Where are all of the discounts on properties which were expected in the wake of COVID-19?

As states begin to reopen and get back to normal, many real estate investors are asking where the deals are. Some may be disappointed we didn’t fall into a full on apocalypse. A lot of investors were expecting more motivated sellers and deeper cuts to pricing. So, where are they?

While there have certainly been disruptions, it doesn’t appear that there is as big of a financial and economic impact from the virus as anticipated. At least not yet.

People are filling hours of online content with memes and appear relatively carefree. While there are rumors of mass unemployment and lines for assistance, the retailers that remain open appear sold out of non-essentials like swimming pools and new TVs.

This is likely the result of a lag in the impact. Companies are still hiring hundreds of workers. Many can’t find enough. The temporary deferment of credit card and house payments, and promise of a ban on foreclosures and evictions, as well as token stimulus checks may be lulling millions into a false sense of security.

We are now entering a new phase when the help is fading, but regular incomes may not be bouncing back yet. At best many have depleted their savings. This gap will probably catch many by surprise in the weeks and months ahead. Expect it to snowball.

This could also be compounded by the usual annual spree of tornadoes, wildfires, hurricanes, unexpected healthcare costs and the legacy of personal tragedy from the virus.

Of course wealthy buyers are still splurging on luxury homes and big real estate funds are still buying units in bulk.

So, the best discounts on houses may still be to come. Sellers are cutting asking prices. More will be motivated as the ends don’t meet.

Investors could be specifically looking for deals among:

• Vacation rentals

• Non-performing annual rentals

• Second homes

• Urban residences and condos which are longer desirable with promise of recurring viral outbreaks and quarantine measures

• Areas likely to rise in crime

• Investors with pipelines they aren’t sure they want to close on now

• Mature home listings ready to expire

 

The market has changed. Where are the end buyers for your house flips and wholesale deals now?

The real estate investors who come out of 2020 on top are those who are the most flexible and quick to adjust to the changing times.

You may need to be more careful about the deals you buy, to ensure there is an end market demand for it, with able buyers. Know the buyers, and you’ll know your exit strategy before you get in, and the types of deals to be taking on now.

Wealthy Home Buyers & Buy And Hold Investors

Just a couple of weeks into the COVID-19 mess and Chase bank slashed availability of mortgages. Now requiring at least 20% down and a 700 plus credit score. That is going to eliminate a large portion of the population as potential buyers.

In contrast, many wealthy individuals and families are pulling their money out of the stock market, retirement plans and the banks to put their money into real estate. Some are buying half a dozen units or more to protect their wealth.

They have all cash, or can put down 50% and still get a mortgage relatively easily.

Movers Escaping The City

We are being told that even if quarantine restrictions are temporarily eased that we face another coronavirus outbreak in the winter, and it could be worse. Some are warning this could be a multi-year pandemic.

Who wants to be stuck in a condo in the city, with fast rising crime during times like these?

Expect more buyers cashing out their urban homes and moving to smaller towns and rural areas. Especially now that the office has gone the way of the dinosaur and remote work is here to stay.

Those in this group who act quickly can still walk away from their properties with cash to buy something else.

Real Estate Syndicators & Funds

Real estate syndicators and fund managers are also having to pivot and diversify in order to deploy capital and deliver on promises to their own capital investors.

You can serve them wholesale deals. Even better if you can pull together portfolios to provide the bulk buys they need to make efficient transactions.

Property Owners With High Amounts Of Equity

With the exception of transactional funding for real estate wholesalers, it is getting much harder to find loans to purchase real estate out there.

One exception to this may be homeowners and rental property investors who can refinance or offer high equity properties as collateral and gain bridge loans to make new acquisitions.

COVID-19 Heirs

Even before this virus we were in the middle of one of the biggest wealth transfer periods of our history. It’s a tragic situation. Yet, many of those who have passed on in this crisis may be glad to see their heirs now able to use their inheritance to go buy homes in safer areas, or use their legacy to go invest and create new streams of income and businesses in real estate which will keep providing for future generations of the family.

 

Suddenly all of those who have been denying a new dip was coming are realizing they were way wrong. Many are still lying to themselves about how deep this is going to go. What do you need to know about surviving and thriving as a real estate investor now?

It’s Going To Make 2008 Look Like A Vacation

This economic crisis is going to make 2008 look like a test trial. Expect the fall out from COVID-19 to be at least 2x as bad.

Fortunately, we can also take comfort in the fact that there are predictable patterns and cycles. The massive shift in daily life will really shake up some people.

They didn’t know life could change this much, so fast. Yet, we know that over the long term most real estate will keep growing. Today, the luxury NYC condos that were selling for $2M yesterday are probably worth less than a roll of toilet paper. Other parts of the market, where those quarantined have lots of yard to move around and maybe room to grow their own food are going to explode in value.

Schools and work may never be the same. In many cases that is a good thing. It is just speeding up the most to being more efficient.

A 70% drop in the stock market and some housing markets shouldn’t shock you.

Foreclosures

There will be some similarities from 2008. As in the best moves to make to get through. Yet, some things will be substantially different.

Don’t count on a flood of foreclosures. Governments are already banning foreclosures and evictions. If we don’t eradicate the virus fast, the foreclosure process will probably be years in the making.

So, be wary of spending all of your time and marketing money on foreclosures. Sellers aren’t going to buy the fact that they will lose their homes.

If you hold mortgage notes, the best thing you can do is to be proactive. Communicate with your borrowers. Give them a break on payments. Those will be the ones who stay and work things out with you.

However, there will be other types of distressed property sales. Especially among new developments and all of the owners of Airbnb properties who far overpaid and can’t rent their units. As well as speculators and flippers who need cash. Don’t forget condo owners in big cities who don’t want to be quarantined in small apartments in the middle of the chaos.

Landlords & Renters

Renters are going to stop performing. They are already being told Trump is going to send them bailout money, just like Obama in 2008.

Be proactive, talk to them, give them a break now. Or they are going to drag it out a lot longer than you think. When they do get out, you may have to lease at dramatically lower rates.

You can make it, if you work with them now, and keep tenants who will deliver cash flow again in a couple of months.

Wholesale Real Estate

Real estate wholesaling is the perfect investment strategy for this market. Get in, out and paid fast. Before the market can change on you. Use transactional funding to finance your deals, and hold onto your cash for now. They are already making runs on the banks and banks are limiting access to cash. You’ll have plenty of opportunities to invest it as asset prices get lower in the months and years ahead.

Just don’t stop marketing. This is your chance to expand market share.