The Covid-19 Pandemic has presented an opportunity for real estate investors that is likely to grow in the coming months and the near future. Is it time to buy real estate, should you wait until all this is over, or should you be preparing as you wait until things open up again?
I’ll give you a few scenarios and you can decide the best way to move forward during this pandemic.
1: Can you find good deals right now?
The bread-and-butter most real estate investing businesses is buying houses at low prices. Whether you are a wholesale real estate investor, whether you buy, fix and sell houses, or even if you keep them as rentals, you have to buy them low.
Whether you find cheap deals right now depends on where you find your deals. Most Real Estate Investors find the best deals by targeting distressed sellers. Others target pre-foreclosures or even foreclosures and REOs.
We are currently in the middle of the Covid-19 pandemic. Most sellers have pulled back from selling their houses. Likewise home buyers have also done the same, but in fewer numbers, tilting the market to favor buyers.
Most lenders have stopped foreclosures for the time being. So if you target pre-foreclosures and foreclosures, you won’t find those deals for the time being.
Mortgage lenders are giving forbearance to people who cannot make mortgage payments. This means that there are few houses on the market that would make investment sense mainly because there are fewer motivated sellers.
But there are still people who need to sell their houses badly such as people going through divorce, or people who have inherited property.
You can still snatch a few deals here and there but they won’t be as many normal times. This is one way covid-19 has affected real estate investing.
Key take-away: – You can still find some pretty good deals amid covid-19 pandemic. Motivated sellers know there are fewer buyers, and are willing to go lower.
2: Can you find good financing?
If you buy your houses through banks, you’ll notice that banks have now tightened their lending requirements. They need higher credit scores, a lower debt to income ratio, bigger cash reserves and down payment among other under underwriting requirements.
If you meet the requirements then you can still buy if you find good deals.
Some hard money lenders have stopped originating new loans all together. Obviously this means there’s less money for most Real Estate Investors such as wholesale real estate investors, or people who buy and fix properties.
One of the most common scenarios I’m seeing with our investors is that they’re not getting enough private money anymore. Even though private money is the cheapest source of money, lots of private money lenders are holding back. They don’t know how this pandemic will play out eventually, and they prefer to wait.
Key take-away: – Covid-19 has tightened money sources for real estate investing.
3: What’s your exit strategy?
Suppose you find a good deal and you buy the property, what do you plan to do with it?
If you wholesale properties you’ll find fewer Real Estate Investors ready to buy from you right now. In the middle of covid-19 pandemic, a lot of real estate investors are adopting a wait and see attitude.
Those who keep rentals might not collect any rent right now. With mass rent defaults, unemployment, and vacancies looming, landlords face very real risks and challenges. Most states have halted evictions, so this might not be the best exit strategy right now.
If you buy vacation rentals such as AIRBNBs, there’s almost zero activity and your property will be sitting empty probably for months. Unless you can rent it out to tenants, then this might not be a good idea right now.
If you buy, fix and sell houses, there are fewer contractors available today to fix your houses. Once you fix it, you might not get the best price when you put it on the market.
Key take-away: – Again, covid-19 has tightened exit strategies for real estate investing. Consider this before you buy.
So should you invest right now?
Yes and no. If you come across a good deal, make your decision whether to invest in it or not based on the considerations above.
You’ll still find pretty good deals right now, and if you can buy them, your exit strategy will be crucial to making a good decision.
But with these challenges, we’ll still have extraordinary opportunities to buy low. When everyone else panics, now is the best time to buy, as long as you can weather the storm.
Consider these things when buying investment properties today:
- Keep a deep cushion in your investments, catering for many months of uncertainty.
- Make very conservative offers. Don’t be shy to make low-ball offers! Motivated sellers will consider them.
- Consider buying properties that need few or no repairs right now. If they need repairs, make conservative offers, such as 60% ARV – repairs or even less. This will give you a cushion in uncertain times.
- If you invest in rentals, make conservative estimates on rents and expenses.
Key take-away: – Even though covid-19 has made real estate investing unpredictable, you can still land some pretty good deals if you cushion yourself from uncertain times.
The time to prepare is now!
As we’ve seen, now is the time to prepare for an investment “boom” for real estate investors. Now is the time to make sure you have everything in place:
Line up your money sources
Now is the time time to warm up your private money lenders, line up hard money, transactional funding sources, etc
Get your mailing campaigns ready
Order your postcards and prepare to re-start those campaigns. Motivated seller leads will soon start flowing in huge numbers. Now’s the time to be prepared to reach them.
Here’s a guide to target motivated sellers in your local market, including samples of postcards you can use.
Upgrade your online presence
People looking to sell their houses start their search online. Get a real website geared for real estate investing – one that will give you a prominent visibility command of your local market.
This way, motivated sellers will be able to find you when they need to sell. A good website with good SEO is a lead magnet, and can make you thousands of dollars every month.
Be flexible and wade in conservative waters
Be ready to learn and this unfolds and things keep changing. Again be conservative in making your purchases more than ever.
Have an exit plan that caters for several months of uncertainty.
You’ll come out from this stronger with probably better investments than you’ve had in a long time.
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