Buying, Selling, Investing In A Bubble | Real Estate How To

I am going to talk about 1) First Time Home Buyers 2) Current Home Owners 3) Real Estate Investors

Lets just say for arguments sake (and for the sake of this video really) that the housing bubble does pop. How will you be affected?

Before I get into these groups, there are a couple concepts you need to understand. The first thing to look at is the length of the downturn. This means the time it takes from the start of the bubble popping, to the bottom point of prices. If we look at the American Real Estate Bubble, it took about 5 years to reach the very bottom of the market. 5 Years is a long time. I made a video about it:

The second thing you need to understand is being stuck in a mortgage because of a downturn in the real estate market. What this means is that if you buy a home near the peak of the bubble (let’s say $600,000, but it could be any number. $300,000, 1 million, whatever), and then market then drops and your house is now worth $500,000. You cannot then sell your house because you would get $500,000 for it, but you would still owe the bank $600,000. You see? You would be about $100,000 in the hole. Is there a bubble:

Ok cool. Now you get that stuff and we can proceed!

First Time Home Buyers:

Let’s say you are a first time home buyer and you need to buy a house and can’t wait for the market to completely bottom out. Here are some things that I would do.

1) Make sure that you can easily afford the mortgage. Don’t get a mortgage that is at the top of your budget. Why? Because if interest rates rise, you need a buffer to keep you safe. A 1% jump in interest could be hundreds of dollars a month, and thousands of dollars a year extra. (check out an online mortgage calculator and see for yourself).

2) Make sure you will be happy for the next 5-10 years in the house you are buying. Why? If the market continues in drop you will most likely not be able to sell your house because you will owe more on the mortgage than what you will get from the sale.

3) Try to make sure that you are in a career that will still be paying the bills in 5-10 years. Why? Again, if the market continues to drop and you lose your job, you won’t be able to sell your house and downsize because you will owe more on the mortgage than you will get in the sale.

What it boils down to is that it is kinda dangerous buying at the top of the market. In fact, if the market does take a tumble, anyone who bought near the top (like in the last 2-4 years) needs to keep their job, hope interest rates don’t go up, and make sure they don’t have any more kids because if the market drops they won’t be able to buy a bigger home.

People Who Already Own a Home:

As a homeowner in this hot real estate market, you might be thinking of how you could cash in. And there are a few ways that people are trying to do so.

1) Selling and then renting. The hope here is that you sell your home while the market is still hot and you can get a bunch of money for it, and then you rent until the market drops. The classic sell high, buy low. The problem you might come across is the market might take a while to totally bottom out. So you have to weigh where you think the market will land in 5 years, and then calculate the rent you might have to pay waiting for the market to bottom out.

2) Selling and moving to a less expensive area. This could actually be a pretty good play for some people. Some of the people doing this are close to retirement and don’t care about being close to a job. Others aren’t necessarily close to retirement, but can’t pass up the opportunity to sell a million dollar house in a bigger city and then buy for a fraction of that in a smaller community.

So if you own your home there are ways to capitalize on this craziness in the real estate market, but you still have to be careful about how you do it.

Real Estate Investors: And lastly we have people that invest in real estate. Are you guys still buying real estate? Shiiiiiiiiiiiiiiiiii….

20 Responses to Buying, Selling, Investing In A Bubble | Real Estate How To

  1. Ajib Jung Thapa

    Great video man. It is soo straight forward and simple. What do you think about melbourne's property bubble? Any idea at all?

  2. William Palmer

    Excellent video, you do a great job keeping it simple, I look forward to more of your videos. Cheers mate

  3. comments comments

    Price drops, may not go up again, see Japan real estate price drops for 20 years, NOT go up again

  4. Kathy de Avila

    Hope this does happen, We well be ready to buy another house.

  5. David


  6. parkerbohnn

    The Chinese must feel like they've been speared with a chopstick.

  7. parkerbohnn

    When Poloz raises interest rates this July 12th these Chinks are going to get it right up their arses. The fallout will be the white man that copied the chinks with "Chinky see, Chinky do". Capisce?

  8. chachee15

    finding a great deal is the key to investing. you can invest in any market

  9. MsRocketDaisy

    Hi, I find your videos very informative and well done. I was wondering if you could do a video or comment on the Calgary housing market compared to Vancouver and Toronto. Thanks, C

  10. MelieSue

    Also, do you think this applies for all cities in a bubble? Like what about a city that is seeing an extreme surge in popularity and people moving here at rates of 100 people per day? I live in Nashville, and that's exactly what's happening. I've been trying to buy for 6 months and everything is insanely overpriced and competitive. I've pretty much given up, and I want to believe this bubble is going to burst in a few years…and if we were your typical city I think it would, definitely. But because we've gained a huge popularity and people keep moving here, and because we're such a small city (land-wise) to begin with, I feel like we may be the one-off situation where there is no burst to the bubble…

  11. MelieSue

    I've always been told that you're locked in at the interest rate at the time that you purchase? Which is why everyone wants to buy when it's low. But you're saying that as interest rates increase over time so will your already established mortgage? I'm confused.

  12. Ces Tem

    Great video !!!!!!!!

  13. M Sal89

    bought my townhouse at 24 in 2014, thinking about selling it now, I have about 80k in equity with this bubble we are in. not wanting to have to rent though. decisions decisions

  14. parkerbohnn

    The curse of "Chinky see, Chinky do" is worse than the curse of the apple in the Garden Of Eden.

  15. USAhealthInsReform

    What do you think of the Boulder, CO real estate market?

  16. Ivan Gorbadei

    Sorry to be a little bit hard, but honest.
    Please don't take it as offense, but in this case you really said a non educated thing, and it is not a matter of discussions and arguing, you just need to educate yourself better….

    Straight to the point – you need to learn the difference between speculation and investing in real estate.
    You have in mind only speculation, you call it investing, come to conclusion its losing money 100% and its so funny, because real investing in real estate is now profitable again, especially when prices dropped a little bit.

    Again, pls don't take offense, just google word like capitalization rate, positive cashflow, Robert Kiyosaki, Owen Bigland, Fruitful Investor etc…It will be the whole new world for you to differentiate stupid speculation from investment that you don't know how it works at all.

  17. Robert Drake

    What about people who have the cash and have been sitting out the market? The market hasn't been too cyclical given that this bubble has been building for 15 years. BTW, I tried the "selling near the top, buying as it comes down" and renting in the meantime (15 years). Turned out, wasn't the top and it never came close again (sold at $385k, the house later sold for over $800k).

  18. Jing Wang

    lol, In Toronto and Vancouver, house buyer still a lots , no person can get mortgage approval from bank, even you have good credit score. that's also say, it is fake housing market drop down.

  19. Base line

    I think the states again are in much worse of a economy downturn then canada.
    and vancouver and toronto as much as many people want those cities to drop may be very disappointed as a downturn of only 70-100k for homes in the 1 million range is all they will drop before slowly going back up.

  20. Jake Carter

    You forgot to mention that CAD mtgs are variable so they reset lets say every 1yr depending on your loan. So every 12 months, your loan-to-value ratio is reappraise by the bank. So let's say you buy a house for 800k, with 650k mtg. You have 150k in equity, you will have no problems getting your mortgage renewed. However when the bubble bursts, lets say a house is worth 600k or less. Big problems. Now your loan value is worth more than house value, and bank can very easily deny you a renewal of your mortgage, especially considering amount of ballooning mtg. debt barley being paid off. The big banks may force mass amounts of Canadians to sell homes at the same time cause they can't renew tons of underwater mortgages, and that may further bring down prices, and more people must sell because they are underwater at renewal time. This will not be pretty.