Coronavirus Updates

Impact of COVID-19 on Real Estate Investors: Great Deals, Greater Risk in 2020 [Infographic]

Expertise: Landlording & Rental Properties, Real Estate News & Commentary, Personal Finance, Real Estate Investing Basics
132 Articles Written
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Times of turmoil offer the greatest opportunities for investors. Several centuries ago, Baron Rothschild famously asserted, "The time to buy is when there's blood in the streets."

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It was true then, and it remains true today.

What that pithy quote doesn't mention is the greater risk that investors also face during these periods of upheaval and economic contraction. As a real estate investor, how do you navigate those greater risks and greater opportunities during the COVID-19 pandemic?

You understand them clearly, and invest through calculated risk.

Heightened Challenges & Risk Factors

Before you can mitigate any risk or surmount any challenge, you first need to comprehend it. Keep these risk factors and unique coronavirus pandemic challenges in mind before investing a cent in today’s volatile environment.

Selling Challenges

Real estate investors should have multiple contingency plans for exit strategies, so they never find themselves stuck holding a property that costs rather than earns them money.

But it’s not exactly an ideal time to sell properties. To begin with, far fewer would-be buyers are in a position to buy—at the time of this writing, over 30.3 million Americans have filed for unemployment. Economists pegged the unemployment rate as high as 20% currently, and it’s poised to rise even higher in the coming weeks. For context, the peak of unemployment during the Great Depression was 25%.

Even those still working are having a harder time getting a mortgage today than two months ago. More on that shortly.

Related: Rates Are Historically Low, But It’s Extremely Hard to Get a Loan—Here’s Why (& What to Do About It)

Early data from the NAR show pending home sales down 20.8%. Even worse for sellers, an NAR study found 90% of Realtors reported homebuyers pulling back from the market.

That makes flipping houses hard right now, and leaves fewer options for investors across the board.

Nearly Nonexistent Vacation Rental Demand

Another option off the table for investors? Short-term leasing properties as vacation rentals.

With tourism all but evaporating globally during the pandemic, Airbnb landlords have had to find other uses for their properties. Many have converted them to long-term rentals, flooding the market with vacant units at a time when fewer renters actually want to move. Others have tried to convert them to mid-term corporate rentals—again, at a time when fewer people are employed or traveling for work.

It takes yet another revenue strategy off the table for investors.

Related: Market Data: How Coronavirus Has Affected Short-Term Rental Occupancy

Higher Risk of Rent Defaults

Traditional long-term landlords face another risk: defaulting tenants.

With unemployment surging, many tenants cannot afford to pay their rent. And rising anti-landlord and anti-capitalist sentiment among left-wing activists fueled the largest rent strike in decades even among tenants who can afford to pay.

And they can get away with not paying rents, because most U.S. landlords can’t legally enforce their lease contracts right now. Between the CARES Act suspension of evictions at properties secured by federally-backed mortgages and Section 8 properties, state and local moratoriums, and civil courts being closed in much of the U.S., landlords have no legal recourse if tenants violate their leases.

While the CARES Act expires on July 24, it could well be extended—which says nothing of the other restrictive forces such as civil court closures.

It’s awfully hard to get excited about buying a rental property when only the landlord’s obligations are enforced. Today’s environment leaves tenant rights in place while stripping landlord rights.

Rental investors need deep pockets right now, because they may not collect a cent in revenue until the crisis stabilizes. And because they may not find any financing, either.

Related: Warning: 5 Reasons the 2020 Recession Will Be Far Worse Than 2008

Funding Challenges

Every portfolio lender that I work with has suspended new rental property loans. When our students ask me where to go for funding right now, I've been pushing them toward rotating credit lines, because I don't where else to send them.

It makes sense, too. If landlords can't enforce their leases, many will default without incoming rents from tenants. So why would lenders extend them loans?

I certainly haven’t issued any private notes to landlords since the crisis, even though I know and trust them. It doesn’t matter how trustworthy they are if they can’t collect rents.

Conventional lenders have tightened up, as well. Many analysts predict mass mortgage defaults, which seems almost inevitable with unemployment surging in the tens of millions.

All of which makes it hard to leverage other people's money to invest in real estate right now.

Opportunities for Real Estate Investors

We’ve seen a spike in troll attacks in our blog comments at SparkRental, and in our landlord and real estate investor Facebook groups, from anti-landlord activists. They sling words like “vulture capitalist” around, and in some cases even publicized landlords’ and investors’ personal information, such as their home addresses and phone numbers, with instructions to “attack them.”

Which makes me wonder: why is it less ethical to buy real estate assets during a down market than it is to buy stocks or bonds or commodities? And if no one invests in rental properties, who will provide housing for the nation’s 43 million renters? I don’t think anti-capitalist activists bother thinking that far ahead though.

The COVID-19 pandemic has changed my real estate investing plans, but I still intend to buy. There will be plenty of opportunities to find deals for savvy investors with the resources to buy.

Lower Market Pricing

We’re already seeing home prices dip. Early data from Redfin showed new listing prices dropping by $21,000. In recent weeks, prices stabilized, but Redfin noted that homebuying demand is down 19% year over year.

While I don’t expect home prices to dip much as a nationwide average, at least not immediately, some markets will fall much harder than others. See this article I published with an interactive map of the highest-risk housing markets in the U.S. based on a study by ATTOM Data Solutions.

Markets heavily dependent on tourism, leisure, and hospitality will get hit particularly hard, as well. Investors may find willing sellers in these markets (although not necessarily willing and able renters).

All real estate is local—there’s no such thing as a “nationwide real estate market.”

Distressed Sales

In the industry, we refer to the “three Ds” of distressed sales: defaults, divorces, and deaths. None of those are slowing down in the midst of the COVID-19 pandemic. Quite the opposite, in fact.

Many sellers have pulled out of the market, preferring to wait out the crisis. But many others have left their listings in place, some with an urgent need to sell. Their reasons vary, but a certain percentage of these urgent sellers would rather accept a fast, sure settlement than a high sales price. (Read: opportunity for deals.)

It helps if you can make a cash offer, given the tight credit environment right now. Just as important as having a plan to fund your deals, make sure you have an exit or revenue strategy in place, ideally with contingencies. You don’t want to find yourself another crunched landlord with defaulting tenants and no option to replace them with paying renters.

Related: Recession Prep 101: Investing in Real Estate During a Financial Crisis

Crunched, Tired Landlords

One of the best sources of off-market deals is a “tired landlord”—thsoe who just can’t field another 3 a.m. phone call about a burnt-out lightbulb, another excuse about non-payment, or another drug-dealing freeloader boyfriend who moved in with your sweet, naïve tenant.

All those anti-capitalist activists who rant and scream and hate landlords so much? It turns out they suffer under the same delusion as newbie landlords: Most people have no idea what kind of expenses landlords face.

Experienced landlords refer to the “50% Rule.” That is, you can expect to lose around 50% of the rent to non-mortgage expenses. It’s why we drill into our students over and over again how to forecast rental cash flow because most new landlords get it so wrong.

Many landlords with non-paying tenants right now can’t afford to keep their properties. Consider them another type of distressed sale: property owners who would rather take a quick settlement than a high price.

Inflation & the Potential Price Spike

With trillions of new dollars being injected into the economy by both the Federal Reserve and Congress, many analysts—myself included—expect inflation to hit hard once the economic recovery takes off.

Granted, that may not happen for a while. But sooner or later, it will happen.

And real estate makes the perfect hedge against inflation.

Inflation aside, housing markets tend to weather recessions quite well—far better than stocks do, based on historical data.

In fact, the real estate industry historically helps pull the economy out of recessions. People still need a place to live, and the housing industry drives many millions of jobs, both directly and indirectly.

And if none of that convinces you, consider that the U.S. entered the pandemic with a housing shortage, particularly among starter homes and rental properties. That’s getting worse, not better: housing starts posted a 22.3% drop in March, the worst drop in 36 years. A supply reckoning will come, as construction falters due to the coronavirus pandemic.

Related: Why Real Estate Beats Stocks During a Recession

Final Thoughts

Should you invest in real estate right now?

Maybe. It depends on your risk tolerance, on your cash cushion, on your market.

I still plan to invest, although with far more caution. I don't plan to buy anything until evictions become possible again. If you can't enforce a legal contract, you shouldn't enter one, and if you shouldn't sign a lease, you shouldn't buy a rental property.

Recession-Proof Real Estate book blog ad

Do you plan to buy real estate during the COVID-19 pandemic? Why or why not, and under what circumstances?

Join the discussion in the comment section below.

G. Brian Davis is a landlord, personal finance expert, and financial independence/retire early (FIRE) enthusiast whose mission is to help everyday people create enough rental income to cover their ...
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    Christopher Smith Investor from brentwood, california
    Replied 5 months ago
    Buffett has a much more modern take on "blood in the streets" opportunity. He also provides you with the strategy to really make it work. The strategy is that you don't wait for the event to happen tommorow, you plan for it today. You do that by 1) having cash on hand so you don't need to borrow and can act quickly, 2) you've scoped out well in advance those assets you would like to own when the storm hits, 3) you buy only high quality assets, ones that have little or no likely hood of not surviving the storm, and finally 4) have the emotional constutution to act boldly assuming of course the first three are already in place.
    G. Brian Davis from Baltimore, MD
    Replied 5 months ago
    Hard to argue with the Oracle from Omaha!
    Christopher Smith Investor from brentwood, california
    Replied 5 months ago
    Unfortunately social media has given rise to a whole new class of malignant trolls who's entire existence is apparently limited to attacking others typically behind the anonymity of a computer keyboard. Equally unfortunate is that these malignant trolls are willing to target anyone that has through their own personal productive efforts, willingness to take risks (that others will not), innovation, creativity, plain hard work and many other meritorious means achieved some level of well deserved success. Kind of makes you wonder what a life would be like when apparently it's sole reason for existence is to demean the productive efforts of others.
    G. Brian Davis from Baltimore, MD
    Replied 5 months ago
    The way I think about it is like this: they're spending their effort on messing around in chatrooms, while I'm spending my effort on building wealth. As long as I can protect my wealth from these populist trolls, I come out far, far ahead.
    John S Lewis from Jackson, NJ
    Replied 5 months ago
    @G. Brian Davis - love the graphics. Well done. Also, very good content re: current risks. I think a lot of new investors might not see that in 6 months prices will most likely be lower than they are now. I had a seller tell me today, that because people are moving out of the cities because of the virus, realtors are telling him the price of his house should go higher. But if nobody can buy it.....
    G. Brian Davis from Baltimore, MD
    Replied 5 months ago
    Thanks John! Yeah there are a lot of forces at play in the housing market right now, from financing availability to unemployment to social distancing and more. Will be interesting to see how it all unfolds!
    Jeff M. Investor from Flagstaff, Arizona
    Replied 5 months ago
    I reatly appreciate this post. It matches my sense of things yet provides something far better than gut instinct: it provides data and analytics. Thank you for the solid work. This will help me stay patient.
    G. Brian Davis from Baltimore, MD
    Replied 5 months ago
    Thanks Jeff, much appreciated!
    Michael King Rental Property Investor from St. Louis, MO
    Replied 5 months ago
    Brian, great read and very well thought out, thank you.
    G. Brian Davis from Baltimore, MD
    Replied 5 months ago
    Thanks for the comment Michael, glad it was useful!
    Andrew Syrios Residential Real Estate Investor from Kansas City, MO
    Replied 5 months ago
    Cool infographic. And while the data is nice, it's still too early to make heads or tales of it, which is quite frustrating.
    G. Brian Davis from Baltimore, MD
    Replied 5 months ago
    Thanks Andrew, and it's true, there are just so many forces at play right now in the housing market.
    Barry H. Investor from Scottsdale, AZ
    Replied 5 months ago
    BRIAN - I agree with the others who have posted RE your killer graphics - they tell a great story !! I have not noticed a slow down in interest in my Turn Key remodeled tenant-occupied properties in Kansas City MO which provide Buyer / Borrowers with 20%+ annual ROI with my Seller-Financing. I did not realize lending had dried up so badly which may be why interest remains strong since my Seller-Financing is a no brainer. Great article with beneficial tips.
    G. Brian Davis from Baltimore, MD
    Replied 5 months ago
    Thanks Barry, and I'm glad you're still seeing strong demand for your properties!
    Eric Carr Real Estate Broker from Los Angeles, CA
    Replied 5 months ago
    I enjoy your articles overall but I'm sure the "right-wing" renters are just happy to pay their rents right now *eyeroll*
    G. Brian Davis from Baltimore, MD
    Replied 5 months ago
    Haha, fair enough Eric, although you don't rent strikes being organized in small-town Louisiana ;-)
    Steven Dietrich Rental Property Investor from Lake Tahoe
    Replied 5 months ago
    Airbnbs outside of cities are doing just fine. In fact, my rentals are seeing HIGHER demand since COVID because people in cities want to get out (and they work online so they have the ability to leave finally).
    G. Brian Davis from Baltimore, MD
    Replied 5 months ago
    Glad you're still seeing high occupancy rates Steven!
    Norman T Eng
    Replied 5 months ago
    Glad to hear that they are doing well and I hope they continue to. However, the short term outlook for the company looks bleak and others around the country are suffering . This just came out today. https://www.cnbc.com/2020/05/05/airbnb-to-lay-off-nearly-1900-people-25percent-of-company.html Their IPO is also on pause.
    Christopher Stacy Rental Property Investor from Wiesbaden Germany
    Replied 5 months ago
    Excellent article Brian. I am on the fence about my next property and actually found a decent priced townhouse to buy where I have 3 other rentals. However, after seeing your perspective, I might hold out a bit longer to see what happens. Great infographic by the way. Thanks!
    G. Brian Davis from Baltimore, MD
    Replied 5 months ago
    Thanks Christopher, glad it was useful, and just keep in mind that your local trends should always trump the broad-level stuff I write about!
    Jim Genis Investor from Olathe, KS
    Replied 5 months ago
    Nice information, Brian. I do agree that turnkey assets will be more appealing since they (1) will be going "on sale" in the crisis; (2) mitigate additional risks associated with flipping and BRRRR; and (3) stand a better chance of appreciation when recovery happens. Thanks for the article.
    G. Brian Davis from Baltimore, MD
    Replied 5 months ago
    Thanks Jim, hope you're well positioned to come out head in all this!
    Norman T Eng
    Replied 5 months ago
    Brian, Great article and I appreciate the candor. Most of what I hear through forums and social media sites is that NOW is a great opportunity to find deals. Well, if you're very well capitalized and have high risk tolerance then go for it. People tend to forget that Q4 of '11 was when housing prices hit bottom. That's 2-3 years after the crash in '08. Your article was well thought out and brought to light many of the broad economic and political indicators that bolster your argument. Large commercial investors that I know have told me all of their deals are on pause and many are playing defense right now. Just wait until the government takes away their handout lifelines away, then we'll truly see how the market will turn.
    G. Brian Davis from Baltimore, MD
    Replied 5 months ago
    Very true Norman! Government response will create a huge impact on market conditions on the ground.
    Jason Alkhaldi
    Replied 5 months ago
    Thank you sir.
    G. Brian Davis from Baltimore, MD
    Replied 5 months ago
    Glad it was useful Jason!
    Sandra Hale from Hendersonville, Tennessee
    Replied 5 months ago
    Great article Brian, and excellent graphic. What I am hearing from several REIAs, is that now is the time to exercise creative financing deals such as straight options, owner finance, subject to's, lease options etc. That way you don't have to have huge cash reserves, or borrow any money. If you need a little cash, you could take on a money partner. Although, it may be a challenge to find home buyers or renters right now. Timing will be critical. What are your thoughts on this?
    G. Brian Davis from Baltimore, MD
    Replied 5 months ago
    Thanks Sandra! And I 100% agree that it's a great time for creative financing. As for demand among buyers and renters, I think that will vary locally, depending on how badly the local economy gets hit, and the severity of any local outbreak. I'd keep a close eye on local indicators and the "feel" in your local market.
    Paras Turakhia Investor from Wilmington, Delaware
    Replied 5 months ago
    Could you please explain those creative financing options? Sounds interesting, my group wants to sell their 24 Unit Multifamily Apartment
    Cory L Stevens Developer from Baltimore, Md
    Replied 5 months ago
    All good info Brian, Thanks! Can you elaborate on land as an alternate investment. Any particular criteria during this time? Thanks.
    G. Brian Davis from Baltimore, MD
    Replied 5 months ago
    Hi Cory, I confess land is not an area of expertise for me. But one of the great advantages to land is that it's virtually unregulated - if a renter defaults, you simply remove their access to the land, no expensive or time-consuming eviction. There's no risk of building damage, no repairs or maintenance. But the risk right now is demand, so it just depends on your local conditions.
    Bryan Mitchell Rental Property Investor from Columbus, GA
    Replied 5 months ago
    Well done Brian. I agree with you on all points. However, it would be interested interesting to see things from a supply perspective when there are fewer buyers while you have fewer were new housing starts and fewer houses listed. What’s the sum total and affect on declining rates (time on market and sales price) for home sellers?
    G. Brian Davis from Baltimore, MD
    Replied 4 months ago
    Thanks Bryan! I'd keep an eye on NAR data if I were you, they've been pretty communicative with the data. Keep in mind it varies widely by location.
    Stephanie Haggerty Real Estate Agent from Chisago City, MN
    Replied 4 months ago
    Great article, I found it very helpful and well written. As a new investor I'm nervous about the current market so keeping up to date on information is essential. I think your point about waiting until evictions can be enforced again is insightful. In Minnesota our evictions are halted through May (at this point), but who knows if that will be extended so I will keep watching.
    G. Brian Davis from Baltimore, MD
    Replied 4 months ago
    Thanks Stephanie, and best of luck with your coming real estate investments!
    Eugene Vollucci
    Replied 4 months ago
    Eugene Vollucci, Real Estate Research, Calstatecompanies Great article
    G. Brian Davis from Baltimore, MD
    Replied 4 months ago
    Thanks Eugene!
    Javier Rosales Rental Property Investor from Los Angeles, CA
    Replied 4 months ago
    Am putting in offers for a primary home, now that the interest rates are low. A lender got me an estimate of 3.125%. I think I better make a move now. Any thoughts
    G. Brian Davis from Baltimore, MD
    Replied 4 months ago
    That's an extremely low interest rate. Lenders have tightened up significantly though, so be prepared for some bumps in the road with your financing.
    Nathan Crumback from Grand Rapids, Michigan
    Replied 4 months ago
    Thanks @G.Brian Davis for the well-written and detailed article! What's your take on how this will impact Property Management companies?
    G. Brian Davis from Baltimore, MD
    Replied 4 months ago
    Thanks Nathan! I suspect property managers will continue without much dent in their revenue. Although they should expect a harder time collecting rents and filling vacant units.