RECESSI ECESSION PR ON PROOF OOF REAL EAL EST ESTAT ATE J Sc J Scott ott
Who Am I? Tech/Corporate/Business Background Entrepreneur, Investor, Advisor Started in Real Estate in 2008 Over $60M in Transactions Flipping / Rentals / Notes / Lending / Development / Multi-Family 123FLIP.COM JSCOTT.COM INSTAGRAM: JSCOTT_123FLIP FACEBOOK: JSCOTTINVESTOR
Disclaimers 1. 1. I can an’t t tel tell y you u when hen the n the nex ext recessi ssion w n will ll hit. 2. 2. I can’ n’t tell yo ll you how b bad d the ne next xt recessi ssion w n will ll be. 3. 3. Thi his ti time mi me might b ht be d e differen erent (b (but probably ly no not). ).
Agenda 1. 1. Why y is s this s topic important nt? 2. 2. What is s an n econo nomic cyc ycle le? 3. 3. Where are w Where are we e in the c the cycle? e? 4. 4. What sh should yo ld you be do doing ng no now?
WHY I HY IS S UNDER UNDERST STANDI ANDING NG ECONOMI ECONOMIC CYCL C CYCLES ES IMPOR MPORTANT ANT?
Why This Is Important 1. 1. The ec he economy my af affec ects ts real real es estate, tate, even ev en if real real es estate i tate isn’t d t dri riving the the econo nomy 2. Real eal E Estate i tate is a a lag agging indicato ator 3. 3. Unde nderst standi nding ng cyc ycle les s will ll allo llow us to maximize profi fits s and nd mini nimize head headac aches hes
WHAT HAT IS AN S AN ECONOMI ECONOMIC CYCL C CYCLE
What is an Economic Cycle? CONTRA RACTI TION EX EXPAN ANSION EX EXPAN ANSION
What is an Economic Cycle?
What is an Economic Cycle?
What is an Economic Cycle?
WHER HERE AR E ARE W E WE E IN T N THE HE CYCL CYCLE? E?
Where Are We In The Cycle? TIMING OBSERVATION ECONOMIC DATA
Where Are We In The Cycle? TIMING
Where Are We in the Cycle?
Where Are We in the Cycle? 70 Years Aver Average C e Cycle le: ~ 6.5 Y Year ears 11 Recessions
Where Are We in the Cycle? Cycle Duration (Months) 140 120 100 80 60 40 20 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33
Where Are We In The Cycle? OBSERVATION
Where Are We In The Cycle? OBSERVATION
Where Are We In The Cycle? ECONOMIC DATA
Where Are We in the Cycle? Econ conom omic da c data i ta is th the be best w t way to to for orecast a t a dow downtu turn: Yield C Cur urve Buffett I t Indicato tor Gross D ss Domest stic P Produc uct Busine iness I Investm tment nt Un Unemp employment Housing S ng Starts ts Forec eclosure Ra Rate Stock M Market t Consum sumer S Sentiment
Where Are We in the Cycle? THE HE YIELD LD CURV RVE Government bonds pay interest The longer the maturity, the higher the interest
Where Are We in the Cycle? When Whe THE HE Inves esto tors YIELD LD Get et Scared CURV RVE Ja January 2004 004 6% 5% 4% DEMAND 3% RATES 2% DEMAND 1% RATES 0% 3 Month 2 Year 5 Year 7 Year 10 Year 20 Year
Where Are We in the Cycle? THE HE YIELD LD CURV RVE Ja January 2004 004 6% 5% 4% March ch 2 2006 06 5.2 3% 5 4.8 2% 4.6 4.4 1% 4.2 4 0% 3 Month 2 Year 5 Year 7 Year 10 Year 20 Year 3 Month 2 Year 5 Year 7 Year 10 Year 20 Year
Where Are We in the Cycle? THE HE YIELD LD CURV RVE August ust 2006 5.6 5.4 5.2 5 4.8 Yie ield ld Cur urve ve 4.6 Inversio sion 4.4 3 Month 2 Year 5 Year 7 Year 10 Year 20 Year
Where Are We Headed? Yield Curve - December 2017 Yield Curve - March 15, 2019 2.8 3.8% 2.6 3.6% 2.4 3.4% 2.2 3.2% 2 3.0% 1.8 2.8% 1.6 2.6% 1.4 2.4% 1.2 2.2% 1 2.0% 0.8 1.8% 3 Month 2 Year 5 Year 7 Year 10 Year 20 Year 3 Month 2 Year 5 Year 7 Year 10 Year 20 Year
Where Are We in the Cycle? Econ conom omic da c data i ta is th the be best w t way to to for orecast a t a dow downtu turn: Yield C Cur urve Inverte ted Buffett I t Indicato tor 144 144% Gross D ss Domest stic P Produc uct . Busine iness I Investm tment nt Down wn Un Unemp employment 3.7 .7% Housing S ng Starts ts . Forec eclosure Ra Rate Sligh ghtly ly U Up Sto tock Ma Market Up Up Consum sumer S Sentiment Down wn
Where Are We in the Cycle? We Are About Here
Where Are We in the Cycle? THE WILDCARDS: INTEREST RATES PRINTING MONEY TRADE WAR
HOW HOW DO W DO WE MAK E MAKE MONEY T MONEY TODAY? ODAY?
What You Should Be Doing Today Yes, , buy uy-an and-hold ld still w ll works! BUY BU Ye Yes, apartm tment nt investi ting ng (cas ash flow ow or or val alue add) still ll works! & HOLD HOL Under erwrit itin ing: B Be co e conser ervativ ive e on ren ents Under erwrit itin ing: B Be co e conser ervativ ive e on va vacan ancies Asset et T Types es: Focus cus on on “B “B Class” & ” & “C Cl Class” proper erties ies Va Value-Add A Apartmen ments: Under erwrit ite t e to longer er h hold per eriods
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