How do you keep your deal flow alive when you end buyers are landlords and buy and hold investors?

Pandemic lockdowns and ensuing restrictions, new policies and eviction bans have rocked everything rental property investors thought they knew about real estate. This might have put a dent in your deal flow if you’ve been wholesaling houses to them. So, how can you help them, and keep your business flowing?

The Big Eviction Ban Problem

Covid related restrictions and rules have impacted rental property operators in a variety of ways. One of the most notable is eviction bans. Regardless of them already being ruled unconstitutional, they are still out there.

In fact, new legislative bills like the Federal Disaster Housing Stability Act of 2021 are proposing both automatic and potentially never ending eviction bans.

That isn’t exactly making acquiring more rental properties very attractive to most buy and hold investors.

Here’s how you can help them, and keep your business firing on all cylinders too.

Serve Up Performing Rentals

No one wants to buy a non-performing rental with an occupant they may never be able to remove. Yet, the data suggests that the bulk of rental properties are performing well.

Find those with a track record and good tenants, and wholesale those deals instead.

Provide Deeper Discounts To Offset Risk

Investing decisions are all about the balance of risk and reward. If you can help lower your end buyer’s risk, and offer more promise of potential reward it could tip many more buyers in your favor, and lead to a lot more deals with each one.

One way to do this could be to offer deeper discounts to buyers; building in equity, and creating larger spreads for them.

Another option could be 12 to 24 month rental and income guarantees.

Turn Them Onto Smarter Leasing Structures

It is true that aside from Section 8 style government paid housing, the old traditional annual lease is probably dead. It is just far too much risk for any private and individual landlord to take on.

Yet, with a little creativity there may be many innovative leasing options that can avoid this attack on landlords, and help them pull in that cash flow.

This may include entire leases being paid in full in advance, switching to short term rentals, memberships, or even finding other ways to derive income from a property; such as renting it for storage or parking.

 

As many have been fearing, eviction bans and foreclosure moratoriums could become the new normal. What does that mean for real estate investors?

Despite the real data suggesting that mortgage loan borrowers and renters are performing great, with few defaults, bans and moratoriums have continually been extended. Even despite being ruled unconstitutional.

Current layers of rulings seem to effectively make these bans run into at least 2022.

The Federal Disaster Housing Stability Act of 2021

This one new bill that is being pushed toward becoming legislation could drag out eviction bans and foreclosure moratoriums, and make them much more commonplace.

The bill aims to automatically trigger these bans any time there is a federal disaster declared. FEMA says a disaster can be declared for almost any reason, including storms, floods, fire, high water, etc.

Other talk around this topic raises concerns over what could be called a disaster in this context in the future. Could it be poor tenants getting a flat tire and having to pay for a car repair? What about high rents, the eviction itself, homelessness, or climate change?

How long would those bans run for after an event? It is easy to see how they could run consecutively forever.

Ironically, around 90% of the taxes collected to finance relief funds for renters and landlords have not been paid out. They seem likely to continue to be diverted into other political pet projects instead.

What Permanent Eviction & Foreclosure Bans Mean For Investors

While on one hand it seems unfathomable that this has happened to this extent already, investors need to embrace this possibility. At least that it will frequently be the new status quo. You simply won’t be able to count on evicting or foreclosing.

The first and most obvious step for most investors and real estate businesses is to switch to the wholesaling model. Be in and out and paid. No problem.

Find end investor customers who will be high volume buyers. Flippers continue to do well in this hyper inflation environment. Though there are landlords with a track record through covid lockdowns and recent bans. Keep an eye out for those switching to short term rentals, and other creative options to stay ahead of this, and to keep up their volume long term.

 

With new foreclosure and eviction bans being put in place, how can you continue to win as a real estate investor?

For a moment it looked like these moratoriums were over, and lenders and landlords could rush back into the market to load up on inventory. Now these bans are being extended into next year.

While some may be fearful or uncertain about the future, others continue to enjoy their best years in real estate ever, and keep on growing. How can you best navigate these times?

New Foreclosure Moratoriums

Together the FHFA and CFPB have issued new rules for mortgage servicers. They effectively prevent many foreclosures being filed until at least 2022.

They also put new pressure on servicers to grant certain terms in loan modifications.

However, note that there are exceptions. Private mortgage loans are not subject to these rules and bans. Nor are vacant properties, or those on which borrowers have defaulted during trial loan modifications.

Overall CoreLogic has been reporting that mortgage defaults have been declining since April anyway. With default rates less than a quarter of than in 2005-2008. Suggesting these moratoriums may not be necessary at all anyway.

New Eviction Bans

At the beginning of August 2021, and despite previous bans being ruled unconstitutional, the Biden administration worked with the CDC to create a new eviction ban.

This new ban is said to last until November 2021. Effectively, ensuring no tenants will be evicted until sometime in 2022 at best.

This ban is said to be selective and not apply to every county in the US. The Realtors association has already reportedly filed a lawsuit against it. Many more lawsuits are likely to follow. Though, with the government already ignoring judge’s rulings which have deemed them illegal and unconstitutional, it’s unclear how much good they will do, even if they win again.

For Landlords

Some landlords are certainly speaking out against these bans. Especially, when tenants are choosing not to pay the rent, and are spending the money on boats, new trucks and even bigger TVs instead.

However, most landlords, especially those with bigger portfolios appear to be reporting strong performance levels, with few defaults.

Of course, those that are getting the rent paid by the government in one way or another are doing just fine, even if tenants are not paying themselves.

Though perhaps one of the biggest concerns may be how to manage out of state income properties if new travel bans are reinstated as well.

Real Estate Wholesaling

Real estate wholesaling certainly seems to still be the lowest risk, and most profitable strategy among all of this.

Using transactional funding wholesalers have almost no risk in making offers and flipping properties. So, line up your funding, and find sources of properties which you can flip. Including vacant property.

As for who to wholesale deals to, you may focus on rehabbers, retail, and landlords experiencing good performance, and may be using Section 8 or short term rentals instead of old annual leases.

 

Check out these developing real estate trends that could continue to change how investors participate in the real estate market, and the best strategies for balancing risk and reward.

Developers Kicking Out Pre-Construction Buyers

Just as we saw in the run up to 2008, big real estate developers are again finding ways to pull contracts from buyers as prices have risen during the building period. With prices up some 20% or more, builders see a great opportunity to back out of contracts with pre-construction investors, and then try to resell units at new market highs. This is a huge burn to those investors who took a chance on them. Investors who will be looking elsewhere for deals with their capital.

Construction Material Costs Rising

The dramatic inflation over the past year hasn’t just been limited to groceries. A surge in home repairs, remodeling, building and emergency maintenance has driven up the price of construction materials as well. Walk around your local Lowes or Home Depot and you may find some line items are priced at 2-3x what they cost last year. This can be quite a shock to rehabbers when they go to pick up materials for a new deal they just bought and find the numbers no longer work. Expect this to encourage more investors to stick to wholesaling real estate and wholesaling direct to end retail buyers.

Extended Eviction Ban

The new white house administration recently extended the national eviction ban at least through to July 2021. While many landlords may still be surviving on multiple layers of government stimulus, these unprecedented measures have certainly changed everything they thought they knew about the security of passive income assets. Many will liquidate their rental portfolios. Others may switch to shorter term investing strategies that don’t rely on tenants.

Housing Inventory Shortages

While there are many commercial buildings which are now ripe for being converted into housing, many markets are finding they are currently suffering major inventory shortages. Florida in particular saw listing inventory drop around 50% in 2020. Many markets only have 4-7 weeks of inventory. This in turn is driving up prices fast, with intense bidding wars common. While this demand remains strong, expect prices to keep surging until they become unsustainable.

Ongoing Lockdowns & Restrictions

Ongoing restrictions in some states, along with rising taxes and increased demand for single family homes instead of apartments and condos is likely to continue to drive moving and buying activity. This will fuel great leaps in prices in target cities, while alleviating inventory shortages where people are leaving.

All put together these trends suggest that real estate wholesaling will offer even better risk-reward balance through 2021. It offers high short term returns, and far less exposure to the risks plaguing other strategies. All with plenty of leverage available.

 

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.