To say Gary Boomershine, founder of RealEstateInvestor.com, is passionate about real estate is an understatement. We were fortunate enough to talk with him today about his predictions for the future of the real estate market and the seven-year cycle.
Is now the time to buy?
It’s a question Gary has heard hundreds of times. Before responding with a simple yes or no, Gary noted fundamentals to consider when making a purchase decision. The old “keep it simple” adage is not new to real estate and is a concept Gary recommends when it comes to investing in real estate.
It’s as simple as this: You want to buy low, sell high, and not lose your investor’s money. – Gary Boomershine shares.
When considering a real estate purchase from an investment or wholesale standpoint, Gary warns not to fall in love with the property. Instead, fall in love with the cash flow.
He suggests keeping in mind the three buckets of cash:
- Cash Now
- Cash Flow
- Cash Later
The “Cash Now” Bucket
Many investors think there is only one bucket, Cash Now, which is the immediate or short-term return on your investment.
Common examples of Cash Now deals include wholesaling and house flipping which is buying, fixing, and selling a home for a profit. “Cash Now” refers to the transactional profit that’s made during a quick turnaround investment deal.
Cash Now deals are great. They can be lucrative, but as a one-time transaction payout, this is really just a JOB investors do. There’s no long term revenue associated with this bucket. – Gary shares.
Cash Now deals are one of the most common strategies that real estate investors employ in today’s market. But Gary strongly recommends that real estate investors not focus on this cash bucket alone. Instead, they should ALWAYS be looking at the other cash buckets to diversify the revenue they bring in.
“A lot of real estate investors think there’s just one bucket, the Cash Now bucket. They’re always thinking, ‘How can I make a quick transaction and a quick buck?’ That mindset drastically limits the deals they could be getting if they simply kept their eyes open to all three buckets of cash.”
The “Cash Flow” Bucket
Cash Flow applies to rentals and the income the investor will receive on a regular basis. But Cash Flow can also be private lending which is an area he recommends when growing your business in this kind of market.
The “Cash Later” Bucket
Cash Later is the appreciation and tax advantages investors get on the property, not to mention the renter paying down the mortgage.
Of course, everyone must live somewhere. If you are looking to purchase a home you will live in, or one you will rent out, which Gary refers to as a “buy and hold” investment, he recommends that you always look for a quality property. Not just any property that comes along in the right price range.
He also recommends that Investors plan to upgrade their “buy and hold” portfolio as well. This adds value to their investment long term.
Investors should also be prepared to keep “cash later” investment deals for some time, if they wish to get a return. Gary explains why:
“Real estate is a finance and leverage game and it’s a long term play. It’s easy to be shortsighted just thinking about making a quick buck today, sacrificing the real advantages of real estate for long term wealth and its tax benefits.”
Overdue For A Downward Turn…
Gary suggests the market is due—actually, well overdue—for a downward turn. In fact, he predicted this long before COVID-19 came around… He’s been talking about this on nearly every podcast and interview he’s been on for the past two years!
Historically, we’ve seen similar patterns, or cycles, that impact our economy and the real estate market every seven years or so, bringing with it a euphoric stage where massive transfers of wealth occur.
This includes the mortgage crisis in 2008 and the 9/11 attacks in 2001, which both had significant impacts on the stock market. In 1994, there was the bond market crisis, and in 1987, we had Black Monday. All of which occurred seven years apart and date back almost 100 years.
With these past economic examples, Gary has been predicting what he calls a “Boogeyman Event” and the next downturn, for several years. This cycle is far different from the natural order of supply and demand. It’s preceded by what many people call the “euphoric stage,” which is the final stage of the real estate market before the downturn.
Gary explains his prediction and the euphoric stage well in his quote below.
It’s happened every seven years… Each downturn seems to have similar beginning catalytic events and similar end cycles. This creates what many people call the ‘euphoric stage.’ The euphoric stage is actually the final stage of the real estate market before the downturn occurs. It’s when everyone starts talking about real estate— The barber, the hairdresser… You can’t lose. It’s when the late night tv guys selling: “How To Get Rich In Real Estate,” start popping up everywhere. During this stage it’s a sellers market with over bidding on houses going on everywhere, which is when people start talking about real estate left and right. And it’s during the actual downturn or shortly after that massive transformations of wealth occur. This has happened consistently in an uncanny rhythm. So I had no doubt that we were overdue for what I call a “Boogeyman Event,” to start the cycle all over again. I’ve been telling real estate investors to be preparing for something like this for a while now. 2020 might have been a few years late, but here we are. – Gary Boomershine, RealEstateInvestor.com
The Boogeyman Is Here… So, What Should Real Estate Investors Expect?
At an almost twelve-year high, real estate investors should be prepared for a change, according to Gary who believes the next 6-9 months will be fairly the same as today. But investors should expect a drop in the next 24 months, with hefty decreases in some areas of the country of 20%. Here’s what he shared:
“We’re still seeing money out there… However, I foresee a drop in real estate in the next 24 months. Some markets, what I call the “linear markets,” will probably see more of a 5-8% drop similar to 2008. These are usually rural or middle parts of the country like Alabama, Oklahoma, Ohio, etc. Other areas might get hit much harder. Hot areas like Las Vegas, Phoenix, Hawaii, etc. might end up seeing drops upwards into the 25-30%+ range.”
Today, we are seeing record high rates of unemployment. With people out of work, the inability for them to pay their mortgage will continue to rise as well. According to Gary, 25% of mortgage holders have less than one month’s savings.
Inevitably, this will lead to a foreclosure boom. With more properties flooding the market and sellers desperate to unload properties they can’t afford, prices will drop. Investors with cash or creative buying power will be able to get great deals, while also helping sellers avoid financial disasters such as foreclosures.
Mortgage holders aren’t the only group affected. Investors will also feel the impact according to Gary, who tells us that 53% of people living in rental properties have less than $500 in their savings account.
Landlords will need to sell because people won’t pay their rent. – Gary shares.
When renters cannot pay their rent, landlords suffer unless they have reserves to fall back on, and many do not… This leads to the snowball effect that we’ve seen repeat in the same cycle over the past 100 years.
History is a great predictor of the future. –Gary answers when asked how he came about his predictions earlier than most.
Many landlords bought late when real estate was peaking. In recent years, 50% of the single-family properties purchased were done by investors using them for rental purposes, not to live in themselves.
These landlords who once weren’t interested in selling their properties are now having a change of heart, according to Gary, who noted their willingness to sell at a lower price than they would have entertained in the past.
“There are burnt out landlords who were not interested in selling before. Now they are… Investors are going back to their old leads who said no to selling earlier and are finding sellers interested again. All the more reason why follow-up is gold during times like this.”
This will present opportunities in the market, as Gary predicts these drops will be followed by massive appreciation. History agrees with him…
The biggest transformation of wealth will happen during these downturns. It happened every time before, and it will no doubt happen again. – Gary shares.
Gary suggests holding onto the properties you have now, citing incredible gains are coming. He gave an example of a property in the San Francisco Bay area that is worth $3 million today. In ten years, he predicts, it will be worth $10 million. A deal that’s definitely not too shabby!
How is Gary so confident about this?
It’s simple economics… Hyper-inflation. With the amount of money that has been added to the economy recently, massive inflation is inevitable. And with that comes higher prices for everything from basic essentials like milk and cheese, to hard assets like real estate.
In a hyper-inflation scenario, people will want to have hard assets. The middle class will disappear. Those who own real estate will be part of the wealthy. It has happened in other countries, and Gary expects it to happen here adding:
“Real estate is a long term game.”
What Should Real Estate Investors Be Doing Today?
Gary, who said they are already seeing a shift to buying remotely and creatively, compared today’s market to a tsunami.
“People shouldn’t get caught watching the water recede rapidly at the shoreline thinking ‘Wow, look at the fish left on the beach!’ Instead, they need to get moving fast.”
Instead, he recommends that investors stay one step ahead, thinking ahead and asking themselves, “Where do I want to be right now? On the shore or on higher ground?”
When it comes to what real estate investors need to be doing right now, Gary’s answer is in his “Three P’s.”
Gary Boomershine’s 3 P’s:
- Protect what you have.
- Pivot to take advantage of the new market.
He expands on this a little further:
“Whatever you do, don’t sit idle. Take advantage of the situation and prepare for the future. Now is not a time to be sitting on the sidelines… Right now is a good time to step in and figure out what you’re doing and where you’re going.”
Right now real estate investors are doubling up on their marketing and going back to their old leads. This is the perfect time to learn how to buy and sell property remotely.
This Virtual Wholesaling concept has seen an increase in recent months as investors began working from home. The market expands greatly when you work virtually. Investors like Gary can live in San Francisco and purchase properties in Dallas or Atlanta.
Gary also mentions that he’s seeing a massive shift to buying creatively. And by creatively, he means people are turning to private lending. Owners are willing to help finance some or all of the property because they want the income stream.
“Buying creatively is going to keep growing in popularity since there’s a lot of opportunity there right now. Especially as owners look for additional revenue opportunities, and as they become increasingly concerned about the amount of taxes they will have to pay, capital gains, and so on. Some people are even worried about their money being safe in banks long term, making creative financing more appealing.”
Real Estate, Monopoly, And An Uncertain Future…
While Gary considers himself a conservative investor, he cautions buyers not to wait too long before jumping back into the market. But, no one knows what the future holds. There could be a second wave, or even a third, fourth, or fifth wave, which is why he recommends having a safety net. Here’s what he shares…
“If you’re planning to buy today, ask yourself, can you afford it? If the answer is yes, can you still afford it if your job changes? For investors looking to purchase a rental unit, ask yourself if you can afford the property if your vacancy rate soars to 60%. If you can break even at that rate, buy the property. Be wise, use your best judgement, and think ahead.”
Gary also referred to an old salesmen quote that says:
“Good salespeople know what to go after. Great salespeople know what to walk away from.”
If you want to play the real estate game, then remember that it’s just like playing Monopoly. You can have all the real estate, but if you can’t pay the mortgage, you’ll have to turn your cards over, leverage them, and sell them for pennies on the dollar. Nobody wants to have to do that. – Gary Boomershine, RealEstateInvestor.com
At the end of the day, the future is no doubt uncertain. But one thing is for sure…
There are incredible opportunities available in this market and more to come. And thanks to Gary sharing his wisdom with us, we know what to look out for, how to be prepared, and how to make the most of it.
This is an absolutely fantastic time to be in real estate investing. For real estate investors who are already in the game, right now is all about making the right moves that will help you survive and thrive in this new market. – Gary Boomershine
Ready To Learn More?
If you’re interested in learning more about how you can survive and thrive as a real estate investor in a Post-Coronavirus world, we recommend that you check out this other article that dives deeper into this topic here: