The CoronaVirus is spreading rapidly and just about every industry is feeling the impacts. What is COVID-19 doing to real estate investing? Discover not only what it is doing now, but also how it may affect real estate investing in the near future. Whether you are investing in real estate now or plan to be soon, watch this video now! Also, due to the rapidly changing landscape of this pandemic, here's an additional update on how it's impacting real estate too: 5 Tips for Investing in Uncertain Times.
4 Coronavirus Impacts on Real Estate Investing
Impact #1: All-Time Low Interest Rates
This is arguably the most significant coronavirus impact on real estate investing. We currently have the lowest interest rates in recorded history. This means that the interest rates right now are lower than they were during the bottom of the of the great recession.
A Good Time to Refinance:
This has a huge impact, and it's particularly good for you as a real estate investor. Why? Well, first and foremost, it's a great time to refinance. If you haven't refinanced in a while, now's the time to do it. You will get about as low of an interest rate now as you'll ever get. You're paying less in interest which means you get to cash flow more.
A Good Time to Be a House Flipper:
If you're a house flipper like me and the many people that I mentor, it's also a great time to be flipping. The low interest rates make houses slightly more affordable. As a real estate investor, you can end up investing more in a house than you anticipated. This means you need to sell it for slightly more than you originally planned. Depending on competition and comps, you might be struggling to sell. The good news is that because of the dropping interest rates, it will be a easier for you to sell.
Impact #2: Money is Pouring into Safety
If you’ve been watching the stock market right now, you will have noticed that money is pouring into safety. Part of the reason why the interest rates have dropped is because so many treasury bonds have been purchased by equity investors. When money is moving into safety, it means it's also moving into real estate. Here are a couple examples of how this can benefit you as a real estate investor.
A Good Time to Sell Under-Performers:
First, if you have a long-term hold investment that's never performed very well, now would be a good time to sell it. A lot of these retail investors that are moving away from equities and the stock market might want to purchase real estate.
A Good Time to Raise Private Money:
When money is pouring into safety it’s a good time to raise private money and try to pick up funding for deals for slightly less than what a hard money lender would charge. There’s a lot of competition for hard money. I have a great video on the fundamentals of hard money lending, but now might be a time when you are be able to skip over that and go straight to private money. Money that's coming out of equities and going into the safety of real estate.
Impact #3: Reduced Access to Materials
There is a reduction of imported building materials coming out of China and other areas, which will significantly hinder builders. Unfortunately for builders they are already being slowed down for a lot of different reasons. Slowing down builders is only helping us as real estate investors because it's lowering the amount of available inventory.
When we have low inventory, it allows us to flip our properties a lot faster and having more buyers than sellers allows for multiple offers situations. However, there's more to it. Low inventories, specifically with single family homes, are good for long-term rental investors because people need a place to live. It means that your rentals are occupied a lot faster and stay occupied. That's what we love so much about being residential real estate investors. Lower inventories make it easier for us to flip our properties at full price and it allows us to get our vacancies filled a lot faster.
As real estate investors we love low inventories, however there's a catch I want to explain. Inventories are only incredibly low at affordable price points. As the price point goes up, inventory levels start to skyrocket. It depends on the area and the medium, but as you start getting well above the medium price point of a house suddenly the inventory shoots up. So as a real estate investor, you need to focus on affordable, lower price point houses to either flip or rent. That's where the game is being played right now.
To learn more about understanding inventory I have a separate video you need to watch called Three Factors to Understand Your Local Real Estate Market. I also have a great video I put together in 2016 called Now's the Best Time in the Last 40 Years to be Invested in Real Estate. What's so interesting about that video from four years ago is it's truer now than it was four years ago.
It's exciting because we have the winds in our back from every direction. I never thought I'd live to see a situation this good. I've shared a lot of positive impacts with you, however there is one negative.
Impact #4: Vacation Rental Slowdown
There is a slow down coming for vacation rentals. In fact, Airbnb has already announced that in those areas most impacted by the outbreak of the coronavirus, there would be a no questions asked refund to any potential guests checking in regardless of what their lease agreement said.
The slowdown is coming because less people are traveling. I have most of my holdings as a vacation rental investor in Florida and Tennessee. I personally haven't seen any slowdown or anyone cancelling yet but I expect it to be coming. I’m not too concerned about a temporary slowdown because I have huge margins in my vacation rentals, and I have a gigantic reserves. However, you might be on razor thin numbers so it could be something to be concerned about. This will have a negative impact. I'm going to feel it and those of you that are a vacation rental investor like me, you will too.
There is a potential opportunity in this is if it is prolonged. At some point, vacation rental investors might panic and be willing to sell properties much cheaper than they should. We don't want that to happen to vacation rental investors, though. We wish them all the best and we hope they can ride out this temporary storm.
These are the 4 main coronavirus impacts on real estate investing at the time of this writing (subject to change, of course!). As you can see, the first three are very positive for real estate investors. However, as a vacation rental owner you'll experience a temporary slow down. For more information on any new developments go to: Real Estate Investing During CoronaVirus Pandemic.