How to prepare for a mid-cycle slow down…

Its happening again! The roaring 2010’s doesn’t sound as cool as the roaring 20’s from the past, but our stock and real estate markets are definitely roaring…  What’s incredible is the S&P has gained over 300% from its 2009 lows.

It is my opinion that we aren’t going to repeat history in the same way as the Great Depression of the 1930’s or the Great Recession of 2007-2010.  According to market experts, those depression cycles happen every 70 years or so.   

However, we may be experiencing the start of a mid-cycle.  They occur in seven- to ten-year cycles and usually last only one to two years.  The graph below tracks new home sales and recessions (indicated in light blue) since the 1960’s.

There are several factors that bring on a mid-level correction, however, interest rates are the biggest factor of all.  When the Federal Reserve raises interest rates, they are trying to curb inflation.  When they lower interest rates, they are trying to create inflation.  The problem is that there is no way to get it right. 

The cycle is going to happen either way…  However, manipulating interest rates can usher in a recession quicker or it can cause a delay.  As you can see from the below graph, the late 1970’s was a turbulent time for real estate.  As inflation grew, the Fed raised rates to compensate.  This brought on a mid-cycle slowdown in the early 1980’s.  (See the graph above)

Below is a quick video what we do and how we are going to take advantage of the upcoming market correction...

What I'm doing about it

What happens to housing when interest rates rise?

Homeowners experience the crunch in several ways.  If they have been using their home equity lines and now they can’t pay it back or refinance, then they suddenly are unable to afford their home.  Many of the first-time buyers that purchased toward the end of the sellers’ market are unable to sell since they have no equity and the rates have increased, reducing their purchase power.  

If a borrower currently has a 6% mortgage at $100,000 they can afford to move up to a $200,000 home at a lower rate of 4%, and they can use the equity from the first home for a down payment.  The problems start when you have a 4% mortgage and you want to buy a new home and interest rates are at 6%.  Now you’re stuck, and you can’t take that high paying job offer in a different city without taking a big financial haircut.  Or your wife might be pregnant with your second child and you only have a two-bedroom 750sqft condo.      

It only takes a short period of time after interest rates rise to see this start to happen.  Once the pattern starts it begins to feed off itself fueled by the media.  That old primordial emotion takes hold of the herd…FEAR.  This signals a sell off and recession.  The Fed then lowers the rates to compensate and eventually fear turns to greed, and we are back on an upward cycle.

If we think this going to happen…  What do we do about it?

The above illustration shows the typical 18-year real estate cycle.  The part I found most interesting is that there isn’t a massive crash every seven to ten years, but there is a mid-cycle slowdown.  I believe 2019-2021 will be such a correction.  It will most likely be similar to what occurred in 1961, 1981, and 2001 where the correction was only one to two years followed by another three to seven years where the market increased in value.Full Article

Investment Property Highlight:  Toronto, Ohio $34K invested

Our firm recently purchased this pre-foreclosure in late August for $34,000.  We finished the foreclosure and it's currently under contract with cash buyer for $58,000.  Approximate return of $15,000 to our fund.   Call/email me for addresses and other examples of how we are doing this today...

Kind regards,
Kyle Zimpleman, Managing Member

Real Estate Bio

We identify opportunities to acquire pre-foreclosure, bank owned, and performing loans at pennies on the dollar from our network of banks and hedge funds.  This fund provides a vehicle for investors to participate in off-market real estate long before its available to the public.  This translates into above average returns to our investors and provides peace of mind that their investments are secured by equity in real estate.

*Looking for more information on how to protect your investments in 2019? Call/email me today and I'll send you our 2019 Investors Kit.