This Is What "Always" Happens Before A Real Estate Crash

What have I told you that there are some easily overlooked signals that can predict a real estate crash way before news headlines do that. Investors who saw it in 2008 were prepared and made a ton of money and it might just be flashing red again. Now, let me show you now, guys, after that opening, I'm here to tell you that people who worry about nationwide real estate crashes are morons. Yes, they're morons guys in our history. We've only had two doesn't mean it can't happen again. It does not mean it can't happen again. But the last time we saw in 2008 was driven more by a lending crisis than overhyped real estate completely. Now you might sit there and say, well, what's the difference? Well guys back then, and for those of you who might be too young to remember this back then you could literally walk into a bank, lie about your income. They would ask you never to identify and prove your income. You can walk in and borrow all these teaser rates, three month locked guys, three month locked rate, one and a half percent that ballooned. Everybody was doing these short term arms and it sounded great at the time. And guess what? Well, my real estate deals, my big apartment deals, I personally use those five, seven and 10 year arms in order to buy my properties. But there's a reason for that. I'm also in that process renovating the properties, putting more money into them to drive up the value and drive up the revenue. That's how I sit there and overcome the risk. Back then it wasn't that. Back then it was people buying blindly, hoping that down the road, the property would be worth more money with no fundamentals that they drove through and that when they're able to refinance, they do so suck some money out, do it again. Every bubble starts with a good premise, a smart idea. Real estate build wealth, real estate for savings, real estate will build you some wealth. Absolutely. But just like our fifth principle, our fifth tenant of principle driven investing, a great idea at the wrong price becomes a bad investment. Every great idea that has become a bad investment was merely because of one reason. The wrong price was paid. And in 07 and 08, the biggest issue we had was all everybody assuming that real estate was so safe that they would just kept lending and lending and lending. You might sit there and say, well, yeah, but how did it get that extreme level? The same way a boiling frog in a bar in a boiling pot of water doesn't realize it's too hot until it's too late. Nowadays, when I go apply for a loan, the nut kind of hoops I need to jump through to get that sucks. Now does this mean that this massive rise in interest rates hasn't caused some slowdown? Yeah, a little bit. I've seen a slowdown in some major markets, but not nationwide. I live in Cleveland, Ohio. We're still seeing a lot of year over year growth in our real estate values. And we're not a growing, booming market. Why? Because supply and demand. We're not supplying a ton, but the demand is still there. And those low interest rates in the past, people are only moving if they have to move, whether they're changing cities. And the other thing is, for example, a friend of mine just called me today and said, Paul, I want to buy a new house. I said, great. What are you gonna do with your current house? You're gonna sell it. I'm like, do not sell it. What's your rate? He's like three and a half percent. I go, do not sell it. You're going to rent it out. And you're going to rent it out for a long period of time. It'll probably be one of the best investments you ever make. I said, do you have cash to buy this new house? He goes, yeah, I have the ability to put a good down payment down. I said, then never sell that house. And that's something I want everybody to remember. Those low rates are going to keep that supply low for a while, not forever, because eventually people get used to six, seven, 8% interest rates, and that'll get its way through the market. In addition to that, we've seen a lot of wages increase. You know, I had something in a previous video said, what kind of world does this guy live in that he thinks that wages are increasing? Well, the world I live in is called data. The data says that wages are increasing. Now are they increasing as fast as prices change? No, that doesn't happen. But the thing that led to the previous crash was we had wages increasing, but we had terrible lending standards and suddenly banks stopped lending and they wanted those assets off their books. They flooded the market with real estate. That's what caused the crash. If I went today and flooded the U S economy with 50 million brand new homes, guess what happened to home prices? They would absolutely plummet. But inflation's causing houses to cost more money to build. Inflation causes wages to go up. Who builds houses? People when you pay them more money and anybody who thinks that people aren't making more money today, you're just an angry, bitter person. I don't even want to hear from you. You're useless. You should go back into your miserable life and be on with it. People's wages are increasing. If your wage is not increasing, that's on you, not on society. Now, like I said before, crashes can still happen nationwide, but for that to happen, we have to see some major outside influence that happens. Real estate didn't crash because they were bad assets. Real estate crashed because banks were frivolous and stupid and gave money to everybody and anybody without verifying what they owned and what they had. That's the problem. Real estate itself wasn't a toxic asset. Bankers were the toxic people. Don't tell me the entire market is dysfunctional because people took advantage of it. That doesn't work for me. Now, when it comes to local real estate markets, there are risks in there and that's going to happen a lot more than others, especially in the big booming markets. The risk in the big booming markets is that builders come in and they build up too much supply. Whenever I hear people, if you ask everybody right now, what's the best place to buy real estate? They'll say, go find booming markets. Sure, but everybody goes to booming markets, including builders and they build a lot of spec. I have a house in Phoenix now that I rent out. Now I was talking to a guy who does high end construction and he builds home on spec. How high high end? One of his homes for sale now is $7.995 million. And I said, don't listen. I was like, I see this question. How much are you going to make on this house? You know, he said to me, he goes, I'm going to make about a million bucks. I go, wow, 7.995, you're going to make a million dollars. So I heard this, you pay your commission 7%, 560,000. I did this. We're basically at 7.4 million minus a million. He's in it for 6.4 million. You know, he told me, he's like, yeah, I'm into about 6.95 million. I go, Oh my God. He didn't even factor in this. Guys, would you build an $8 million house to make $400,000? Cause that's what he's going to make. He was looking at it as a, I'm into it for 6.995 because he said those words to me. I am going to hopefully sell it for 7.995. That's where you get into issues. And guess what? His market is very small. So if he's wrong on this, it can plummet very fast. I just bought a house in Phoenix. The original asking price 18 months ago, I'm not saying this to be cocky because I don't believe this value was 4.1 million. I just paid 2.7 million. I'm not a brilliant negotiator. These guys just mispriced it to start. Now, when a crash happens, you will profit. If you currently own real estate, don't worry about it. Keep paying your mortgage, keep renting it out, keep living in the home and you will do great over long periods of time. It's been proven time and time again, and it'll continue to be proven because we are printing a ton of money. Inflation is real estate's friend. But if a crash were to happen, if it were to be able to give you the opportunity to buy like we were before, which probably won't happen because back then guys, I was buying homes in oh nine, 10, 11, that in oh five sold for 110,000. I was paying 10 or 20,000 for them. That's probably unlikely to happen anytime soon. Anything can happen, but I'm not banking on that. I remember for years later, people would always tell me, Paul, when's the next real estate crash? When's this going to, I'm waiting for the next real estate crash. I was like, okay, wait for it. Go have fun. I looked at saying, maybe, maybe not. Your job is to make great investments. If you're trying to make 30% returns, good for you, but you're probably going to miss out on a lot of opportunity here when buying real estate. If you find opportunities to make 15% and you do it, and then all of a sudden the market crashes, you can make 30. Don't feel like this is a bad investment because you should be buying your returns in real estate based on 10 to 20 years at a time. So if you can make 15% a year for 10 or 20 years, you're going to do great whether prices go like this and then right back up again. Don't worry about the short run. And with real estate, it's a lot better to do that. What I want you to do is get prepared. If you've never bought real estate before, but it's, it's piqued your interest. You got to start learning somewhere. Nobody was an expert until they started from zero. If you have ever felt unsure or overwhelmed when it comes to real estate, this is exactly why you need to watch the video on your screen right now. It's not just information. It's a mindset shift. It's the clarity and confidence that you've been looking for. So you can finally stop guessing and start making smart principle driven moves that actually work. Thank you for your time.