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As the varied numbers for March and April real estate sales continue to roll in, the industry is left wondering what the future will hold as the pandemic continues to impact markets across the globe. Professionals throughout the real estate space are wondering what rights and responsibilities they hold in light of the current situation, as well as what the future of their business will look like. Though these are uncertain times, this isn’t the first time in history that the real estate market has experienced a crisis. During any sort of widespread upset to the market, what are the most important considerations for real estate investors to keep top of mind?
Top priorities include protecting your investment and ensuring continued profitability. A poor investment can quickly lead to profit loss, which is not an added stress anyone needs during these difficult times. Here are some of the key factors real estate investors need to consider during times of crisis.
Times of crisis tend to offer the best investment opportunities for the prepared.
The pandemic has certainly had some impact on the real estate market. Uncertainty is causing a softening of home prices, and distressed sellers may be more willing to negotiate on prices. In addition, mortgage rates are low for the time being. Economically, buying an investment property at this time may make good sense. When the housing bubble burst in 2008, there were tremendous deals to be had, in part due to short sales and foreclosures. Many who ended up investing during this time have since seen a huge return on their investment.
Right now, it’s really just a simple case of supply and demand. If the masses are turning away from large purchases — like a home — due to uncertainty, it can create opportunities. Even when dealing with a global crisis, a good deal is still a good deal. If you can purchase a property today that has the potential ROI you desire, then it makes sense to invest. If you wait around to see what the rest of the market does, chances are good deals will evaporate quickly.
Ensure you have a financial plan in place.
Rental vacancies can be one of the biggest drains on profitability when it comes to your investment properties. A profitable investment can quickly turn into a liability if there is no rental income coming through. In the face of economic distress and massive layoffs, it’s safe to assume that some of your tenants may be unable to pay rent in full or on time. In fact, our data for April 2020 shows that rent payments received nationwide by property managers and landlords are 17% lower than rent received for the same period in March. This trend will likely continue for at least a short time.
Decide how you will handle late rental payments and understand how it will impact your finances and your investment. My advice in uncertain situations is to ensure you have enough liquidity to handle a minimum of three months — but ideally six months — of your expenses in case you are not receiving rent from your tenants.
Landlords have rights and responsibilities during emergency situations.
While protecting your investment and your property is of the utmost importance during times of economic distress, your first priority should be to keep your employees and your tenants (if you have them) safe. Laws and regulations are changing almost every day during the current pandemic, so it is critical that landlords stay up to date on current rights and responsibilities that apply.
Many states have current, short-term mandates surrounding things like eviction policies and late rental payment fees. Landlords must abide by these laws until they are lifted, likely when the economy is on a road to recovery. Smart investors will review and follow CDC and OSHA requirements, touch base with their insurance providers to see if they have any recommendations during the situation at hand and consult with an attorney for further guidance on best practices.
New investors: stay calm and carry on.
These can be especially uncomfortable times for those who are new to investing in real estate and made their first investment directly prior to or at the beginning of any sort of national crisis. Many factors have likely changed since you made the leap, but most experts are predicting that any kind of slump will not be as dramatic as when the late 2000s bubble burst. Hang in there and know that, over time, you will see the investment pay off.
If you’re a real estate investor with lingering questions during these challenging times, you’re not alone. This isn’t the first time the real estate industry has been impacted by a national crisis, and it likely won’t be the last time either. Doing your due diligence to be prepared and protect your investment will have the biggest payoff in the end.