The Coronavirus has spread rapidly and just about every industry is impacted. Discover not only what COVID-19 is doing now, but also how it may affect real estate investing in the future.
Also, due to the rapidly changing landscape of this pandemic, here’s an additional update on how it’s impacting real estate: Tips for Investing in Uncertain Times.
4 Impacts of Coronavirus on Real Estate Investing
#1: Lowest Interest Rates Ever
This is possibly the most important coronavirus impact on real estate investing. We currently have the lowest interest rates in recorded history, even lower than they were during the bottom of the of the great recession. This is particularly good for you as a real estate investor.
This is a great time to be flipping houses because the low interest rates make houses a little more affordable. As a house flipper, sometimes you end up investing more in a house than you expected and then need to sell it for slightly more than you planned. You may be struggling to sell, depending on competition and comps. The good news is it will be easier for you to sell because of the dropping interest rates.
Time to Refinance:
If you haven’t refinanced in a while, now is a good time to do it. You probably won’t get a lower interest rate ever and paying less in interest means you get to cash flow more.
#2: Money is Pouring into Safety
One of the reasons why the interest rates have dropped is because so many treasury bonds have been purchased by equity investors. In the stock market right now, money is pouring into safety. When money is moving into safety, it’s also moving into real estate. This can benefit you as a real estate investor in a couple ways.
Some retail investors that are moving away from equities and the stock market might want to invest in real estate. If you have long-term hold investments that have never performed well, now would be a good time to sell them.
Raise Private Money:
Additionally, it’s prime time to raise private money. It gives you the opportunity 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 can avoid that and go straight to private money that’s coming out of equities and going into the safety of real estate.
#3: Reduced Access to Building Materials
With a reduction of imported building materials, builders will be significantly hindered. Regrettably for builders they’ve already been slowed down for other reasons. However, the downturn for builders is helping us real estate investors because it’s reducing the amount of available inventory.
A reduction in available affordable housing allows us to flip our properties a lot faster. There are more buyers than sellers which leads to multiple offers situations, making it easier to flip our properties at full price. However, low inventories, specifically with single family homes, are not only good for house flippers but also long-term rental investors. People need a place to live and low inventory means your rentals are occupied sooner and stay occupied.
As real estate investors we love low inventories, however there’s a catch. Inventories are only incredibly low at affordable price points. It depends on the area and the medium, but as the price point goes up, suddenly the inventory shoots up. Therefore, as a real estate investor you need to focus on affordable, lower price point houses to either flip or rent.
To understand more about inventory I have a separate video you can watch called 3 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. It’s interesting that this video from four years ago is more relevant now than it was then. I never thought I’d live to see a situation this good. It’s exciting because we have the wind at our back from every direction. I’ve shared a lot of positive impacts with you, however there is one negative.
#4: Vacation Rental Slowdown
With less people traveling, there is a slow down for vacation rentals. In fact, Airbnb has announced that in those areas most affected by the coronavirus, there would be a no questions asked refund to any potential guests regardless of the lease agreement.
I have most of my holdings as a vacation rental investor in Florida and Tennessee. I personally haven’t seen a slowdown or anyone cancelling yet, but I expect it to be coming. I’m not overly concerned about a temporary slowdown because I have significant reserves and big margins in my vacation rentals. However, if you are on razor thin numbers it could be something to be concerned about. For certain, 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.
If this lockdown is prolonged, there is the potential that vacation rental investors might panic and sell their properties much cheaper than they should. We don’t hope this happens to vacation rental investors, though. We wish them all the best and 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 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.