We are now in the third month since lockdown was effected due to the corona virus covid-19 pandemic, both in the US and most places worldwide. Like most things, the real estate market has been down with very little activity, but covid-19 has also created an investment opportunity for real estate investors.
How can you as a real estate investor do to make the best out of this?
My heart goes out to those who have been directly affected by this pandemic.
While we’re not celebrating the misfortune that covid-19 has brought to many of us, it’s also important to realize that it has affected the real estate market, and created an investment opportunity that’s likely to grow in the coming months.
A recent poll showed that real estate is the best investment in these uncertain times.
Most businesses have been closed down except essential services. Most people have been staying at home, and social distancing has become a normal part of our lives.
Today, most states are now starting to open up economic activity, with most businesses opening up at reduced capacity. We’ll be watching to see how it all plays out – but it will be a while before we can see the pre-covid levels of economic activity.
So how has the covid-19 pandemic affected the real estate market and created an opportunity for real estate investors?
40 million people have lost their jobs
New figures show that almost 40 million people have lost their jobs since the pandemic started. More people continue to lose their jobs every week.
This trend is likely to continue for a while before recovery begins.
These people cannot pay their mortgages, even though most mortgage companies are currently working with them.
Some businesses will not re-open at all
Over 100,000 business have gone out of business and will not open again, despite the huge stimulus package to keep them afloat.
One report finds that about 7.5 million businesses are at risk of closing. Covid-19 has wiped out 10 years of job growth in just a few months.
The people who were employed by these businesses will have to look for new jobs. Obviously not everyone will find a new job. It will take a while for the job market to recover.
Some of these people have mortgages, and they cannot make their mortgage payments. If they don’t find new jobs, they’ll have to sell their houses or they’ll end up losing their homes.
People are reluctant to list their homes for sale
The overall consumer confidence is low. Most people are sitting tight amid this uncertainty. Sellers are demonstrating reluctance to list their homes. Social distancing is complicating home tours, inspections and appraisals.
Appraisals that took about 7-10 days are reportedly taking about 3 weeks. How long will this continue? It’s hard to say. Only time will tell when we’ll have a vibrant real estate market again.
Meanwhile, buyers have already started pulling back from the market, tilting the market to favor buyers. This has created a buyers market – a situation where the supply of homes for sale exceeds the demand for those homes, with fewer buyers for them.
This is likely to push house prices down, thereby creating an investment opportunity for real estate investors.
Mortgage companies have offered forbearance
Even though people who have lost their jobs can’t make their mortgage payments, most (if not all) mortgage companies are offering forbearance.
Forbearance occurs when your mortgage company allows you to suspend making mortgage payments, usually for a few months. At the end of the forbearance period, they’ll be required to pay the unpaid balance in full, or modify the mortgage so the unpaid balance becomes part of the mortgage balance.
I’d like to assume that most of these mortgages will be modified, and that most people will resume making payments.
Most mortgage companies will allow forbearance for up to 12 months – potentially till around March of 2021. While not everyone will wait that long, we are likely to start seeing more activity in the real estate market in the coming months.
Expect an increase in foreclosures
If people who’ve lost their jobs won’t have new jobs, they’ll most likely have to sell their houses fast or lose them to foreclosure after their forbearance protection is over.
This will drive prices down further, creating a huge buying opportunity for real estate investors.
As real estate investors, what can you do to prepare for this and make the best out of it?
1) Prepare your real estate buying systems
Now is the time to tune up your buying systems and make sure you have everything in place.
Cash in the bank – if you can have some cash reserves, this will definitely come in handy. Even if you use lender’s cash to buy your houses (such as rentals), you’ll still need some money to make this happen.
Line up your lenders – if you’ve not already done so, now is the time to line up the lenders for your business. You should have mortgage companies, hard money lenders, private money lenders, transactional funding, etc all in place and ready for buying opportunities as they pop up.
Real estate investing website – if you don’t already have one, now is the time to get a platform that will process requests from potential sellers.
A well optimized real estate investing website gives you visibility online in your local market. These motivated sellers will be able to find you when they need to sell their houses. It will place you as a solution provider when motivated sellers need help – attracting more real estate deals for you.
Follow our guidelines on how to choose the best website for your real estate investing business.
Build your buyers list – if you are a wholesale real estate investor, keep building a list of wholesale buyers in your market. This will come in handy to cash out of those deals quickly. Of course you’ll need a good website for this.
2) Learn and be flexible
Don’t stick your head in the sand. Keep learning and adapting to the changing market. You’ll be able to identify more opportunities as they pop up.
3) Keep looking for deals
Keep looking for deals as you always do. You never know the best opportunity to bite. Keep fishing, and don’t be shy to make conservative offers that will be profitable for you in the long run.
As the economy and real estate market slowly opens up, real estate investors who are prepared will good find investments that will benefit them both in the short and the long run.
I wish you the best in your investing business!