Holy Cow Here We Go Again Hold On To Your Wallet - Get Ready For The Next Crash
Has anyone ever told you that Real Estate is on a 7 year cycle? That every 7 years values change direction and we are heading into a crash or a boom.
I've graphed real estate prices for the southwest over the past 15 years. (see attached graph click here for PDF Version) and to my surprise it has been 7 years from the bottom. For Phoenix, the bottom was officially 3/1/12. So it's been roughly a little over 7 year. Since the peak in 2006 is been around 12.84 years.
Things I've learned in my life.
In my 45 years of real estate I've seen booms and busts, and they seem to occur regularly. Usually I buy when it's up and desperately try to sell when its down. In 2005 I was one of those dudes that purchased a boat load of real estate rentals only to see the values drop way down in a matter of months. This was not a good time for me during the last crash. The majority of my 'real estate empire' was foreclosure or a short sale. Things got so bad that my primary residence was foreclosed and at the age of 55 my wife and I were homeless and living in a Ford Van. Really, I lost everything, business, savings, cars, airplane, toys, cable TV, eating out. Everything was gone - except for a Ford E350 Van that we rolled along as our new Primary Residence. There were a few rental homes remaining that were rented and were breaking even, but unfortunately I could not afford to even live in them.
Fast forward a few years and I've stated Level 4 Funding LLC. I'm back making money and have some good cash flowing rentals reaming. Real Estate values are approaching the point where I originally purchased them 12 years ago. Things are better now. I have a new primary residence and 4 remaining rental homes that squeaked though the recession and are positive cash flowing. Happy times are back and I even have cash in the bank, no debit and a 800+ FICO. But things are going to change, I'm selling everything I have. I am getting scared and concerned about the future. Hopefully by the end of July all real estate holdings are going to be sold. Why?
I do not want to live through another 12 years of hell.
I believe in the 7 year cycle.
I'm getting too old to deal with this downturn again.
To many of my investors are saying get out.
It can't be good forever.
Trump will be impeached and the 'Magic Wand' will go away.
God told me to do it!
I'm getting out while the getting is good.
I told my wife that after 12 years we are doing well - she said get out.
But what happens if the prices keep going up - she said get out.
But what about those pesky income taxes - she said get out and pay them.
What happens if inflation hits and the value goes up - she said get out and buy gold.
I don't have money to fix them up to get the ready for the market - she said I have money, get them sold.
I said but what if - and she stopped me and said - what would be the downside if we got rid of everything? A bank full of money? But what would happen if it did crash again? We would be homeless again? No - get out now. Don't go into 2020 holding real estate. Just think if you did this in 2006 you would have been classified as a genius. If you did sell in 2006 wecould have taken a 12 year vacation.
We don't have very good memories.
I think I have forgotten how really bad it was 7 years ago. I've learned that I have a crummy memory and I forget the bad times. But let me refresh your memory with these bullet points.
Nationwide there was a foreclosure every 13 seconds.
In Maricopa county, I counted over a 1,000 homes in one day going through foreclosure.
The post companies were running out of posts to put up realtor signs - which were everywhere.
I've seen some neighborhoods were almost every home was foreclosed.
Unemployment was at what 10-20% or more depending on who you were listening too.
I remember walking into Best Buy on Sunday afternoon and I was the only customer in the store.
The average number of people losing their jobs every week was around 400,000.
Suicide rates skyrocket.
And I'm sure you can add more to the list ...............
We forget the bad times and we are now in a happy place. Full employment, stock market is breaking new records, homes are being built all around us, interest rates are at record lows, hard to find any handy man to fix your home. It's a happy, happy, happy time and we have forgotten the past hard times. We don't have very good memories. But things have a tendency to repeat again and again.
The Cycle is King
Are you thinking that this 7 cycle cannot occur again? Are you in a happy, happy place? Are you ready to live through the next cycle of falling prices? I am not willing to take the chance and bet against the 7 year cycle - I'm getting out of everything now! I'm doing what may wife says - get out.
Personal note: When I came home on Monday I told my wife that we were financially failing and our primary residence be foreclosed on Friday I expected her to walk out the door and say good bye, but she did not. She looked at me and said lets go to home depot and buy boxes and get a yard sale going. We got an 2 week extension from the 'new owner' which allowed us to get rid of a lot of stuff and put the remaining items in storage. During this time I ground down all of my teeth and went into a deep depression and was contemplating ending it all. Fortunately, my wife recognized my state of mind and made we get help. Unfortunately, two of my friends did not get help and ended up taking their life. Later on I asked her why she stuck around. She told me that she had faith in me and I was always good at making money and knew that I would figure it out and start making money again. I did, and I'm not willing to live through this again. This time I think she will leave me.