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Real Estate Investing and Coronavirus – Effects and Predictions
I am receiving a lot of questions and concerns about the coronavirus epidemic and the effects it might have on real estate, specifically when it comes to investing.
This article is my personal opinion based on my research over facts and figures (not news or social media.)
Yes. We are entering a recession, but it is a much different recession from the last one we had in 2007-2008. The recession of 2007-2008 was based on deep economic and financial markets issues, whereas the economy this year has thrived. Specifically the real estate sector has been and still is very strong. There is not going to be a massive asset repricing as we saw during the last recession of 2007-2008.
In 2001 the country went into a recession mainly due to the terrorist attack of 9/11.
So what do these 2 recessions (2001 and 2020) have in common? External factors triggered the recession, not economic factors. In 2001, even if the GDP went down, real estate remained strong and actually real estate prices went up over the next year by 4.8%.
The predictions are that this present recession will be short lived (2 quarters.) Once the pandemic is over, the recovery should be quite fast.
Let’s face it. Until now most property owners have not been very motivated or distressed. They held up on demanding high prices on their property, making it very difficult for investors to negotiate and get good deals.
Now more property owners are looking to sell and liquidate for fast cash. Also with the sudden economic shutdown, a lot are at risk of losing their job, making it very difficult to pay their mortgage. Combining these facts with uncertainty about the economy, a lot of property owners are scared.
Just in the last few days, we have seen a surge of leads coming through and potential sellers are much more willing to negotiate and being reasonable about the asking price.
As a real estate investor, this is the time to rev up your business.
Wholesaling – the supply of off market properties has suddenly increased. Sellers are much more motivated and reasonable with price expectations.
Fix and Flip – the demand for houses in the “sweet spot” price range has suddenly increased as well, due to historically low interest rates, which makes mortgage payments much more affordable than rents. Therefore rehabilitation of distressed properties (in the “sweet spot” price range) is crucial for a sudden increased demand.
Buy and Hold – whenever a recession hits, rental demand surges. It’s not different in this recession. Vacancy rates have been at an all time low for quite some time and they keep decreasing.
There is a shortage of housing both in the rental and for-sale sector due to historically low new construction over the last 10 years that has not at all kept up with demand.
Changes in strategies and approach to real estate investing
This is not the time to panic. Again, this crisis is temporary.
This is the time to look at your business model as an investor and rev up your business due to the increase of property owners willing to sell and negotiate on price with better terms.
Also the competition of other investors entering the market is decreasing. A lot of them are on the fence, waiting, or postponing entering the industry. Smart investors understand what is happening and seize the opportunity. I made more money during recessions than during regular times.
With the recommended “social distancing” and encouraged “stay at home” behavior, you should really focus on establishing a virtual real estate investing business model.
This is definitely the time to do it.
You are not limited to geographical areas or local demand. You can exponentially grow your business much faster and in less time.
It’s the ultimate real estate investing business model.
And what if there is a national quarantine or lockdown?
You can still put properties under contract and sell them virtually. Just allow the buyer to add the contingency on the contract “Subject to visual inspection.” Once the quarantine ends (for instance, in Italy it is for 30 days,) you will have a flood of contracts and closings coming through.
Don’t buy into the panic and nationwide hysteria. Stay safe, do your part in not spreading the virus (social distancing,) and build up your real estate investing business.