The Restless Investor
Navigating Real Estate Investment During the Corona Virus
Real Estate's spring sales season is typically the busiest time of the year. This year, however, with the uncertainty of the impact the Corona Virus may have on buyers, sellers and the economy, it could slow to a crawl.
According to UrbanDigs, a website that researches real estate data, 1,780 new properties are typically listed in Manhattan during March. Only 734 properties have been listed so far, and only 432 of them are under contract.
The Real Estate Guys Radio Show this week suggested that with interest rates so low, this is potentially the best time to invest.
As with all things uncertain, only time will tell.
From Wall Street to Main Street
The impact the stock market has made on investors could bring about significant change on how people invest. Passive investors that no longer want to gamble on stocks might be more willing to step away from their familiar comfort zone and invest in other assets.
When making offers on properties, consider the following:
Reduce or eliminate Non-Refundable Earnest Money
Add a financing contingency on Rate and LTV% Load Proceeds
Allow for longer timelines (90 Days minimum to close)
Additional language/contingency for Covid-19 in PSA
Consult an attorney
Due Diligence:
Drive-by & virtual tours for now
Access of public areas or interiors may be very limited
If looking at an apartment building, make sure you see the rent rolls
Important to understand the condition of the property to estimate upgrade costs
The following is a blog recently published March 20, by Joe Fairless
The S.O.S. Approach to Managing an Investment During Coronavirus
As I am sure you are aware, CDC is responding to an outbreak of respiratory disease caused by a novel (new) coronavirus that has first detected in China and which has now been detected in almost 70 locations internationally, including the United States. The virus has been named “SARS-CoV-2” and the disease it causes has been named “coronavirus disease 2019” (abbreviated “COVID-19”).
Consequently, the DOW Jones has fluctuated and become extremely unpredictable. Per the CDC, “the best way to prevent infection is to avoid being exposed to this virus.” Therefore, social distancing has been one of the main methods to combat the virus. As a result, many people are working from home and many others have been laid off or furloughed.
From a business perspective, when a crisis – like the coronavirus, hurricane, fire, earthquake, etc. – occurs and you have an investment property, you need to have a process for approaching the situation, and even more so when you have passive investors. The procedure I use is the acronym S.O.S, which stands for Safety, Ongoing Communication, and Summary. S – Safety The first step when a crisis occurs is always and most importantly safety. That is, safety for both the people and the money. So, you first want to ensure the safety of both your residents and your team members on the ground. We sent all of our residents safety notices outlining the CDC’s guidelines for preventing the spread of the disease, which includes:
Wash your hands often with soap and water for at least 20 seconds. If soap and water are not available, use an alcohol based hand sanitizer
Avoid touching your eyes, nose, and mouth with unwashed hands
Avoid close contact with people who are sick
Stay home when you are sick
Cover your cough or sneeze with a tissue, then throw the tissue in the trash
Clean and disinfect frequently touched objects and surfaces
We also provided URLs to the CDC webpages with more information on the coronavirus:
The money side of the safety equation is still up in the air. It is hard to tell how the coronavirus will impact multifamily real estate. The stock market is going down which means more money should flow into real estate. At the same time, many people are losing jobs, which means they will have difficulty paying rent. We will have to see how rent collections are impacted over the next few months.
One interesting strategy I’ve seen is to allow residents to use their security deposits to pay for rent over the next few months. For example, investor Julie Fagan will allow her residents with a $1000 per month rent payment and a $1000 security deposit to apply $500 to this month’s rent and $500 to next month’s rent, reducing their rents to $500 per month. In exchange, the residents sign a new 12 month lease and sign up for security deposit insurance. I like this strategy because it helps the resident as well as the bottom-line at the property.
Investors will need to start getting creative if the coronavirus does negatively impact multifamily collections. O – Ongoing Communication Once we have ensured the safety of the people, we sent an initial communication to our passive investors.
The communication we sent to our investors was similar to what we sent to our residents. The major difference is that it also included information on what we are doing to ensure the safety of both the people and the money.
In addition to the relevant CDC information, we mentioned that we are working closely with our property management partners to monitor the operations at the property and that we will have more information for them by the middle of next month. We also mentioned the coronavirus will not impact their distribution for the previous month.
So, we sent one email to let investors know that we are aware of and monitoring the situation and when they can expect another update. It is hard to tell how long the coronavirus pandemic will last, so the plan is to continue to provide monthly updates to our investors about the status of the rent collections at our properties.
Overall, I think it is better to only send emails when there is substantive information to provide as opposed to hourly or daily updates.
Joe Fairless Wrote The Best Real Estate Investing Advice Ever Book, Host of the world’s longest running daily real estate podcast