458: Covid Investing – To Buy or Not to Buy – That is the Question!

SHOW NOTES FOR EPISODE 458: COVID-INVESTING – TO BUY OR NOT TO BUY – THAT IS THE QUESTION!

It goes without saying that COVID-19 has had an unprecedented and far reaching effect on the economy. With record unemployment and job uncertainty being a reality for many, it can be tough to find the silver lining.   In today’s podcast, Bill takes a look at the Covid economy and what options are available for investors who want to grow their portfolio yet be wise in light of the current economy.

TIPS OF THE WEEK

1. Buy properties below full market value – Yes, people really do sell properties for less than the full value.  The key is to understand that most sellers will only consider a purchase offer that is all cash and within 5% to 10% of their asking price.

2. Find Motivated Sellers – How do you find motivated sellers?  You work at it!  Like any business it is important to develop a little marketing plan.  One that is simple, yet very effective, and generates a stream of potential seller leads.  You are selling your skill as a real estate investor to people who must sell.  You are there when they need you and you have the skill to help them solve at least part of their problem.  Whether you are using direct mail, cold calling or contacting potential prospects online, you need to dig deep and use various approaches.  You can watch public notices for the announcement of foreclosure sales.  Meeting with a seller right after they’ve received a foreclosure notice allows you to be a hero to a very motivated seller.   Other public notices, auctions, etc. that provide buying opportunities include probate, tax liens and bankruptcy.  You can follow the For Sale By Owner (FSBO) listings in your local newspaper or Internet site.  You can telephone the names found in these notices or, and this is the least time consuming, send a postcard or letter expressing your interest in buying their property.  It will produce buying opportunities.

3. Frame the Offer – After you’ve found a motivated seller, you must understand how to frame offers that provide benefits for both you and for the seller.  A good real estate investor quickly learns that this is not a business of stealing property, but of solving problems in a way that benefits the seller. The seller is in a tight spot of some kind and you can save them from public embarrassment and, in most cases, give them at least a little cash to get a new start. No investor can afford to leave cash in every deal.  No one but Bill Gates has that much available money.  You must use creative techniques like, leases options and taking over mortgage payments.  Little or no cash is needed for those deals.  You can find plenty of reasonable priced educational material on those subjects in book stores or on the Old Dawg’s REI Network site.   The same education that seminars sell for thousands of dollars.

4. Make your profit when you buy!- Never make a purchase until you’ve carefully determined exactly how you will get to your profit.  If you hold it as a long term investment, will the monthly rental income generate strong cash flow?  Will you sell the deal to another investor for fast cash?  Will you do some fix-up, hold it for a few years and sell the property for full value?  Have a plan before you buy.

There you have four simple steps that even a part-time investor can execute in three to four hours per week.  Of course, we highly recommend continued education, developing a strategic plan and mentorship to be successful.  What’s the missing ingredient?  Your determination and perseverance.  If you will unfailingly move forward you will be well on your way to financial independence.

Covid Investing – To Buy or Not to Buy! – That is the Question

It goes without saying that COVID-19 has had an unprecedented and far reaching effect on the economy. With record unemployment and job uncertainty being a reality for many, it can be tough to find the silver lining. However, it’s important to remember that in times of fear and uncertainty, there is also opportunity. Let’s look at how that applies to real estate investments—whether that involves renovating a suite in your home, purchasing a separate property to generate rental income, or other property-backed investments.

Is now a good time to invest in real estate?

History shows that when times are good you make money on equity, and when times are bad you make money on financing.  At this moment, several months into the pandemic, there is a possibility for both. House prices are holding steady and financing costs are low, which is an almost unheard-of situation. That could be a true gift for the investor who can look beyond the current state of our economy.

Keep in mind, though, that this can, and likely will, change. People have been hesitant to sell during the pandemic and, as a result, inventory has been low, which has kept prices steady. As government subsidies run out this fall, and more people are expected to be pressed financially, there is a strong possibility we will see an increase in available inventory, and this could also see prices decrease. In fact, earlier this summer, there were predictions of a 9% to 18% decline in average home prices for the rest of the year. Only time will tell but, personally, I isee tremendous opportunities on the horizon—money is cheap and homes are holding their value, meaning there’s been almost no better time in history to use leverage as an opportunity to invest.

City or Suburbs?

Rural, suburban and vacation areas are where we are seeing the highest activity right now.  We are actually starting to see slight reductions in the condo market, where people are required to live in tight common areas and get into elevators regularly. Some of those executive short-term rentals that made up for a substantial part of the market are now are sitting vacant, so we’re seeing a little more inventory in the urban centers. Working remotely may be a reality for many years to come and proximity to downtown areas is no longer a priority.

That said, as an investor, you might not want to chase these trends. With so much activity in rural and suburban areas, any discounts that pop up are going to be in the cities. As long as you’re in it for the long term, you’ll find that when everything goes back to normal, you’re going to see a rebound of equity in those properties.

AirBNB suites and residential investment properties consisting of single-family homes are still fairly safe bets. With people less interested in living in tight spaces, the desire for homes with room for social distancing from others will only grow.  Location will always be an important factor with real estate investments, but I don’t believe that COVID-19 has had too big of an effect overall.

Vacation Properties

Travel restrictions might be reality for some time, and so people are taking the money they may have used for exotic vacations and investing it in vacation properties closer to home. If you’ve been on the fence about investing in a vacation home or AirBNB property, now may be the time to snap one up. As long as many others have the same idea, these prices will go up, so if you’re going to make a move, don’t wait.

REITs and Syndications

Other investing opportunities that hasve proven to be a safe way to passively invest in real estate is through Real Estate Investment Trust and multifamily syndications. Both REITs and multifamily syndications have been performing well throughout the pandemic. This is a good option to people who want the benefits of investing in real estate without the responsibility of managing brick-and-mortar properties. Solid multifamily syndications can also give you this benefit as the rental market is growing.  Anyone looking to diversify into something that has a history of great returns, great tax advantages and a long-term opportunity for capital appreciation, may find that a REIT or syndication as a great place to put some money.

Check Your Ambition

While I believe that now is most definitely a good time to invest in real estate, a word of caution: don’t get overly ambitious in a volatile time like this. Try to acquire a single property and make sure that it’s close, it’s established and you’ve got cash flow before taking on any other investment. Keep in mind that this might take longer than it would have a few months ago. The home improvement industry is booming, and both contractors and certain building materials can be hard to come by. As a result, renovation timelines are being extended, and if you have multiple properties, it could take years to get them completed. Analyze any deal carefully before purchasing and make sure you have the budget to cover any costs that may result from extended timelines.

Consult the experts

No matter what type of investment property you decide on, make sure that you are working with professionals who can guide you during these uncertain times. No matter how much research you do, you cannot replace the expertise of an experienced and knowledgeable real estate professional, agent or broker. Different communities are experiencing different challenges, and you can never assume to know more than those who work in the area day in and day out.  Make sure you have a network of trusted agents/brokers whom you can turn to any time you’re considering acquiring a property, and now more than ever look to these experts for guidance.

Think Long-Term

Remember that real estate is not a get-rich-quick game. Anyone who invests should be thinking long-term. Things are changing every day and none of us know how, or even if, this will completely resolve. As a result, short-term risk takers have the most to lose. But long-term real estate investors have much to gain. While this situation is unlike anything we’ve seen in our lifetime, history has shown that real estate is like a yo-yo on an escalator. It goes up and down, all the way up. So if you are not planning on cashing in on your portfolio within the next several years, you have the potential to make significant gains. Those who can should move forward, but be safe, and proceed with caution.

DISCLAIMER:  Many of the above strategies take knowledge and have a higher degree of risk.  You need to do your research and/or work with someone who is experienced to reduce your risk.

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