This is the first podcast episode of 2021. On this episode, I talk about setting goals for 2021, and my vision and blueprint for the real estate market and real estate investing in 2021. To listen to this podcast, scroll down to the bottom of this page and click on the white arrow in the black bar below.
I believe that this year will be the year where we see the real financial impact of 2021. I think that last year, the focus was on the epidemic and how many people were getting Covid and or dying from it. I personally had Covid in July 2020 and I spent 6 days in hospital on oxygen with double pneumonia. It was not a fun experience. It was also life changing from the perspective of evaluating my life and my business and my goals.
As we progress through 2021, and as more people are vaccinated, I imagine that at some point the health and medical issues related to Covid will begin to be less important, and we will gradually see a diminished impact from a health perspective. At that point, we will be left with the reality of the economic and financial devastation that have been created from Covid.
Today, the stock market, real estate market, bond market and currency markets all seem to indicate that the crisis is “over”. We overcame the financial collapse of March 2020, The Federal Reserve stepped in and since then we have rallied to new highs. Real estate is booming, the stock market just made new record highs. It appears that everything is back to normal and the economy is just fine.
However, in my opinion that is not what is really happening. Artificial stimulus from the Federal Reserve (which has been literally printing more money than ever before) has calmed the markets (temporarily), and helped elevate them to new highs. However the reality of what is happening on the ground with the average U.S Citizen is completely different.
We have essentially fractured into two different groups. I will call them the “have’s” and the “have not’s”. The first group (the have’s) is financially and computer literate. They went into this crisis with some savings, money in the bank, and some investments in stocks and bonds. They are also more likely to own a home. They have a job or business that allows them to work from home. They have not been impacted financially by Covid like many others have. They still have a job, and they still get their paycheck even while they are working from home.
Their expenses have gone down and their savings have increased because they are eating out less and not going on vacation anymore. They have investments in stocks and bonds and real estate and maybe even some bitcoin too. All of their investment accounts have been booming. If they are self employed they may have even received PPP or EIDL money boosting their bank account balances. This group is what I call the “have’s”. They are in the same or a better financial situation than before.
Then there is the second group the “have not’s”. This group is made up of factory workers and lower level paying jobs where their job has been completely eliminated. The company they work for has either stopped production, or dramatically reduced output or shut down. The “have not’s” group also includes retail store workers, restaurant servers, bus boys, bartenders, hotel employees, and airline and cruise ship employees. It also includes anyone who has lost their job because of the Covid Crisis.
All of these individuals have lost their job without any expectation of getting another job in the same industry, or getting rehired any time soon. Some of these people have resorted to becoming Uber drivers, or doing other jobs that pay a fraction of what they were making previously. The “have not’s” are much less likely to own a home and they had much less savings (or no savings) going into this crisis. These are the people who live paycheck to paycheck. They have zero investments in stocks, and bonds and they don’t own rental properties. They are unemployed and are not getting paid. For this group, 2020 has been financially devastating for them and for their families.
Many of these “have not’s” own their own homes. They are not all renters. And because they are unemployed, they cannot make their mortgage payment. The mortgage delinquency rates show us a far different story than what the stock market and real estate market currently indicate. Almost 8% of all mortgages in the U.S are in default. In some States like Florida, in some Counties 20% or more of all mortgages are delinquent. 15% of all FHA mortgages in the U.S are delinquent. This far exceeds FHA mortgage delinquencies in 2008 and 2009 and is a record that goes all the way back to 1979. This is the highest FHA mortgage delinquency rate in 40+ years. Many of these people will be losing their homes.
Currently there are still eviction moratoriums and foreclosure moratoriums in place. But these cannot be extended forever. At some point, they are going to expire. And when they do, the banks are going to start foreclosing on these delinquent mortgages. There will be a dramatic increase in foreclosures and pre-foreclosures (and short sales). Ironically at the same time that this is happening, it will coincide with the Virus being over, and people feeling like they are safe to go back to their normal lives. This means that sellers who have removed their homes for sale from the MLS over the past year, will start listing their homes for sale again. That means more inventory. And the foreclosures will create more inventory too. And as banks start taking back properties, the REO’s will create even more inventory. In short, there will be a lot more inventory than there is right now. Many homeowners who are delinquent on their mortgages will realize that they cannot catch up, and will start listing their homes for sale. Homeowners that are already in foreclosure will list their homes as “short sales”. This increase in inventory will definitely impact pricing.
The question we don’t know is by how much? Will prices drop? If so, by what percentage? Will there be more inventory? I think there will be.
Will it be easier to find houses to buy? I think it will be easier for sure. Currently we are at the lowest levels of inventory that I have ever seen. We need more inventory. How will hedge funds and private equity funds react if prices pull back by 10% or 20% (or more). Will they run for the hills and dump all of their real estate? Or will they be buying as much as they can to take advantage of the pull back in prices?
Will commercial real estate collapse from the Amazon retail effect? Will Shopping Malls shut down for good? Will banks that underwrote these loans go under? How many banks will this effect? Will that effect their ability to lend? Will interest rates go up? There are many variables.
I think that hedge funds and private equity funds will swoop down like vultures and buy all of the foreclosures and REO’s for pennies on the dollar. My guess is that is exactly what will happen – because that is what happened last time. Banks and hedge funds learned a lot from the 2008 crisis. They will not behave the same. Banks are also in a much better position financially than they were then. So are private equity funds. Any decline in prices and increase in inventory will be fast and rapid.
There are many investors sitting on the sidelines waiting for this opportunity. I am one of them. This opportunity won’t sit around for years like it did from 2008 to 2011 in the last financial crisis. I think it will be quicker. Inventory will increase, prices will drop and funds will swoop in to buy everything they can. That is actually good news for the market. If you are a real estate investor, you will be able to use 2021 and possibly 2022 as a buying opportunity.
If you are going to be an investor in 2021 and 2022 you will need to be nimble and quick. You will need to understand and know the pricing for your local real estate market. You will need to understand how the foreclosure process works in your State. You must know how to market to pre-foreclosures and homeowners in foreclosure. It will be very hard for you to have conversations with these homeowners, if you yourself do not understand the foreclosure process.
Your number one source of leads is going to be foreclosures, pre-foreclosures and short sales. Learn how to find these leads. Learn how to market to them. Understand how short sales work. That will be the area to specialize in for 2021. That is what I will be teaching my students.
My prediction for 2021 is that there will be a financial impact and it will be devastating. Many malls, stores, restaurants and bars will simply not open again. And those jobs will be lost forever. Retail is dying a slow death. And it is being replaced by Amazon. I think many people will be much more hesitant to travel in the future.
I don’t think the airline and cruise industry will recover as quickly as investors in the stock market think it will. Imagine that you are an employee and you have have 20 years of retail experience? Where exactly are you going to find a job if all of the retail stores are shutting down and 50% of the jobs are gone? What about hotel employees, cruise ship employees, restaurant employees etc. The effects will be unfortunately long lasting (in my opinion).
The newly unemployed will need to learn to adapt. They will need to learn how to acquire new skills and find new jobs in different industries. And this is where the “have’s” versus the “have not’s” becomes really big. If you have zero computer skills, it will be very tough for you in this new economy. Everything is going or already has moved online. You will need to learn something new. A new skill. Something that requires more talent than driving people around on Uber. I pay my video editors $85 an hour. You don’t need to go to college to learn that. You can learn it on YouTube for free. That sure beats making $10 an hour driving for Uber. But you need to have computer skills and video editing skills to do that job.
2020 Was a very interesting and challenging year for us. We had to let staff go. We had to learn how to adapt to the change. Since no one would show up for live events, we started streaming our live events via Zoom Webinar. The results were awesome. We can now give students all over the country the opportunity to attend a boot camp virtually, without buying a plane ticket or having to travel away from their families. Even better, our capacity that was previously limited to 80 has been increased to 300. We can serve more people in further locations than ever before. We have students from all over the U.S, Canada, England, Australia and many other countries signing up for our programs online.
Another huge change was that since March, we have had all of our staff working from home. That has worked out better than I anticipated. We have added some more virtual assistants (VA’s) and we have moved our entire office and operations including lead managers, acquisitions managers, dispositions managers, student support, coaching and event management to 100% virtual. As of June 2021 we will no longer have an office. In this new economy there is no need for an office.
I always had a vision to be 100% virtual. Ever since I learned that Tony Robbins ran his entire company virtually I always had that as a goal. 2020 and Covid made it happen quicker than I anticipated.
Change is good. Learn how to adapt to change. Change can seem bad when it happens, but can ultimately be the best thing that ever happened to you.
In 2000 I was a stockbroker and money manager and I lost my business and all of my savings in the Nasdaq Stock Market Crash. I read a book called “Who Moved My Cheese” by Spencer Johnson that gave me a new perspective. It made me realize that my cheese had been moved and I needed to adapt. I was not going to make my money from the stock market anymore. I needed to find something new. What I found was real estate. And real estate has been very very good for me.
Some of you reading this know that your cheese has been moved. You will need to adapt. Stop living in denial. You have to change. You must adapt. I encourage you to read “Who Moved My Cheese” if this is you.
How are you planning for 2021? Are you wallowing in pity? Or are you adapting and changing?
How will 2021 be for you? How will it be for real estate? Are you prepared for the foreclosures that are coming? Are you learning and educating yourself?
Educate yourself NOW, sharpen your swords and be ready for the foreclosures. This will be a great year with lot’s of opportunity for investors.
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