The Texas Foreclosure Wave is Coming (Are You Ready?)

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Michael Zuber (1:01)

Alrighty folks, last time in the GFC, Texas actually avoided most of the foreclosure crisis because they weren't doing these toxic loans. However, I do think that Texas will be the epicenter of this year's and next year's foreclosure crisis. In fact, just this month, the month of October 2026, there are over $770 million in foreclosures going to auctions just in the multi-family space. Folks, if you want context, that means the deals were about a billion. There's about a billion dollars in deals going to foreclosure, equity of about $3,300, and it's all gone.

Jonathan, what do you think? Will Texas likely be the epicenter of this multi-family catastrophe?

Jonathan (1:48)

Absolutely.

Texas is going to be the poster child for the multi-family foreclosure crisis.

The reason for that being that pretty much every syndicator and their uncle was chasing deals in Texas. The reason for that was because Texas had very, very strong, very robust population growth. And the simple calculation that people made was, if people are moving there, they need a place to live, and therefore everything's fine. So what you had was everybody making the same simplistic analysis. And the problem with that was, well, two problems. One was all of the buyers rushed in back by the banks, who were all like, Texas can't lose proposition. We will buy, we'll lend you whatever you want. And the buyers were like, we'll pay whatever you want. Just give us the assets. The problem for that is that what happens when that happens? The developers look and they're like, aha, this is the place to develop. So they all rush in, and we know what happens when that happens. You get major vacancy, and then the whole thing comes crashing to the ground. And you can pretty much guarantee that this will happen because this is what always happens in the real. This is the real estate cycle. This is basically, you've heard of the real estate cycle. This is the real estate cycle.

And people believe that the real estate cycle didn't exist anymore, or they didn't have to worry about it because it was years away, but this is what happened. So yes, every syndicator was going into Texas, massive, massive volumes of purchases, and now we're going to see the inevitable...

Michael Zuber (3:30)

Catastrophe.

Jonathan (3:31)

Catastrophe.

Michael Zuber (3:31)

It's going to be ugly.

Jonathan (3:33)

From that. Now that doesn't mean it's not going to be ugly elsewhere.

Michael Zuber (3:35)

No, true. No, it's just the epicenter.

Jonathan (3:37)

Yeah, but the epicenter of this is Texas. Ironically, too, I think a lot of people as well, when they looked at the GFC, and they were like, oh, well, Texas didn't have a good GFC. So therefore, Texas is safe. And this is the kind of investor psychology you see all the time.

Fighting, you fight the last war, and you basically take, you take a safe trade and you make it a risky trade by everybody doing the same trade, right? It's just classic investor psychology.

Michael Zuber (4:06)

It's all momentum. It's not logic. It's all momentum.

Jonathan (4:09)

Yeah, it's all momentum.

Michael Zuber (4:11)

So yeah, when I again, I was I was having lots of people pitch me on Texas deals. And, you know, we obviously know about that guy in Hawaii who bought a four cap, hoping it would be a three cap. And I mean, that's just this stuff's not logical. And there were multiple buildings in Texas that re traded like two and three times inside of four years. Yeah, folks, this is not a freaking mean coin.