498: Best Real Estate Investment Strategies for a Covid Economy

SHOW NOTES FOR EPISODE 498: BEST REAL ESTATE INVESTMENT STRATEGIES FOR A COVID ECONOMY

Like many businesses across the country, real estate investors will have to reevaluate their business model in the wake of COVID-19.  Fortunately, the best Coronavirus real estate strategies are among the same strategies investors have been using successfully for years.  In today’s podcast, Bill shares specifically which real estate strategies are most likely to be effective in the midst of a Covid economy.

Tip of the Week

Reserves, Reserves, Reserves – One of the biggest mistakes investors make is not having enough in reserves.  Lender requirements are not what you should base your property reserves on.  They just want 6 months of mortgage payments set aside.  You need to be more prepared than that.  What do you need reserves for?

• Vacancies
• Tenant damage or vandalism
• CapEx (the older the property, the bigger the number)
• Water heaters
• A/C units
• Roofs
• Floods, fires, hail storms, earthquakes, tornados, hurricanes – What’s your insurance deductible?
• Economic crisis

Have a reserve for each property – a separate account

And don’t forget your personal reserve

Lines of credit and credit cards don’t count 

Best Real Estate Investment Strategies for a Covid Economy

Like many businesses across the country, many real estate investors will have to have to reevaluate their business model in the wake of COVID-19.  Fortunately, the extent by which investors are expected to change shouldn’t be as drastic as other industries.

Historically, disruption within the real estate sector has resulted in amazing wealth-building opportunities. Today’s most prolific investors will be those who are savvy enough to identify such in the constantly evolving housing sector.

Fortunately, the best Coronavirus real estate strategies are among the same strategies investors have already been using successfully for years.  Stay tuned to discover which real estate strategies will be the most viable during the current pandemic.

Introduction

There is no doubt about it: The Coronavirus has changed the way many people view the real estate market. That said, change isn’t necessarily bad. Many of today’s most successful investors are the direct result of drastic fluctuations in the marketplace.  Disruptions in the housing sector offer great opportunities for savvy entrepreneurs.  However, that change will only work in favor of those who are willing to adapt to the shifting landscape.

Investors may turn to several Coronavirus real estate strategies to not only survive in the new environment, but also thrive. To do so, the following strategies should be considered:

• Buy-And-Hold Real Estate
• Commercial Investing
• Real Estate Investment Trusts (REITs)
• Crowdfunding
• Lien/Deeds Investing
• Foreclosures

Investing In Buy-And-Hold Real Estate

Of the many Coronavirus real estate strategies investors may deploy in today’s marketplace, none may be more viable than building a rental property portfolio. Otherwise known as a passive-income or buy-and-hold real estate, the market currently appears very conducive to aspiring landlords.

For starters, rental property portfolios are already viewed as one of the best wealth-building vehicles in today’s economy. Buy-and-hold real estate strategies have been justified by decades of appreciation and cash flow. Home values and rents have traditionally increased more than they have decreased over long periods of time.

“Prior to 2007, historical housing price data seemed to indicate that real estate prices could continue to rise indefinitely. In fact, with few exceptions, the average sale price of homes sold in the U.S. climbed steadily each year from 1963 to 2007—when the housing bubble burst and the financial crisis of 2008 ensued,” notes Investopedia. Of course, the bubble implies price declined, but only temporarily.

Following the last downturn, the median home value in the United States went on to appreciate 54.5% (from May 2012 to today), according to Zillow. While declines are expected, history has taught us that home prices are likely to bounce back, which bodes incredibly well for rental property owners.

Furthermore, today’s decline in housing activity and the expected drop in home values could represent a lucrative buying opportunity for prospective buy-and-hold investors. According to Zillow, median home values are forecasted to drop a modest 1.5% over the next 12 months. While that may not seem like much, it represents a break in about eight consecutive years of appreciation; In addition to historic price trends, this suggests the Coronavirus may have created a window for buyers to take action.

If that wasn’t enough of a reason to consider buying a rental property today, the Federal Reserve has dropped the benchmark interest rate to historic lows. In an attempt to stimulate the economy in the midst of a pandemic, interest rates are lower than they have ever been. At 3.54%, today’s average interest rate on a 30-year fixed-rate loan is hovering slightly above record lows. . The drop could save many buy-and-hold investors tens of thousands of dollars over the life of their loan, further increasing the cash flow of “in-service” rental properties.

Michael Zuber, the author of One Rental at a Time and a recent guest on the Old Dawg’s REI Network Podcast, started out buying single family homes during the Great Recession, transitioned to multifamily but now, seeing the same potential opportunities that he experienced in the Great Depression, is looking at going back to buying as many single family homes as possible.

Investing In Commercial Real Estate

The toll the Coronavirus has taken on commercial real estate presents today’s investors with a great opportunity. For more than two decades, real estate entrepreneurs have turned to apartments, industrial warehouses, retail neighborhood centers, and central business district offices in economic downturns.

That’s not necessarily because of the immediate returns, but rather the future prospects of acquiring a proven asset at a discount. Now more than ever, it may be easier to acquire commercial property at a discounted cost. In fact, there appears to be at least four sectors in which buying below-market commercial real estate now could pay off in the future:

Apartments: As people may be forced to downsize in a difficult economy, you will see a shift from home ownership to renting.  Even though it may be a temporary solution, it may be the only solution at the time.  Also, you are likely to see a shift from higher-priced luxury class A apartments to B and C class apartments.  We are already experiencing a housing shortage and, with a hard-hit recession, most of the pressure with be on rental property and specifically apartments.

Hospitality: The hospitality sector has been severely impacted by “shelter-in-place”orders. Hotels and event spaces have seen a significant decline in business. As a result, some hospitality businesses are looking to sell, which could represent a great buying opportunity – maybe – unless there are new parameters governing that space. AirBNB is booming right now because travelres feel safer in low-traffic lodging as opposed to large hotels or motels with many travelers coming and going.  That said, there’s a good chance the hospitality, with specific safety factors in place,  may recover, which could make any discount today attractive.

Senior Housing:  Because, there was a great deal of publicity linking senior care facilities with Coronavirus, there may have been a slowdown in this space.  However, the long-term demand for quality senior living facilities has not declined as the Baby Boomer bubble keeps moving forward at a exponential rate.  If the price is right, now may be a good time for commercial investors to look into senior housing facilities because the need for their services will never go away. In fact, with the Baby Boomer generation on the brink of mass retirement, there’s an argument to be made that there will be a growing demand in the near future.

Office: Office buildings have taken a big hit as a majority of people are working from home and will continue to telecommute even after the pandemic. This means commercial real estate investors will want to be extra careful in their office building purchases. Work from home trends have the potential to be a detriment to poorly located buildings, so it’s a smarter idea to purchase in established business areas as opposed to residential offices.  Where there seems to be more opportunities are with smaller suburban office buildings that may work better for large and small businesses.

Self Storage: Self storage may be a bit of a contrarian play at the moment, but it’s worth looking into. Traditionally, self-storage buildings have seen an uptick in business over the course of downturns. As more people are forced to move or downsize, self storage becomes more necessary. However, at a time when unemployment is reaching historical levels, self storage may be seen as more of a luxury than a necessity. If that’s the case, keep an eye out for strong locations, in low supply, run by strong operators.

Mobile Home Parks: Low income housing, and especially mobile home parks, are attracting lots of attention.  Mobile Home Marks or Manufactured Hosing still offers some of the best opportunities for familes struggling to find affordable living opportunities.  And, because the number of mobile home parks is decling, not increasing, it makes for outstanding opportunities for savvy investors.

Investing In REITs

Otherwise known as real estate investment trusts, REITs are companies which own, operate, or finance income-generating real estate assets. Investing in REITs involves investing in these companies via the stock market. Not unlike buying a stock from a broker, REITs may be purchased one share at a time. In fact, REITs are modeled after the same mutual funds most people are familiar with (with a few exceptions).

With the ability to buy one share at a time, REIT investing allows anyone access to the real estate industry, without having to invest in a physical property. By investing in an REIT, shareholders are investing in a company whose profits are primarily generated from real estate. Investors who don’t have the funding to buy a house of their own may be able to start an investing career in the REIT sector.

Crowdfunding

Along the same line as REITS, crowdfunding gives investors the opportunity to invest in the solid returns found in real estate without having to purchase individual properties.   Real estate crowdfunding has transformed the real estate investing landscape. Once reserved for only the most affluent investors, many crowdfunding platforms have significantly lowered the barrier to entry for this type of alternative investment. Low account minimums, simple fee structures and clean user interfaces make it easier than ever to include real estate in a well-diversified portfolio.  Companies such as Fundrise, CrowdStreet, DiversyFund, Rich Uncles and RealtyMogul provide excellent returns at reasonable prices.  Groundfloor allows investors to invest in real estate projects for as little as $10.

Tax Lien/Deeds/Trusts Investing

Slightly less direct than the Coronavirus real estate strategies mentioned above, tax lien/deeds/trusts investing is poised to gain more traction in the coming months. Impending financial hardships brought about by the Coronavirus are expected to hamper homeowners’ ability to pay many bills, including property taxes. With more homeowners unable to maintain their property tax obligations, there should be a spike in the number of deeds and tax liens levied on property owners.

Investing in tax liens and deeds has the potential to be quite lucrative.  It is also possible to invest in tax liens and deeds with less capital than may be required for other investments such as rental properties.  As such, this is one of the more popular investment choices for holders of Self-Directed IRA LLC and Solo 401(k) programs.

Foreclosures

The million-dollar questions that everyone in the industry is asking right now are: “What are foreclosures going to look like once the foreclosure moratoria and forbearance programs come to end?  And will we see all those borrowers in forbearance end up in default?”

The short answer is “there probably won’t be a foreclosure tsunami.”  But mortgage servicers and other default servicing professionals should prepare themselves nonetheless.  Some industry analysts have predicted a huge wave of foreclosures once the forbearance program comes to an end.

The bottom line is that although the number of foreclosures is unlikely to approach the levels seen in the Great Recession, there’s a huge wave of default activity coming that will wipe out servicers who don’t plan ahead and make sure they have the people, processes, and technical resources ready to meet the challenge.  For investors, that also means be prepared!

How To Find Properties During Coronavirus

Learning how to find properties during Coronavirus will borrow a lot from traditional investor strategies (i.e. identifying and securing distressed homes.)  Despite foreclosures declining for the better part of a decade, financial hardships brought about by the Coronavirus are bound to increase the number of distressed homeowners in the United States.  This means, investors should focus their efforts on finding these types of properties.

In anticipation of more foreclosures, and an attempt to mitigate filings, the government has enacted a number of forbearance programs.  As their names suggest, forbearance programs are designed to act as a temporary postponement of mortgage payments.  Since unemployment numbers are higher than they have been in a long time, the government hopes the use of these programs will keep more people in their homes and prevent them from defaulting on loans.  That said, the programs aren’t designed to last forever, and compounding payments over the course of the programs could actually cause more harm than good.

“Homeowners with government-backed loans—and even many without—are being offered up to 12 months of forbearance, doled out in 90-day chunks.  But this temporary fix could result in another wave of foreclosures in the future if additional assistance isn’t provided,” according to an article on Realtor.com.

The rise in forbearance programs suggests more homeowners are experiencing financial hardships. As many forbearance programs run their course and more owners fall farther and farther behind on payments, the chances of pre-foreclosures increasing will rise. When that happens, the information of the delinquent homeowners will become public knowledge. Those looking to find these homes will simply need to visit their local courthouse and scour the files for the contact information.

Be Prepared

Investors who position themselves well today by implementing any or all of these Coronavirus real estate strategies may come out on the other side of this pandemic even stronger than when they went in.

Whether you’re brand new to investing, have closed a few deals, or are a seasoned investor, there are a number of developing opportunities and more to follow.  The key is to be prepared:

• Carefully research the various strategies and opportunities available and zero-in on a strategy that is best for you
• Get your finances in order:
  • Your credit score
  • Maintain high liquidity
• Start networking
  • Start making solid contacts that will help you
    • People who went through the Great Recession and did well
    • Realtors, brokers
    • Bankers
    • Attorneys
    • Private money lenders
  • Educate Yourself
    • Know how to analyze deals
    • Know where to find deals
    • Research the best markets
    • Read up on no money down strategies (like seller financing, leveraging OPM (other people’s money, and

In Conclusion

The pandemic impacting every level of the economy is unfortunate, but it is important to note that disruptions in the real estate industry tend to create opportunities as well for investors. In response to what has recently transpired, a number of Coronavirus real estate strategies have emerged as very viable investment options. That’s not to say these particular strategies weren’t already being implemented by today’s most prolific investors, but rather that the Coronavirus and the real estate market aftermath have made them even more relevant than before.

References:

https://ira123.com/invest/ira-tax-liens/

https://www.nerdwallet.com/best/investing/real-estate-crowdfunding-platforms

https://www.marketwatch.com/story/how-to-invest-in-real-estate-during-covid-2021-02-26

https://www.fortunebuilders.com/best-real-estate-investment-strategies-right-now/

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