With the current pandemic the American economy is slowing down, and on the verge of a recession. How will this affect the housing market? Will prices drop? Is this going to be another 2008? In short all will be well. Find out how today on the Passive Cash Flow Podcast!
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Aaron Fragnito: All right ladies and gentlemen. Aaron Fragnito here back again with the Passive Cashflow Podcast Episode Number 20 today. We are going to talk about investing in real estate during a recession. I’m not saying a recession is happening, but it’s looking like there’s definitely going to be a slowdown. As we know, the stock market dropped about 30% or so. I’m making this video on March 17th, Tuesday, you’ll see it on a Friday. It’s hard to say where the stock market will be by then, but what I can tell you is, would it be higher or lower than what it is now because the market is very volatile right now. It is dropping like a stone.
I’m making this video to explain how our investors, how we are currently investing in real estate as the stock market drops, as there’s a virus scare going on and as just lot of indicators showing that, “Hey, you know what, we had a good run, it might be time for a little bit of a market slowdown.” A six to 12 month recession, maybe happening already, or about to happen now. Let’s talk about how you can invest in real estate to continue to succeed in this market whether it’s up or down. Because I’m not a fan of just saying, “Oh, you know what, I’m going to go pack up and go on vacation for a year and wait for the market to come back or [unintelligible 00:01:34] wait for all the buyers to get back in the market and for the bidding wars to start again and I’ll buy then.” No, no, that’s the wrong way to buy real estate.
You want to buy, [unintelligible 00:01:42] buyer’s market phase one, which is generally happens about halfway mid of a recession. We are experiencing end of a seller’s phase two right now and we are about to graduate into a buyer’s market phase one. What’s going to happen now is, I feel you want to be invested in multifamily real estate. It’s no secret here if you watch my shows, we invest in multifamily real estate all through New Jersey. In fact, if you want to learn how to get qualified with that, you go to peoplescapitalgroup.com as a passive investor.
We buy real estate in New Jersey here, we’re managing houses and we’re focused on multifamily. The reason for that is because people need a roof over their head, right? Whether times are good or times are bad, the stock market’s up or the stock market’s down, people need a roof over their head. Well, they don’t necessarily need to pay for office space, they don’t necessarily need to pay for their store front, but in times like this, one of the last things you’re going to start paying is your landlord, to make sure you have a place to live.
I’m a realist. I know that rents are probably going to slow down a bit, evictions might pick up a bit and yes, the cash flow and real estate can be challenged during a recession, especially a major one like we saw in 2008, which by the way I don’t think we’re going to see anything like that. The banks are in much better position, the economy is well. We are going to see a slowdown in the market over the next 12 months. Whether this lasts for half a year, a year or two years, it’s unknown right now. I don’t have a crystal ball, of course. What I can tell you is we’re focusing on buying affordable real estate in this New York metropolitan market here.
The reason we don’t go buy out of state is because we [unintelligible 00:03:21] the house, we also focus on buying in New Jersey market where there’s ton of demands. People need to live around New York City, people need to commute to New York City whether the markets are up or down, whether there’s a virus scare or not. We do see demands still consistently right now to lease our units and rent is still growing right now. Things might change over the next few months, we’ll see.
As of now, our theory of buying around Manhattan and the Jersey side, we buy affordable real estate, we don’t buy Class A real estate, the most expensive luxury condos or whatnot. We don’t buy that. We also don’t buy the super or bottom rung of real estate either, which tends to work with a lot of individuals near the poverty level which of course, could tick very hard as well in slow economic time.
We focus on buying moderate properties, Class B and Class C properties. Real estate is valued at four levels, Class A being the best, Class D being the worst. We focus on Class B and Class C, outside of Manhattan on the Jersey side. Demand is strong through recessions, rents we normally buy properties where rent is about 10 to 20% below market value. Even if rent stopped growing today, which is likely and then slow down and rent value actually dropped, well, we’d still be okay as long as there was a more than a 10 to 20% drop in rent.
We do see a continuous rental demand right now and we do see still demand to live in affordable, multifamily housing within an hour of Manhattan. Right now, we’re doing fine and we see that as we batten down the hatches a little bit going forward, since we made investments in good areas, we bought for the right price, rents have room to grow, we feel like even if there is a market slowdown and a slowdown in rent levels, we’re going to be all right with these properties.
There’s also multiple forms of income on them such as storage and parking and HOA fees and things like that, that we can charge to make additional forms of income on these properties. Even if we do have a few evictions and vacancies going on through a recession, we can continue to make income through other forms of income on the property like laundry storage and parking, which allows us to continue to cover all those costs.
We buy cheap affordable real estate with rents below market value in areas here that gets you to Manhattan quickly and we also avoid high-end real estate in flipping. Right now, you want to avoid the super low stuff, you want to avoid flipping houses. I think buy, fix and flips are really tough in the recession. I’d for the market to kind of recollect itself over the next six to eight months here and then decide to start flipping houses again. Unless you could really steal a deal or something like that.
Overtime, real estate values do raise. I don’t want people to panic. This video is to encourage faith in the real estate market, in the American market, in the economy. This engine, we’re going to pause the wheels for a few weeks or few months now, as we try to kill this disease and the spread of it and really slow this down. That’s a good thing for us to do to protect ourselves and our society. I think that we’re going to get the wheels turning again in a couple of months. We’re going to get back on that horse. We have a lot of money in the banks. The government is making sure that they’re going to start ideally, maybe sending money out to people or protecting us in different ways.
It might get worse before it gets better. There might be a lockdown and things like that. Businesses might close for a couple of months, but I do think we’re going to get back in action here by summer or fall or so. Even if the virus isn’t eradicated or whatnot, we’re still going to soldier through this and we’re going to do what we do best, which is turn this market around as we recollect ourselves. Those stocks will come back, whatever vacancies we have will get filled overtime during a recession. We don’t have any right now, but we recognize that might be around the corner.
Right now, we are just kind of keeping the coffers a little more filled with cash, but we are continuing to purchase real estate, we’re continuing to work with passive investors, we’re being more picky on what we buy, but we’re executing on a number of properties right now. We did stress tests on these properties and that allowed us to confirm that they’re solid investments for our investors through tough times, through good times and bad.
Right now, if you want to learn more about how you participate in those buildings or learn more about working with Peoples Capital Group, as a passive investor, you can go to peoplescapitalgroup.com, put your information in and qualify hopefully for an upcoming opportunity. Again, if you want to know more about how we work with investors, different videos on my podcast as well, go to our website, peoplescapitagroup.com and you can see all of our information there and learn more about our company and our service to investors.
The most important thing is that we keep on being transparent, communicate with our investors and our tenants through these tough times and that Peoples Capital Group is here to give you guidance, make sure that our buildings are still performing and there are tenants who are healthy and happy, because we know a happy tenant equals a happy investor.
Check out peoplescapitalgroup.com and hopefully we can do business one day in the future. Thank you.