Following on from other recent runs on banks and stocks, last week saw Bank of America customers alone withdrawing $2.3B they had invested in stocks.

What does it mean for real estate investors?

The Big Withdrawal Has Only Just Begun

Warren Buffett recently said that he believes more bank failures are likely. Based on previous financial crises, when 1,000 or more banks and financial institutions went under, it does seem highly probable that we’ve barely seen the tip of the iceberg of this trend.

Expect more runs on banks. Expect more big sell offs in the stock market. As well as withdrawal requests from other funds, and asset classes. Including sectors like municipal bonds.

That leaves millions of people and organizations with the big dilemma of what to do with their money now.

Expect More Capital To Flow Into Real Estate

It is that time in the cycle when more capital ought to flow into real estate.

Gold is already overpriced and provides no income. Venture capital is suffering after years of pumping billions into companies with no real business model or tangible value.

Real estate makes the perfect safe haven for wealth preservation and down side protection. As well as providing new sources of income for all of those losing dividends and jobs.

It is also far better than holding cash that is devaluing daily due to ongoing hyper inflation that is only being fueled by continued Fed rate hikes.

How To Capitalize On The Shift In Markets

This is the perfect time for real estate investors like you to step up and help people on all sides of this equation, and be well compensated and boost your own finances in the process.

On one side there are many distressed sale opportunities. Some of the best value deals we’ve seen in over a decade.

On the other side there are millions in America alone that need somewhere safer and more profitable to put their money.

It’s all about being the connector to help those selling and buying, and make some very attractive profits in the middle.

Now is the time to ramp up your marketing to end buyers who are looking for new homes, fix and flip deals, and rental properties to add to their portfolios.

There are enormous amounts of money out there searching for a home. So, it’s all about stepping up and making sure they know you are there to help.

Hurricane Ian has again ignited the big debate over whether disaster prone areas should be rebuilt, or not.

This has yet again been another huge tragedy. The loss of life, and livelihoods, and entire lifetimes of memories and hard work cannot be taken lightly, and should not be forgotten quickly.

Still, while fresh at hand, it is an important moment to revisit this question. So, what are the arguments and math for rebuilding or not? What should investors, homeowners, homebuyers, and even renters be thinking about?

Refusing To Be Beaten

In many scenarios in life and business, including disasters, it is noble to refuse to quit, and to be determined to rebuild.

This can certainly be true of one time events. Or even ultra rare events. In fairness, some areas impacted by Hurricane Ian have been hit the hardest they have in 100 years.

Yet, there are many parts of the country, where hurricanes, blizzards, tornadoes, wildfires, and earthquakes are a common occurrence. Even having their own season every year.

If you really love where you live and own property that much, and that is worth more to you than the money and hassle of rebuilding, then no one should hold you back. Providing you are covering the bill, and not them.

With great insurance, or plenty of other investments elsewhere, this may not be a problem. You can have a brand new property. Which may be even better than the last one.

The Futility & Economics Of Rebuilding

At the same time, it is wise to remember that these events can be very regular and predictable. You may have to deal with three storms like this in a single year.

In many areas around the country incurring major damage is not a matter of if it is going to happen, just when, how often, and how hard.

In reality insurance never seems to covers enough. Even if you do get your claim paid it may only come after a long fight that lasts years. Along with lots of legal expenses. All while paying for somewhere else to live in the meantime.

For real estate investors it can mean no income from rentals, and dealing with no utilities for a month or two. With storms like this, it seems that no matter how strong homes are built, they can be wiped out.

It can be a vicious and expensive cycle. One which many have not priced in when they are buying property.

The Options For Investors

As an investor, this is a reminder to build in risk based pricing. Do the math on long term rentals, including if you have to rebuild at least once, and go another 12-24 months without income. Consider how that may change your offers.

Investors can help those deciding not to rebuild and moving to other areas that offer more sustainable living. Either by giving them good deals on housing where they are moving to, or acquiring old homes at a fair price for the current condition and flipping them.

They can be sold to those who are still bullish and wanting to rebuild or live there. Which, again is perfectly fine, if this is extra play money you can afford to lose every few years and the return on the experience works for you. If you have $1B in the bank, and it’s worth $10M every few years to have a vacation home with your perfect view, then why not.

Rehabbing is certainly questionable. There will be a lot of remedial work and dangerous mold to get rid of. It is probably better to wholesale properties as is. Especially in a declining market, with infrastructure issues, labor shortages, and high material costs.

Summary

There are arguments for both rebuilding and quitting disaster prone areas. Have you moved away, stayed, invested elsewhere , diversified better, or started using risk based pricing to account for these cycles?

 

While the pandemic of 2020 may have been foreseeable, no one envisioned such an extended period without rental payments or a ban on evicting tenants. If this is the end of rental properties, then what is the best investment move to make now?

No End In Sight For Eviction Bans

Dealing with non-performing tenants is nothing new for experienced landlords. An indefinite ban on evicting those renters is something completely different.

NY has already given renters a free pass through at least May 2021. CA appears to be next in extending their moratoriums. Even without any more extensions this backlog could easily make it 2022 before landlords could regain control of most of their units.

For landlords the bills are still due. If they don’t have other sources of cash coming in, then they face losing the portfolios they’ve worked so hard to build.

The Exceptions

It is true that in the long term property values have proven to just keep on going up. Even through every type of crisis that has come along.

There are PPP loans to help landlords stay afloat, and some may be able to take advantage of rent paid directly by local government agencies. We may also see much wider spread use of universal basic income and housing subsidy programs over the next year.

Big companies like Amazon are still investing billions in rental housing, and big institutional funds will still invest in these properties to play the long game. Just expect far fewer individuals being active in this space.

Wholesaling Real Estate

For those who need income now, wholesaling real estate is probably exactly what is needed.

It can provide fast cash injections which can supplement for lost earned income at jobs, and rents. Providing both living expenses, more investment capital, and cash flow to hold onto rentals.

The market is perfectly aligned for wholesaling too. We have almost $100B worth of distressed loans and motivated sellers in the pipeline. Meanwhile, retail buyers are active, highly motivated, and pushing retail house prices to new highs.

Wholesalers can flip their deals to rehabbers and directly to retail home buyers. Both of which are plentiful in the market today. Buy right, and you can bake in your profits upfront.

 

A good crisis can make or break investors and business owners fast. You can either be one of the majority which fail and disappear every time the cycle turns, or use it as a building block to stand out and amplify success.

Knowing what to do in a crisis is just half of the battle. The other 50% of surviving and thriving through it is knowing what not to do.

These are critical moves to avoid as we navigate the months ahead and future crises. Know them and bookmark them so that you can stay on top.

Stopping Marketing

At the first hint of a crisis many novices immediately slow down and stop their marketing. That is just a nail in their own coffin. It leads to a painful and drawn out death of your portfolio, finances or business.

We saw that at the beginning of COVID. Those that stopped marketing haven’t come back. While the few who kept consistently making the sacrifice to keep their marketing machines running, or even do more are still going strong.

Raising Prices

It can be tempting to raise prices in a crisis. Many companies do it just because they can. Banks like Wells Fargo have increased service fees, and mostly on those who are financially hurting the worst. Netflix raised their fees because they knew people were stuck at home and were more likely to want to keep their streaming services.

The thing is that people notice, and today they have so many options. When they do feel financial pressure themselves or have the choice, they will move to the competitors who didn’t try to take advantage of them in these moments. They will ditch those that tried to take advantage of them, and they won’t go back.

Reducing Services

Many companies shoot themselves in both feet at the same time by simultaneously raising prices and reducing services. If banks closed branches, reduced customer service, ended lending products, and then charge more at the same time, customers aren’t going to be happy. It’s true that some customers may not be buying much from you during these crisis moments, but if you let them go, then you can’t expect to win them back when they get back on their feet, nor all of their referrals.

This is the time you should be offering better deals and more value, and investing in your customers’ long term success. They will reward you with their loyalty.

Hide

Don’t hide in a crisis. Anyone can do that. You will instantly lose credibility. Even if you are wrong on your predictions or don’t know what's coming, just keep showing up. People need you to lead, and if it’s not you then someone else will lead them.

Panic

This crisis is probably a much smaller a deal when you look back at the big picture. Providing you don’t panic. Emotional selling will rob you, and emotional buying will too.

Giving Up

Don’t give up on things that won’t change. Real estate has survived every crisis in history so far. From wars to the Spanish Flu to the Great Depression and Great Recession and COVID, real estate is still needed and in demand. Some things and best practices may change, but don’t jump ship into the storm and then realize you are stuck out at sea and missed your one chance to get where you really wanted to go. Some things may change, like viral infections passing through hotel and apartment building ventilation and demanding we change up types of real estate. Traditional annual rentals may not perform for another year, but you can offer owner financing or use government subsidies to keep cash flow coming in from them. People still need shelter. That will never change.