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o through a thorough update on the housing crisis we're going to use statistics and information relevant to this discussion so if you're worried about any of these housing crisis what's going to happen to real estate prices how much would they fall what's the likelihood of these things happening what about a foreclosure crisis are we going to see a wave of short sales and foreclosures that are going to be discount deals to pick up well here's the complete breakdown just a quick reminder i am a real estate investor i've been investing for about 10 years i control just over 12 million dollars of real estate myself without any partners and i am a real estate broker this is what i do for a living every day so this topic's obviously very important to me let's get right into this a quick note if you have not yet remember you can o give you two free stocks and if you want s well via the link down below let's start with the three main issues the first is evictions then we'll talk about foreclosures then we'll talk about what this might have to do with taxes and capital gains taxes so we're going to go through that but first let's get into evictions that's the first topic that's the start of everything the tip of the iceberg so to speak in a typical year just under 4 million evictions are filed every single year but remember there's a difference between filed and actually people getting evicted so keep that in mind we'll go through those statistics as well so typical year we have four million evictions every single year we also have about 25 percent of tenants who spend half of their entire income on rent means most of their money is going just to put a roof over their head and that's one in four tenants suffer from this and every single night in our country we have over 200 000 people sleeping in cars because they can't afford rent of the 4 million evictions filed in a typical year about 1 to 1.3 million actually end up going through the full process it's about a 25 to 33 percent chance of seeing eviction filing go all of the way through the process some tenants i would say the the other sort of 75 to 67 percent they end up resolving their issues by either the tenant leaving a cash for keys resolution or otherwise catching up on payments and this is of course in normal times these statistics are based on 2016 through 2019 filings we see that about average of 1 million to 1.3 evictions actually going through the current eviction ban following this pandemic has mostly ended on july 31st and the trump administration's executive action on evictions right now does little to protect tenants instead it kind of provides massive loopholes for lawyers and landlords to evict tenants let's take a look at the actual verbiage really quick just so you know what i'm referring to this is the section regarding the executive order on evictions from the last executive memorandum that was introduced by donald trump and signed it states that the secretary of the health and human services department and the director of the cdc shall consider whether any measures temporarily halting residential evictions of any tenants for failure to pay rent are reasonably necessary to prevent the further spread of kovid from one state or possession into another state or possession okay so here's really what this is saying it's saying hey let's get the cdc and the hhs to determine if hey you know if we pause evictions in a certain area is that going to help us prevent the spread of covid the issue with this is evictions are a legal affair and any attorney could simply blow a hole straight through a tenant arguing that they're protected by this eviction memorandum and obviously you know you should always talk to your own attorney to get legal advice but i mean think about it if an attorney can argue that somebody's not paying rent but evicting them would not spread covid then they really wouldn't have any protections from this memorandum here this basically means there is no eviction ban you can essentially get evicted in most states now of course some states and local municipalities do have some expiring eviction protections that are still in place in some areas so obviously keep an eye on your local laws but the latest estimates especially from the new york times who's been compiling a lot of estimates on how bad this eviction crisis might be and i know they lean left but they're the ones who are putting together some of this research the latest estimates show that we might be facing 10 to 15 million evictions during this pandemic in fact eviction filings are already piling up by the thousands ucla expects 36 000 to 120 000 evictions to be filed in la county just in the next four months duval county florida usually sees 30 to 50 evictions filed in one month and in the first week of august they saw a record 219 filings that's somewhere between 4 to 6 x the usual filing amounts in south carolina 52 of renter households can't pay rent and the state expects 185 000 eviction filings the rest of just this year we're not even talking about 2021 yet we're just talking the rest of 2020 itself this tsunami of eviction filings is real and it's here so here's kind of how that process looks when a tenant gets evicted which actually happens about 30 of the time there's a filing right we talked about that because there are other alternatives like a tenant just paying or just leaving we're doing some kind of cash for keys agreement to get out so the 30 of the time a tenant actually gets evicted it's likely that that tenant is now going to have a sort of an asterisk that shows up when they go apply for rental in the future they might show up on eviction database lists they might have their credit score damaged because a prior landlord might have gotten a judgment against that tenant which generally credit bureaus pick up judgement says uh oh this person might be in financial trouble let's drop their score so this this could be really bad for those tenants who end up getting evicted and it's sad because a lot of tenants are really getting evicted through no fault of their own i mean maybe they lost their business or they lost their job and it's really the fault of the pandemic but the point is the tenants are still the ones bearing the burden the tenants don't have the luxury of getting mortgage forbearance which a lot of homeowners do have and landlords do have this tends to force tenants to move to areas willing to accept renters with eviction histories or people get lucky and they find landlords who don't do any research and don't care i mean that happens as well but generally tenants who are evicted end up getting squeezed and they have to move into lower income areas and when people move into lower income areas the areas they move to become more impoverished because more people are coming to use the same resources the same schools hospitals police fire the local capacities get stretched thinner and thinner this lowers the quality of living in those areas and then squeezes out the wealthier people in that area in other words you have a lot more people coming in who now have damaged credit scores and eviction records and the wealthier people leaving because an area is becoming poor this basically declines the entire standard of living in that entire area and this is what happens when basically you're left with cities that are just in complete decline and so keep this in mind if you're thinking about moving somewhere you're thinking about being a real estate investor be careful if you're thinking about investing in cities that have already indicated they might be cities in decline because this eviction crisis could just make that substantially worse so here are the numbers if we see 10 to 15 million eviction filings then we're likely to see somewhere around 4 million evictions actually go through possibly more possibly less but let's go with 4 million that's a good middle number there based on 10 to 15 million filings that's about four times as many actual evictions not filings four times as many actual evictions as in 2016 17 18 and 19.
in fact you could pretty much combine all of the evictions from 16 17 18 19 and you'll end up with more evictions now in 2020 or 2021 that's sad and so this creates two real issues the first is timing and the second is pricing so first in california local attorneys are already prepared for this long treacherous battle against tenants and many tenants can't afford to hire their own you know lawyers to represent them because well that's the reason they're in this problem in the first place they don't have money many are now telling landlords many of these attorneys are telling landlords though if you have to evict right now you might be facing quite a bit of a wait due to a flood of eviction filings it's quite possible we actually might not see evictions really start going through until i mean maybe as early as october or november but more realistically eviction attorneys are saying expect to wait until january february or march for your eviction to actually go through because the courts are just so overwhelmed right now this buys time for a few different people it buys time for congress to act and hopefully provide rental assistance to struggling tenants and it also provides time for tenants to hopefully either get a job again or somehow negotiate a deal with their landlords negotiating a deal and some sort of partial pay tends to be at least what we advocate obviously i've got an amazing property management course uh in the description below where i teach you everything i know about property management rental screening uh we're screening tenants properly and not how is typically done uh and how to ensure that you've got the highest tenant leverage you possibly have as a landlord while also providing high quality property that makes money all that information is linked down below and you could use that coupon code but anyway the point is anytime you can negotiate with a tenant and have a tenant even pay a partial payment is better than a tenant just paying zero but anyway in the meantime right now all of this sort of backlog actually buys time for congress to act and hopefully provide rental assistance to struggling tenants see we're all kind of hoping that congress would just extend the enhanced unemployment boost but rather than expand the boost congress went on recess the trump administration issued roughly enough money to cover five weeks of unemployment pay though it might be another month before people actually see that money so by the time the money comes it'll kind of already be like a single check and that money will just be helping tenants with august but probably won't give much help for september or october so we've got some very real issues politically right now and instead because of these delays and because of the problems in congress we're in for a real potential disaster at the beginning of 2021 which that brings up the second issue pricing if we face a mass of evictions and we start clearing these evictions in early 2021 we might start seeing an increase in the amount of housing inventory available in every area and so this brings up the question okay how much more inventory well here's the scoop every year about five and a half million homes sell in america if we face four million completed evictions not just filings but where tenants actually ended up got it getting the boot and they had to move to somewhere poor there's a high likelihood that a good portion of these landlords may decide it's time to be done with tenants and toilets it's time to sell and remember it's not even just the four million evictions that actually went through it's also the millions of other evictions where the tenants just got up and left and went somewhere else those landlords may also decide to sell so let's just try to be conservative here we can pick a worse number we could pick a better number but i think this is a realistic number to use let's say 1.5 million rental units that is of those 4 million evictions and of the other people who might decide to sell once their tenants leave but they didn't end up having to do an eviction let's say 1.5 million say you know what i'm done i'm selling the property this means houses and rental units might start hitting the market much more substantially next spring maybe a little bit before that depending on how quickly evictions get filed well if we see 1.5 million more houses hit the market in all of 2021 then that's going to represent about a 27 increase in 2019 sales and keep this in mind in 2019 we had 5.5 million sales if we increased that by 1.5 million in 2021 that would be 7 million properties selling that's an increase in inventory of about 27 this means that if a city of about a hundred thousand people usually sees about a thousand sales per year which is usually a typical ratio then we might see an additional 270 sales or an extra 22.5 houses hitting the market per month per 100 000 people these sales are also not likely to be remodeled or high-end sales they're likely to be somewhat distressed or at least rental grade and probably middle of the road sales this is going to on one hand help solve a massive lack of inventory we've been feeling in 2020 which has been causing prices to run up but it's probably going to slam the brakes on those prices we might see those prices stabilize we might see that run-up stop but with 27 percent more inventory it would not be unreasonable for real estate prices to decline about 10 to 15 percent i wouldn't say one to one with 27 percent like i don't think prices are going to decline 27 percent unless some other things happen which i'll talk about now and that's because the real estate market is on this sort of booming trend right now where it's moving up so it's kind of like the first 10 all right let's stop the train and then push it down about 10 to 15 so here are some bottom lines unless congress acts an eviction crisis will probably create buying opportunities in real estate next year if congress does act those opportunities may not come and if you're thinking about investing i would recommend be careful of investing in areas where you know people might flee to if they can't get a rental where they used to live that is be careful of investing in those poorer areas but what about foreclosures if we get a 10 to 15 percent drop in prices are we going to see a wave of foreclosures well right now at least 87 of americans would still have equity in their home based on quarter one of 2020 equity readings so in other words if prices fell 10 to 15 percent 87 of americans would still have wealth left over in their home based on early 2020 data and prices are likely to keep going up through 2020 which is kind of crazy to say but let's say prices end up going up 10 between 2020 and 2021.
that basically means if there's a 10 decline in prices in 2021 there are not going to be a lot of people upside down at all because the people who already own are on this ride of building wealth and they're gaining that extra 10 of equity that yeah they might give up next year but they've already gained it to insulate themselves really the ones who are going to have more of an issue might be the ones who bought right before that kind of correction and that is one of the beauties of owning real estate you own it and your wealth grows and you insulate yourself from a future correction and so the reality is a 10 to 15 decline in prices from an eviction crisis in early 2021 or even mid-2021 probably won't be enough to create a foreclosure crisis however there will be opportunities to buy distressed rental properties which could be a good time to buy now this is where it gets interesting though if we actually have an eviction crisis and we start seeing prices decline that could actually start creating other issues like the panic to sell see real estate is usually very slow and if we see a bunch of distressed sales in early 2021 and maybe the spring and summer of 2021 and we start seeing prices decline next year and sort of july and august and september of 2021 then it's entirely possible that a lot of landlords and homeowners might say you know what prices that's it we've peaked we're now on the official decline we knew it was coming sell now take money off the table that could create possible issues because now you're combining an eviction crisis with people panicking over prices falling a bit that would be bad and the only thing that would make it worse is if at the end of next year we also started to see more inflation and interest rates had to take up to combat inflation now we don't expect that but it is possible that you could have the perfect storm of a trifecta happen in the real estate market you literally have an eviction crisis leading to a panic lead into an inflation induced crisis and that's that would be the perfect storm to really hurt real estate prices now what would it take to actually see this perfect storm number one first if congress acts and provides rental assistance and the right amount of stimulus and the eviction crisis doesn't happen then we might not see that panic crisis and we might be able to eat any inflation issues if congress acts too slow and the eviction crisis begins but congress eventually acts well that would be the next best case scenario if congress literally does nothing we'll likely see some damage in 2021 but it's unlikely to create a foreclosure crisis unless those price declines create a panic and that would be bad the absolute worst worst case scenario scenario number four would be congress does nothing we get prices falling due to an eviction crisis then we get a panic because of that and then we get interest rates going up which we already know if interest rates go up one percent housing prices fall 10 like instantly then we're gonna have a really big oopsies here's my complete uneducated guess on the odds of these things happening congress acting and providing rental assistance and stimulus soon the best case scenario i would say five percent chance congress acting but acting slow that is the eviction crisis starts but eventually we start seeing rental assistance that in my opinion has a solid 75 chance of happening that is in my opinion i think there's a 75 percent chance that the eviction crisis is going to start we're going to start seeing some of those opportunities to buy some distressed properties and then congress will finally realize oh crap we need to help people and actually solve some of these evictions if they do that it would stop this problem cold i think that has a 75 chance of happening i think congress is likely not to do anything until there's already basically a forest fire like they don't want to put out the embers now they're going to wait for the forest fire congress doing nothing i think is unlikely but i'm going to put that because it is possible at a 15 chance congress just does nothing and then we end up seeing the eviction crisis and that might lead to some panic selling that would definitely not be good for 2021 we could see you know a 15 to 20 decline prices which would not be good if again if congress acts we might not actually see a decline in prices at all uh and i think that is the greater chance i think there's a greater chance that we won't see a decline in prices at least not substantially i do think we'll slow uh prices going up because of the eviction crisis worst case scenario congress does nothing and interest rates go up and there's a an eviction crisis and there is a panic well then then that's that's literally like an armageddon scenario right there uh which uh i would give the armageddon scenario just as likely of a chance of happening as congress acting right away which is five percent so personally i'm hanging my hat on congress eventually doing something if they don't though we've got big issues i don't know if we're going to see an inflation pressure in 2021 nobody's expecting inflation pressure until about 2023 but we also don't know how long this eviction crisis is going to go on for now where do we stand on this whole capital gains tax cut thing and and what effect is that going to have this is messy trump has floated the idea of doing a capital gains tax cut multiple times lately and sort of revised this into talking about a corporate tax cut i think the election will help us get some more insight on what we should actually expect to happen if there is a capital gains tax cut it is likely that we will see more real estate sales hit the market which would not be good to sort of add to this and remember real estate is slow it's not like you could just sell tesla stock and buy apple stock the next day and there you go you took advantage of the capital gains benefits no it's like you know 90 days to sell a place and then you're probably gonna sit on it for a bit and then maybe you'll go buy something like the difference between people selling from a capital gains tax cut and people actually rebuying i think would be quite a few months six months to a year or whatever in other words it could actually help push prices down even more in the short term before buyers sort of re-enter the market which should just be a mess all right so with all this said in the long term 5 to 15 years out i'm personally very bullish on real estate in high quality areas be very very careful about buying in low quality areas just because it looks like there's some more cash flow somewhere you're better off buying some stocks like buy att stock and there's your cash flow better than dealing with tenants and toilets if you're gonna do that uh in the short term we got to pay attention to congress uh like this this eviction crisis is totally predicated on what congress does and of course what happens with inflation so watch congress watch what happens with inflation buy the link down below check out my do yourself rental renovations you'll learn all of the things that i teach in much much more detail so you too can become an expert in real estat
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