Real estate and coronavirus: What you can do at this time

Like many industries, the real estate industry has felt the effects of coronavirus and COVID-19. As people continue to adapt to a climate that is constantly evolving and changing, stakeholders across the real estate sector look to support both their people and business needs through these unprecedented times. We are seeing all levels of government and even banks offering some relief measures. As such, there has never been a better time to purchase real estate, with sympathetic mortgage terms and rock bottom interest rates.

Real estate agents are currently deemed to be part of the essential services that society needs. However, it is not business as usual. With efforts to “flatten the curve” and limits on face to face meetings, agents will have to up their game on virtual showings.

In the short-term, markets will cool as people adjust to these new realities. “Buyers may decide to hold off on their home purchase amid uncertain health and economic conditions, while sellers—having seen what others got for their properties in the late winter months—may be hesitant to accept a lower offer today”. Outside of those buyers and sellers who are extremely motivated due to personal reasons, many will remain on the sidelines.

Long-term however, the market will recover. The underlying fundamentals still remain strong. There will be lots of pent up demand and the supply of available homes for sale remains slight.

For Investors:

For some time, many market experts have been predicting a correction, and while no one could anticipate the devastating affects of COVID-19 to the economy there are some fundamental traits that investors will always favor. Let’s look at some of the doctrines of the most respected and successful investor of all time – Warren Buffett.

1. Protect your capital.
2. Secure positive cash flow.
3. Keep your eyes on the horizon.

I would add a 4^th critical element when we are talking about investment in real estate and that is location.

Capital protection is key, especially in difficult times. When you invest in real estate you are investing in a real tangible product. Unlike stocks, which are just pieces of paper that can go up in value but can also plummet into worthlessness, real estate will always have value. If you make your purchase with cash and not debt then you are in a very favorable position.

Positive cash flow is another key component of successful investing. When you purchase real estate that has a source of rental income you are securing cash flow. Unlike putting money in the bank where interest rates are nearly zero, an income producing real estate property can bring in cash.

For example, if you have a property that has positive cash flow at 10% that means that in 10 years you will have returned 100% on your capital investment. And that also assumes that rents don’t increase over the time period (hint: rents always increase).

Timeline. When you are investing in real estate don’t look for the homerun ball. It is not a risky get rich quick scheme like some technology stocks. You need to be thinking 10 years down the line. Will my investment today be cash flow positive over 10 years or more? Will it retain its value and even appreciate over that time span? If the answer to both those questions is yes – then you have an excellent candidate for investment.

Location. Not specifically mentioned by the 3 successful doctrines of Warren Buffett is that when considering investment real estate, you must focus on location. As the successful real estate investor Grant Cardone says:

I NEVER speculate or compromise when picking the location of the real estate I invest in.  This is something I never delegate to anyone else in the company to pick. The location today is vital, but the location ten years from now is 10X more important.

Having the best location is clearly a key component of successful real estate investing. If you own an apartment building you want to be in an area that families will love. Close to good schools, hospitals, parks and jobs. This will ensure that your occupancy rates remain high. If you own a hotel you want to be in an up and coming tourist destination, politically safe, offer impeccable service and have attractions nearby that are out of this world. Again, these things drive occupancy rates, which is all about remaining cash flow positive.

Keeping location in mind together with:

• Capital preservation
• Cash flow positive
• Long-term timeline

Real estate investors can weather the storm of COVID-19 and the coronavirus. The market fundamentals are still strong and going forward more transactions will be done virtually. Agents will adapt, as will buyers, and the market will rebound. For investors real estate has always been a fabulous store of wealth and it will continue to be well into the foreseeable future.