Two months ago, I was flying high in real estate. I’ve always kept in mind that investing carries some risk, but it did not seem feasible that anything wildly significant would change anytime soon.
Overnight the world changed, and so did my investing plans. Here are some strategies that I’m considering for my investments in light of COVID-19.
Buying Section 8 Housing
This strategy has been interesting to me for a while. Section 8 is housing that is subsidized by the government. You need to get it approved and get paid by the room, so if you have a larger home, the potential to profit is excellent. This plan was laid out well in podcast episode 356 with Joe Asamoah, who talks about combining BRRRR and Section 8 in a pricey market.
When looking for a Section 8 property, you need to ensure the area is zoned for it and check to see how much the government pays, as it varies by county. I am looking for properties that already have Section 8 tenants under contract at the time of purchase.
Section 8 tenants generally stay for a long time. The tenants do need to pay a small portion of the rent, so you need to screen well to make sure they can cover that expense.
The bottom line is that even if a tenant loses their job and runs out of money during COVID-19, the government will not. So, rents come in consistently every month.
Following Job Stability
While the unemployment rate was just 3.5% in February 2020 pre-COVID-19 outbreak, millions are now out of work, and businesses are closing. Most agree that for many of them, it will not be business as usual for the foreseeable future—if ever.
The good news is that once we get past this, new businesses will emerge. Anticipating which industries will develop and where those companies will set up shop could be a great indication of places to buy housing.
Large companies have already made commitments to areas, so we know jobs will be there. For example, Apple has announced its expansion into Austin. Netflix has a growing production hub in New Mexico. Amazon warehouses are in many states. Buying near warehouses for packages like UPS or FedEx or purchasing near healthcare facilities is a good bet, as well.
Heading to the Suburbs
With social distancing and working from home becoming more of a way of life, living in the city is not as exciting. Living in the suburbs saves money if you want a home office or more space at a much better price than a city. Plus, it offers more distance from your neighbors.
Prices are also a lot more reasonable for rentals in the suburbs. With people cutting back on expenses, many will be heading out of town. Picking up rentals in these areas should make for some decent cash flow.
Holding Money Tight
“Make more deals” was the theme of the year as 2020 began. But now with the anticipation of permanent job loss and businesses closing and transitioning, there is good reason to sit tight.
Some people have had government support to help them through these hard times and have gotten their mortgage payments deferred. The funds are temporary, and some will not be able to catch up. As the economy opens back up, and as evictions and foreclosures begin to be processed, we will see more vacancies and more opportunities for discounts.
Following Warren Buffet’s lead and hanging onto money now will put you in a great purchasing position with a bit more patience.
Buying Under Value
With the uncertainty in the economy, a good deal just is not good enough any longer. We have gone from a seller’s market to a buyer’s market overnight. Zillow predicts the dip will go on for about a year and recover. Still, others like Robert Kiyosaki and U.S. demographer and financial commentator Harry Dent believe we are months away from the biggest depression in our lifetime.
If Dent and Kiyosaki are correct, any investment needs to have a spread in the deal to adjust for a significant correction that is looming. If you used to calculate for a 10% vacancy, any deal should be made well below the market value to adjust for a potential 20-30% vacancy.
There is always a good deal out there, but it starts at the time of purchase.
Now more than ever, every investment needs to be made with the current calamities of the economy in mind. But to be sure, there are still opportunities to be found.
Have your investing plans changed recently?
Let us know how you’re adapting in the comments.