. This would be for a long term hold. Do you think cities will continue to expand outside of the mega cities in the more rural areas? I know you are big on heartland real estate investment. Typically the mix would be 1-5% net return in cash depending on product mix and then 2-7% appreciation in land value depending on the level of subdivision upon sale. Farmland seems to be rather highly valued vs historical norms but I keep seeing them bought up locally and subdivided into more upper middle class home neighborhoods.

  24. I had this question asked to me recently as well about waiting in the sidelines instead of buying investment property if the thought is a recession is around the corner.

    My advice was similar. I said it is hard to predict the future and even though an inverted yield curve occurred which can signal a recession, it is not a 100% correlation. If the numbers make sense now and you are happy with the cash flow and you are going to hold it long term, then I would be ok with purchasing it now as it can be a gamble if to try and time and the market.

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