The invariable sink-or-swim scenario of the coronavirus pandemic has presented some serious opportunities for budding and experienced investors who have money to spend in a cash-strapped economy.
“Staying on top of the real estate market anytime can be challenging,” says Daniel Rodriguez, Director of Operations at Hill Wealth Strategies. “However, staying on top of the real estate market during a pandemic can be downright daunting.”
We look to the experts for their advice on the ins and outs of different real estate transactions during coronavirus.
The Late-2020 Real Estate Market
In its U.S. Economic Outlook for November 2020, the National Association of Realtors (NAR) shows that consumer confidence plummeted in 2020. While it will be a struggle to return those warm and fuzzy feelings, the NAR projects a much bigger problem in widespread unemployment.
NAR U.S. Economic Outlook – November 2020
|Economic Consumer Confidence (annualized growth rate)
Dr. John A. Kilpatrick, Ph.D., MAI, serves as the Managing Director of Greenfield Advisors and the appointed Director of the Washington State Economic Development Finance Authority, an office given to him by Governor Jay Inslee. He is also an Adjunct Professor of Finance at Washington State University and a well-published author. He has been closely following real estate developments since COVID-19 and discusses his observations with us.
“There are some choice buying opportunities right now for investors with cash, or a combination of cash and ‘staying power,’ who can take a long-term position,” he explains. “If you leverage properties, you have to consider the likelihood of being stuck with a dark property.”
It’s something a lot of investors are seeing today. “Vacancy and collection problems are terrible right now, and so investors who are levered to the hilt are suffering,” Dr. Kilpatrick explains. “This is one reason why some good opportunities are coming on the market. I’ve bought several in the past couple of months that simply had leverage problems.”
COVID has presented new challenges for many business owners. Josh Eberly is the owner of 717 Home Buyers in Pennsylvania, and he tells us he’s noticed the effects of coronavirus on his business. “Because we are a small company that does much of our business in person, this year has not been good for our business, as we only saw comparable numbers during the summer months.”
Still, he recognizes the potential of a COVID market. “On a national level, it could be an effective strategy to invest in real estate right now, especially with lower-income clients who may have no other option than to sell for a low price.”
As principal of LP Property Group, a family-owned real estate investment firm, Josh Samuel is still staying busy. “It’s a very competitive time to invest right now during the pandemic because of low inventory and record low interest rates,” he says, but warns, “Good deals go extremely quickly.”
Real Estate Investment Strategies During COVID-19
As the owner of one of West Michigan’s largest cash buyers, Lakeshore Home Buyer’s Ryan Dosenberry says that COVID investing is all about strategy. “In my opinion, there is never a bad time to invest in real estate, as long as you buy right.”
He goes on to explain, “Buying right doesn’t always mean buying a property for pennies on the dollar but also buying in the right area for appreciation and making sure the property is cash flowing if it’s a rental.”
This is what the experts have to say about real estate investing strategies during COVID-19.
Work your strengths: Bill Samuel of Blue Ladder Investments pulls the ultimate real estate hat trick, serving as developer, broker and contractor. He tells us, “There are a number of different strategies in real estate investing, so start out by picking a niche that compliments your existing skillset and aligns with your time involvement expectations. Some real estate investing niches are very passive, while others require full-time involvement.”
Establish a comfort level: “Some of the best strategies for investing in real estate during COVID-19 are to understand your own level of comfort. How much are you willing to invest in real estate in terms of involvement level? I always suggest going slow,” advises Daniel Rodriguez, the Director of Operations at Hill Wealth Strategies in Richmond, VA. “It’s much easier to start small in real estate and expand than it is to buy too much too soon and end up not being able to afford maintenance, time or care of what was bought.”
Be proactive: At LP Property Group, Samuel says it’s all about initiative and some old-fashioned sales. “An investor needs to be constantly monitoring for new listings and pursuing strategies alternative to just looking at the MLS to find deals,” he explains. “It comes down to working your network, being a ‘go-getter’ and pounding the pavement to find off-market opportunities. “
Consider location: “One of the best strategies in almost any market is to focus on starter homes in good school districts. These types of assets are always in high demand for both buyers and tenants,” shares Owen Dashner, Partner of Red Ladder LLC and expert real estate investor in the Omaha, NE market. He says he has already bought and sold about 40 properties during coronavirus.
Communicate: Monoshia Dixon, CEO of real estate investment company Anassa, tells us, “The best way to invest in real estate is to communicate effectively with the real estate agent or seller because with everything going on, everyone is looking for a deal that works with the best for their financial situation.”
Work social media: At 717 Home Buyers, Eberly says he utilizes social media to communicate with customers throughout quarantine and social distancing. “For our business, we had to rely on social media a lot to get out our message for potential clientele, making sure that the communities we serve knew of us and were ready to give us a call when we reopened in June.”
As a CPA & Tax Strategist for Emparion, Paul Sundin sums it up: “The proven ways of investing in real estate are a mixture of sourcing, consultation, inspection, valuation, and negotiation.”
How To Invest in Real Estate During COVID-19
Some investors have it already figured out.
At Anassa, Dixon has grown her real estate investment holdings to multi-unit properties in five states, and she did it all during COVID. She called multi-housing properties “some of the best markets to get into because you can use this time to rehab the property for an increase in rent and maintain your tenants long-term.”
Dosenberry takes a different approach at Lakeshore Home Buyer. “One tried and true method of investing in real estate is marketing for motivated sellers. Motivated sellers oftentimes need to sell their house quickly and may accept a cash offer under market value,” he explains. “If you’re new to investing, I’d suggest starting here. Once you have a hot lead and you get it under contract for a great price, the possibilities are endless. You can flip it, wholesale it, rent it out and cash flow it – the list goes on and on.”
For its part, NAR estimates that all housing types will see growth moving into 2021, with the exception of multi-family units, which appear mostly stalled.
NAR U.S. Economic Outlook – November 2020
Market Projections (thousands)
|New Single-Family Sales
We explore the pros and cons of different real estate properties.
Flipping properties, or buying low and selling high, can mean a lot of work to make that property worthy of the higher price tag.
Red Ladder’s Owen Dashner talks about the fast profit. “When executing a successful flip, you can make large chunks of money in a short amount of time. I was able to quit my 20-year career because I made more money flipping houses than I did in my 6-figure corporate gig.”
The chance to custom-design a home can also be tempting to many, with Rodriguez adding that it is all your choice. “You get to reimagine a house and either completely tear it down or do modest renovations or no renovations at all.”
However, Dixon acknowledges, this can mean complications. “Flipping properties in certain cities and states is going to be difficult because the county officials are trying to regulate the quality of work that is being done on the property.”
“Flipping deals are flat-lining right now because COVID makes remodeling difficult,” says Dr. Kilpatrick. “The leading edge of a recession is no time to get stuck with a property you were trying to flip.”
Adds Rodriguez, “There’s no guarantee a new buyer or renter will want the property. These reasons include overall economy, location and ‘style’ of the (new) property.”
Dashner adds that “flipping houses is not for the risk-averse. It is a difficult skill to master, and there is the potential to lose a lot of money if you don’t know what you are doing (or even if you do). Unexpected expenses, carrying costs and pandemics can really throw a wrench into your dreams of huge profits.”
REITs, or real estate investment trusts, get mixed reviews from our experts.
Rodriguez calls an REIT a “low-risk real estate maneuver” because there is more of a hands-off approach for the investor. “You are not required to put down large sums of cash,” he says but adds that investors need to feel secure with their brokers. “You need to be able to feel comfortable with your broker and trust they will invest in real estate that will help you achieve your short- and long-term goals.”
“Behaving like stocks, REITs are easy to buy and sell, much more so than their underlying assets,” explains Dashner. “REITs are professionally managed. If you want a hands-off investment that pays dividends, give REITs a close look.”
Dr. Kilpatrick owns his own REIT fund, ACCRE LLC. He says, “REITs, in general, have badly underperformed the market this year, but some sectors (data centers and infrastructure, for example) have done very well.”
However, Monoshia Dixon avoids REITs at Anassa. “I personally do not recommend this to anyone,” she says. “This is because you do not know where your money is going or if you are going to make any money from any REITs.”
At LP Property Group, Samuel urges caution. “If you don’t do enough research upfront, you could buy REITs that have poor financials, slash their dividends, and you can lose your principal investments.”
Buying Rental Properties
Dixon much prefers rental properties. “Buying rentals is always the best way to make passive income,” she says. “This way can potentially help a person leave their current 9-5, because whether you have 2 units or 100 units. As long as you keep the building up to date/code and a great property management team, you will have a great asset.”
Rodriguez likes rental properties because they are COVID-friendly. “Simply invest in a rental property and have someone else manage the day-to-day operations of it,” he says simply. “You can remain in contact with this manager on a daily basis via video conference.”
However, Dixon acknowledges that rental properties are not without their challenges. “The hardest part of maintaining multi-family housing is making sure the building is updated.”
Says LP Property Group’s Samuel succinctly, “Intelligently-purchased rental properties can provide stable cash flows over the long term while the property appreciates in value.”
“After all, says Dashner, “Someone is literally paying for you to own a house. Name one other asset class where this happens!”
“You are, typically, the landowner and maintenance person, so middle-of-the-night roof leaks or frozen pipes are a real possibility,” warns Rodriguez. “While your sleep may be temporarily disturbed, the on-going upkeep and maintenance may provide more inconvenience than what it’s worth.”
Samuel sees it happen all the time. “If properties are not intelligently selected, they can lose value over time and cash flow can be negative.”
Crowdfunding Real Estate Investments
“Crowdfunded real estate deals let you participate with other investors in deals that you normally would not be able to access on your own, which means less money from you in each deal,” says Dashner. “You won’t be the one swinging the hammer in these deals. They are professionally vetted and managed, you just sit back and enjoy the profits.”
“Crowdfunding is considered a good start to buying real estate because you can start with asking your friends and family for money to purchase your first property,” explains Dixon.
Says Samuel, “It’s passive, and there is not a lot of work involved. You essentially give your money to someone else, and they invest it for you. It’s a way to get exposure to real estate investing without doing much work on your own.”
However, Dixon notes that with Covid-19, most people do not have the money to help themselves, let alone someone else. “Once people can confirm they will have a secured job/career, this will become more widely used.”
“This is a newer form of real estate investing,” says Samuel. “Many of these companies take fees that are not always transparent. It’s harder to check up on your investment because it can be in some other state, country, or city. And because it’s a new space of investing, some of these types of companies may engage in fraud. It’s hard to know who you are investing with, who is managing your investment, who is doing the rehab, etc.”
Is Now a Good Time To Invest in Real Estate?
When it’s all said and done, investors have a decision to make – to buy or not to buy. Our experts answer that question.
“There is no such thing as a bad time to invest in real estate,” says Dixon.
Samuel agrees. “At every time and in every real estate market, profitable deals can be found. This is certainly not 2011 in terms of one’s ability to find amazing cashflow wherever you look, but with interest rates where they are, and with certain sectors of the economy being particularly harmed by COVID-19, there are opportunities out there.”
“Because of the pandemic, we were able to negotiate a number of homes for lower than usual, but because of the market, reselling has many of its own issues,” says Eberly. “Investing in rentals also has its own challenges, but we are in a unique situation where millions of Americans are struggling to make rent and may be evicted in some areas.”
Dashner agrees. “Right now, we are entering another flare-up of COVID-19, which brings added risks of non-paying tenants, but there is still an extreme housing shortage and record-low interest rates, making demand sky-high for housing. Become a great deal finder, and you will be successful in any market.”
Take Advantage of Low Interest Rates
Dashner speaks about current market rates. “COVID-19 has created a unique scenario where the Federal Reverse and the government have worked to create incredibly low interest rates.”
It could be a double-edged sword, he says. “Flippers need to be cautious in selecting their investments and make sure they have a backup plan in case the government support, which has kept interest rates so low, goes away. Even a slight increase in interest rates could have significant effects on market value, driving prices down.”
“The most common strategies, flipping, buying and holding, and developing all have their time and place,” he adds.
Getting Home Insurance for Your Properties
Regardless of what kind of property you buy, it’s critical that you protect your investment with the right homeowners insurance. Small but effective additions like home security systems can boost neighborhood safety and award you with cheap homeowners insurance.
“I tell people it’s always a good idea to purchase home insurance for their property,” says Rodriguez. “Landlord insurance will generally cover the property and surrounding structures—such as fences, sheds, carports and external storage units on-site. This insurance protects against forces of man and nature – for example, a windstorm or a fried turkey fire. There are different rules and policies for landowners and homeowners, so I suggest they consult with their current insurance carrier for specific coverage needs.”
Dixon errs on the side of caution at Anassa. “You want to make sure you are protected first, then your asset. This is because an intelligent real estate investor who owns multifamily housing will make sure their tenets will have renter insurance to protect themselves. With such a litigious society we live in, you want to make sure you are protected at all times,” she warns. “For investment properties, always do your research for insurance rates, because you want the max coverage.”
“Insurance for single-family rental properties works similarly to normal homeowner insurance by protecting the structure and fixtures of the property,” explains Dashner, “but it can also include other benefits that protect landlords from unpaid rents and damage to the property by tenants or their guests. Contacting an experienced insurance broker will give you more options on the type of policy you need for your property.”
The Bottom Line
“It’s very hard to predict where real estate markets will head in the coming year, yet with hope of a global vaccine solution rolling out and a more certain end to lockdown life, there are many reasons to be cautiously optimistic,” says Ruban Selvanayagam, co-founder of the homebuying and selling company Property Solvers.
In Michigan, Dosenberry is still seeing regular business. “Not a whole lot has changed for us during COVID. We have noticed a slight decline in overall motivated seller leads and we think it’s mostly a result of sellers worried about people coming into their homes,” he explains. “If we can get the virus under control soon, we expect a big wave of sellers in 2021.”
It’s on par with NAR estimates, and at Red Ladder, Dashner also expects positive growth in the coming year.
“I will always be a believer in residential real estate because people will always need a place to live,” he says simply.
It’s a reassuring thought to investors the world over.