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so the last time homeowner affordability was this bad was back before the 2008 housing crash where individuals with over 100 percent loan to values on their homes neg am loans no income no job no asset massively subprime loads or buying homes many times on the speculative belief that the value would simply go up and they'd be able to refinance and when joblessness struck and we entered into a real recession well that housing bubble fell apart there are a lot of folks who believe that because home ownership affordability is just as bad as it was before 2008 we are going to set up for the same kind of crash in this video I'm going to break down my response how to protect yourself and have I started buying real estate again where am I buying or better yet what am I buying let's talk about all of that in this video keep in mind and the car is on self-driving mode and I am hands-free recording this as I've got a little Dash magnet over here so let's get into the video as I head on over to the airport so number one the most important thing to consider when you're buying real estate in any Market doesn't matter what Market you're in because you have to have a Warren Buffett style margin of safety that is beautiful I'll give you an example if you can buy a 500 000 home in a 700 000 neighborhood and that house takes 50k to fix up now you're into the deal for about 550 maybe with closing costs and holding costs call it 560.
so you're into the deal for 560. in a 700 000 neighborhood gives you a 140 000 buffer or wedge we like to call it that off of seven hundred thousand dollars is a 20 buffer real estate prices would have to decline 20 20 percent and guess what you would then be at a break even you wouldn't even be in a position where you needed to sell imagine if somebody told you you could buy Tesla stock at 160 dollars when it was actually trading for two hundred dollars that would be a similar 20 wedge and I'm not talking options here I'm Legit saying day one something's wrong in the market where you can buy the stock for twenty percent less than it's worth the reason you can do that in real estate is because the home buyers who are buying today are not buying properties they can't move into these are hoarder homes which are exactly the kinds of homes that I'm looking at they're moldy homes they're massive fixer-uppers they're basically properties that can't be on the market they need that 50 Grand now we don't want to get into something you have to rebuild because then you're becoming a developer right that's a different world we're talking about how can you fix an issue like maybe you had swamp cooler that leaked through the roof through the attic through the floors and down in the basement and you can solve the water damage while repairing the Cosmetics for 50 000.
well that's the kind of work that a home buyer is not going to be interested in doing however you as somebody who's looking to build your wealth might say you know what I might be able to find a way to borrow from friends or family on a second I've got money saved up for that kind of fix-up I'm willing to put that effort in I want to buy that home for five compete against the multiple offers which remember anytime there are multiple offers it's not a red flag of competition it's actually a green flag of desirability if you're writing an offer on a deal that you think is a good deal and there are no other offers guess what it's probably not a good deal of course if you can get deals off Market that's great people send me off Market deals all the time because they want to work with us they know we're a no hassle buyer we're actually going to close our deals if we say we're going to close a cash deal in five days guess what we close the cash deal in five days they get paid they have a no hustle buyer and they have a relationship with us so we can keep doing deals I'm getting deals sent to me all the time California Nevada Arizona Salt Lake Oregon uh people are sending us deals all over the place all the time starting with those close to us that we're also very interested in areas uh in Florida and Texas Idaho to some extent but what's important is you've got to have this wedge and you can Arbitrage the market now because people are so fearful of doing work the opportunity to get good deals and create a massive buffer is insane let me give you some scale to this especially since my startup house hack will plants do exactly this at scale if we can get our hands on 100 of these style fixer-uppers that nobody can rent nobody can live in nobody can buy and we can fix up a hundred of them with 50 million dollars about 500k in on each deal then that gives us about 10 million million dollars in gross profit on actually doing these deals after all the fix up is said and done for the properties 100K wedge times uh you know 100 properties is 10 million dollars of course this is fantastic the 110 million dollar return year one on 50 million dollars would be phenomenal I'm not making any promises obviously but those are some of the goals that we have and the opportunities that we see so the goal is how can you get your hands on Wedge deals and here's the trick folks after you identify wedges and you know what you're looking for the next rule of thumb is you have to be fast wedge deals come on the market at 11 o'clock and they're sold by two o'clock I know because guess what I've been saying for over a year now that we will start buying in Q3 or Q4 2023 and that's exactly what we've done with this formula deal came up at 11 o'clock way to cash offer in within a couple hours and we had the deal signed by two o'clock within the next day there were eight other offers way higher than ours but they went with us because we're easy to work with and we rode fast we gave them a one day due diligence period and they thought hey let the other offers come in while Kevin does is one day due diligence oh look Kevin wants to buy it even got a little bit more off and great now we're done the easy deal let's do more so why though buy when the market is uncertain like oh you know are things going to crash again what about all this unaffordability it's not unaffordable if you're able to buy in cash obviously if you're financing it is unaffordable right now now is that going to lead to the subprime disaster that we've previously seen my belief is that most of the pain that real estate has seen so far short of some kind of surge in inventory is behind us over the last year we've had pain in real estate prices because rates have exploded rates have exploded that has led to some markets especially in Arizona and Idaho correcting about 20 percent they've since bottomed out and come back about 10ish percent but some of these markets are still down 10 percent creating a potential by the dip opportunity the danger though obviously is that inventory rises again that we have some kind of surge in inventory however if we look at history usually real estate surges in inventory uh do not end up driving a crash what drives a crash is a surge in foreclosures and short sales distressed sales that's not what I'm expecting we're going to be facing at all especially since we could probably lose about 20 to 30 percent equity in the market the market could drop 20 or 30 percent and you're still only going to be sitting somewhere around eight percent of people underwater that's insanely low and not all of those people are going to sell just because all of a sudden they owe a little bit more than the property is worth they could also resort to renting out the property however I do believe that a lot of vacation rentals and rentals that are no longer profitable are going to start testing the market however these are generally investors who are just facing less cash flow rather than all of a sudden urgent needs to dump their properties like what we saw in 2008.
this is what I've been experiencing for about the last year as we've been making sure that a inflation is gone uh which basically is trending gone sure we could get a little bit of a bumpy ride coming down come on Mr Max you want to just hang out here for a sec while I finish the video I'll leave the AC on for you uh we can be in a situation where uh you know people people decide look I'm not going to do long-term or a short-term rental anymore what do they do they jump on over to short-term rental what or long-term rental rather you go from short to Long right point is there are ways that even investors who own right now who need to transition don't have to sell on distressed manners if we were going to see any level of distress it would have most likely been in December of 2022 and even then we didn't see distress that's when prices were slightly lower than where they are now no distress then not expecting massive distress going forward however even if distress comes that wedge insulates us so if we're down 10 in many markets we're looking at now and we get another 20 on top of that we in my opinion have up to 30 correction to protect us that means the downside is really insulated and even then we wouldn't have to sell because we're buying cash in my opinion though the upside is a lot greater that we can buy these wedge deals and likely spend the next two or three years buying these properties nobody wants to renovate as soon as rates come down in the long term two or three years expect the valuation of these properties to really adjust now I know to the upside no guarantees now I know a lot of people say Max I got like 30 more seconds all right now I know a lot of people say oh but Kevin when rates come down we're going to see these properties uh you know everybody's going to put more throw more inventory on the market we could see some pain again and eventually we have to correct back to these prices that we saw in uh in in pre-covet right because before covet maybe you had a 650 000 house that's an 800 000 house now and the reality is while that could happen it doesn't need to we don't need to undo the inflation that we've had what we do need to do is wash the car but the cool thing is we got a new plate on this actually I think they're gonna I'm gonna pay to have them wash it here look at that 69 for peepee but anyway um so if you're looking at 800 000 house today that was selling for about 650 previously that represents about 18 inflation which is roughly what we had if you look at CPI from Fabish 2020 to now that's roughly the inflation that we've had is about 18 so point of all of that being said we are in a position where we believe the actual facts the actual data we're facing right now does not portend some kind of massive crash ahead any increase in inventory will actually be welcomed for us over the next two years to buy as many of these fixer-uppers as we can and actually bring that Supply to Market which helps people who need to rent or in the future potentially need to buy so we're really really excited if you want to learn more uh for when we're ready to start fundraising for househack go to househack.com otherwise these are my thoughts on the upcoming real estate market crash that everybody's worried about I think actually that fear is exactly exactly what I want to be buying because everybody else is so fearful about real estate that that's the time that I really want to be buying I like buying when people are fearful and then you have to be greedy when everybody is fearful that's the Warren Buffett quote right be greedy when people are fearful whereas when everybody's being greedy it's the time to consider selling and so I think now is that time for Real Estate to buy when everybody else is fearful my take thanks so much for watching I'll keep you updated on how things go it is true we are closing on our first house hack deal and it's in my opinion an over 100 000 wedge that I got against eight offers it's the first offer we wrote instantly got it it was fantastic stay tuned there'll be a lot more deals and a lot more coverage thanks bye
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