Real Estate Investing In 2023 – How To Stay Afloat When The World Going Down The Toilet

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Real estate investing in 2022 will be interesting to participate in. People have been talking about rampant inflation and a cataclysmic housing crash for years. And it looks like it’s all crescendoing right now. 

And now that it’s here, what are we to do? Specifically, if you’ve been getting ready to invest in real estate – should you still go for it? 

The truth is, if you’re smart about it, real estate investing is still a great idea – even in crazy 2022. And here, we’ll cover the bases so you can come out on top. 

5 Steps For Real Estate Investing in 2022

Step 1 – Get Your Head on Straight. 

I’ve been investing in real estate for almost ten years, but I can’t approach things the way I did a decade ago. Back then, I moved extra slow. (Possibly to my detriment, but it worked out either way.) I searched and searched and held out for the perfect deal. Some got away because I was too slow to act, but I wasn’t in a hurry. 

Real estate investing in 2022 will be different. This year, if you’re hoping to find the perfect deal and make out like a bandit, you need to rethink your goals. There’ll still be deals, but they won’t feel like a steal. Everyone will be hurting this year and will try to squeeze the most out of a home sale – especially considering that most properties have gone down in value. 

I also wouldn’t count on any price appreciation anytime soon. So don’t even consider “flipping” like it’s 2021. 

That said, I’m still very optimistic because I invest for the long-term, not some short-term flip. Every crazy has had a recovery, and over time markets always go up. 

Heck, dips were imperceptible sometimes (S&P 1950-1990) recession-investments
Markets recovered recently (S&P500 1990-2018) recession-investments
Markets recovered in the past (S&P500 1930-1950) recession-investments

(Images from Investing During a Recession: 5 Steps for STRESS-FREE Investing)

Step 2 – Be Prepared To Be Opportunistic. 

I cover this a lot in the Investing During a Recession article, but it bears repeating. No one knows where the bottom of the housing market will be. If you’re planning on real estate investing in 2022, don’t try to time your jump, just be prepared to be opportunistic. 

Be prepared for the best but also for the worst. That means:

  • Make sure you have an emergency fund,
  • Liquid assets, 
  • Good credit rating, and
  • You’re saving aggressively. 

That means you’re fully prepared to jump in, and you have a cushion before things start to turn around. (Instead of having to sell everything because you panicked.) 

Also, get this through your head now: since you don’t know when the market will bottom out, things will very likely continue to get worse after you buy. It’s okay. It’s temporary. Don’t be hard on yourself (unless you paid for psychic classes instead of padding your investment fund.) 

Step 3 – Know That Everyone Else Starts Out Optimistic Too. 

Different people’s optimism will drop at different points. This is good for us. 

In my time studying people, I’ve noticed that most start out optimistic that they can get a good sale price., then they drop their expectation a tiny bit. And that expectation just drops off a cliff. 

We want to wait for someone whose expectations just fell off the cliff. 

There’s one catch though. You’re not the only one waiting for this, and if the price is attractive, there will probably be a bidding war between you and all the other optimistic people. So we need to wait for ALL the optimists to go away. 

Just two weeks ago, I put an offer on a house. The seller listed it for half of the covid market peak. I was pounding the door to get that deal. 

But of course, there was a bidding war and the sale price went up well above what it should have. (It sold for 80% of the market peak, but it needed at least $150K in renos!) 

Alas, there were too many optimists who had the Jan 2022 home prices on their mind and they ruined it for the rest of us. But that’s okay. Let them spend their money now so they can stay out of my way later. 

Step 4 – Shop Slowly but Move Quickly. 

Like I said earlier, you’re not going to find an insane deal in 2022, but they still exist. Even if you’re seeing homes at 20% OFF (at least compared to the covid peak) it may be tempting to move. But in my case, I’m not looking at anything listed above 70% of that peak – to me, that would be a deal. 

That said, my money is ready and I’m waiting to pounce. My offer will be the first to arrive when I spot the right deal. And yours should be too. That means get pre-approved for a mortgage and follow Step 2 to be prepared for real estate investing in 2022. 

Step 5 – Buy a House With Stable Numbers. 

I’m going to warn you right now. When you eventually buy your house, something will feel like it went wrong. Most likely, you’ll miss the bottom of the market, and then see everyone around you get slightly better deals. Or your tenant will move out. Or you’ll have an unexpected expense. 

All of that is okay as long as you account for it and the numbers still check out. For me, that means anything that’s cashflow-positive in the worst-case scenario. 

My quick “worst-case” calculation is:

  • If the interest rates go 1% higher
  • If the property management fees go up to 6%
  • There’s no tenant for 1 month/year. 

If, after taking in all those considerations my rent income is still higher than my expenses, I know I’ll be okay. 

2022 Home Price Forecast

I’m not a betting man, but sometimes it’s fun to take a shot. When it comes to real estate investing in 2022, my prediction is that the housing market will bottom out when it becomes impossible to have positive cashflow. Meaning, your expenses (mortgage, etc.) are higher than your rental income – and when that’s the case across the board. 

That’s bound to happen with another rate hike. If there’s a jump from 1.5% to 3.5% on a 30-year mortgage, I think prices will drop by 30%. And if they drop by 30%, my guess is that the “quick to sell: crowd will be handing out offers that’s 35-40% below what they used to be. That’s why I’m looking at homes that have dropped by 30% since the 2022 peak. I don’t want to feel like a sucker. But that’s just me. 

When Will the Bottom of The Housing Market Happen?

Again, no one really knows and I’m not a betting man, but I do have a theory. 

My theory is that it will happen 3 months after the last interest rate hike. 

The people who will sweat the most are the people who own too many homes. They likely have variable interest rates and will hold on hoping for the best. They’ll hold on for the first month because they won’t feel the pain of the price hike yet. Then they’ll list, hoping for an awesome 2021 price. Then after another month, they’ll drop the price. And then a month after that, they’ll panic. 

That’s when I’ll be there with a briefcase full of cash. 

TL;DR – Real Estate Investing In the 2022 Inferno. 

  • Set sights on your property. 
  • Be ready and opportunistic, with your money ready to go.
  • Know that everyone will start out with the wrong idea about home prices – don’t be among them. 
  • Wait for people to sweat.

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