Should You Invest in Real Estate During the Pandemic?
This is an article “Should You Invest in Real Estate During the Pandemic?” by Marc Primo
We are currently suffering the worst economic downturn since the Great Depression no thanks to COVID-19 and house buyers are currently asking a very important question: Should I invest in real estate during the pandemic?
With today’s volatile market along with companies being shuttered and thousands of employees being furloughed, let’s take a look at what experts have to say about the present property industry amid a lingering health crisis that continues to threaten the global economy.
Not all is bleak if you see things from a more positive perspective. Recessions CAN create opportunities. Just take the Harvard Business Review’s word on our current predicament as it reported that now is the best time to outcompete industry rivals. As long as you are taking the right steps in monitoring and maximizing your cash flow, reviewing credit risk management, aiming for cost reduction, and increasing efficiency and productivity, among many others, you’re on the right track to weather the storm.
In real estate, looking at the present state of the market is essential to outline the proper adjustment approaches before making a property investment. The industry can in fact contribute to the global economic recovery in the way opportunities give home buyers security, employees, and contractors jobs, keeping money flowing instead of staying stagnant.
While there’s not much money to go around these days when it comes to property investments since most people are financially unstable and loans and fundings are hard to come by, building the essential foundation to invest in real estate can work for those who have ample capital despite the pandemic, regardless of how risky it may seem. People will still be looking for rental properties and those who have saved up for homes are still attending viewings because this is something they have been planning for, even before the pandemic as they are in need of shelter. Investing in these undervalued deals can churn in profits, while also allowing investors to jumpstart their momentum via emergency funds that will be significantly useful for when a boom in real estate occurs again in the near future.
To give you a better idea of why you should not entirely shun prospects for property investments during the time of COVID-19, here are some insights that could help you decide your next step:
The real estate market is far from crashing
Like how the Centers for Disease Control and Prevention (CDC) takes today’s available COVID-19 vaccines to offer greater benefits than risks, investing in real estate during the pandemic can also give you a good financial foundation for your property investments.
Unlike in 2008’s housing crash, today’s recession is fueled by a health crisis rather than such negating factors as subprime lending, unchecked credit-default swaps, predatory mortgage lending, or unregulated markets. And that makes the entire ballgame different.
Given that there might be a few chances of slight decreases in property prices, reviewing today’s housing market will show that there is a 200% to 300% year-on-year increase in investor interest, and more importantly, an expected post-pandemic price increase in property investments.
What you’d want to do is review your options in the current housing market and read the price-per-foot-square-foot adjustments, how long your prospective properties have been on sale in the market, and available mortgage loan deals that are open to flexible payment schemes so that you can make an intelligent decision on which ones to invest in.
Don’t worry about delayed payments on rentals
Before the pandemic even struck, 20% of tenants in 11.5 million apartments already had the habit of being late in paying their monthly rent. During the earlier months when COVID-19 challenged most of us financially, that figure grew to about 31% which may not seem as bad as many had expected. This shows that almost 70% of tenants are still able to pay their monthly rent despite pandemic conditions and things are just about looking up as the economy opens up gradually according to the National Multifamily Housing Council (NMHC).
On average, 84% of tenants pay their rent in less than 14 days owing to the current situation. Some apartment owners have also instituted more lenient late fee policies of flexible payments to help folks weather the storm.
However, with the Biden administration distributing stimulus checks across the country, plus enhanced employment benefits courtesy of some employers, more people are now able to return to that sense of normalcy that includes obligations for housing expenses.
At any rate, deciding to invest in more real estate deals right now simply boils down to weighing the pros and cons and stacking up the odds on how fast the country’s economy can recover.
Be wary of these risks
Any business venture or investment entails serious risks. When it comes to real estate, bracing for the inevitable in terms of the economy, unemployment crisis, tenant salary cuts, pandemic duration and shutdowns, and the current state of the real estate industry is your best armor against making bad investments.
At this point, there are no ominous signals when it comes to making investments in real estate so don’t avoid them altogether. Going back to how the 2008 housing crisis panned out, those who thought they were keeping their money safe by passing off investment opportunities missed out on recovery gains. In the meantime, review the latest insights and keep up with the news on properties and crunch cap rates for both worst-case and recovery scenarios. If you are already a landlord, try to maintain enough cash reserves of at least three months of housing rent for six months worth of operating expenses and overhead costs.
Now, if you happen to stumble upon available loans and flexible payment schemes, don’t be too quick to opt for cash-on-cash returns. There’s no need to get more than you need, especially when interest rates are involved which can leave you paying more for the long-term. Instead, keep an eye on your prospective property’s cap rate and dividend stream so you can make smarter decisions if ever you are thinking of signing that dotted line on a six-figure property contract.