Coronavirus Updates

Post-Pandemic Investment Outlook: Top-Performing Property Types for 2020 and Beyond

Expertise: Personal Development, Commercial Real Estate, Real Estate News & Commentary, Landlording & Rental Properties
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Did you know that some of the world’s most enormous fortunes were made in times of crisis?

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Sir Winston Churchill said it best: “Never let a good crisis go to waste.

Take Disney and Uber and General Electric. Microsoft and Apple and The Kennedys’ fortune were all built in times of crisis, too.

Now, please don’t shout me down. I’m not suggesting that you take advantage of anyone during a tough time. I’m not advocating that you stockpile and become a profiteer from toilet paper or masks or hand sanitizer.

(Though I do know where some good deals are…)

I am stating the fact that an economic crisis provides natural opportunities for the transfer of property and wealth, and there will actually be opportunities to help people in the process.

Related: How to Be a Hero (& Grow Your Wealth) Amid the Coronavirus Meltdown

For example, some of you know how to execute a lease-option sandwich. This is a “subject to” deal, where you acquire a home with the previous mortgage in place and lease it to someone else for a profit. The tenant-buyer has the option to buy the home for a pre-negotiated price later.

There is no loser in these deals. Only winners. Here’s what I mean:

  • The Distressed Seller = Winner #1: They get to sell a home that may have been foreclosed upon. Their credit damage is mitigated.
  • The Bank = Winner #2: They don't have to foreclose and own/manage a piece of real estate. And they make an ongoing profit from regular payments. (Don't scoff. The bank is made up of shareholders who are people, too—I think.)
  • The Tenant-Buyer = Winner #3: They get to rent a home they want to live in while building up their damaged credit score and saving up a down payment. And they have the option to buy their home later.
  • You, the Real Estate Investor = Winner #4: As the coordinator of this transaction, you get up to three paydays: a deposit at closing, an ongoing monthly profit from rent, and the sale price minus mortgage payoff at the sale.

It’s a beautiful thing and everybody truly wins! I’ll be talking about these deals on my upcoming BiggerPockets live shows on YouTube and Facebook on Saturday mornings. (These links will get you there.)

In this post, I’m going to review highlights from a recent Crowdstreet webinar called “Finding Real Estate Investment Opportunities in a Post-COVID-19 Economy. The webinar featured Ian Formigle from Crowdstreet, Melissa Reagan of Nuveen Real Estate (one of the world’s largest managers of real estate), and Peter Grant of The Wall Street Journal.

They covered:

  • Why certain asset classes may recover faster than others and why
  • Which markets are likely to bounce back first?
  • What the long-term impact of the pandemic might be
  • What the “distressed” market for opportunistic investing may look like

Impacts of the Pandemic on Specific Asset Classes

Retail

The panel focused first on retail, which already had strong oppositional headwinds going into this crisis. I read that about 12,000 U.S. retail locations closed in 2019—in a booming economy. This crisis will certainly accelerate this process.

Many believe that JCPenney and Nieman Marcus may follow Sears into bankruptcy soon.

Single-Family Homes

On an encouraging note, many BiggerPockets readers will be glad to know that single-family rentals are predicted to fare very well in this downturn. There are many individuals and families who prefer to rent a home in a particular school district or area, and availability is often limited.

Multifamily Housing

Green Street Advisors now predicts that apartment rents will fall 8% in the next two years due to fallout from the crisis, plus over-supply of new units. But single-family rentals are predicted to rise by 6% during this period.

Industrial

The industrial real estate sector is also predicted to fare well, especially when tied to the e-commerce economy. Many have predicted that some products previously outsourced to China will come back to the U.S. (though much of the labor will be replaced with robotics). This could help the fledgling rust belt.

Office Space

What about office real estate? On one hand, companies like Morgan Stanley have discovered they can operate just fine with less office space.

“Clearly, we’ve figured out how to operate with much less real estate,” [CEO James] Gorman said. “Can I see a future where part of every week, certainly part of every month, for a lot our employees will be at home? Absolutely.” (From an April 17th Bloomberg interview reported in Bisnow.)

On the other hand, a move toward suburban space may provide opportunities for employees to spread out and some firms may rent more space according to the Crowdstreet panel.

Senior Housing

What about senior housing? The Kirkland, Washington, COVID-19 disaster generated a lot of negative news about this sector, and it’s likely that 40- to 60-year-olds won’t be moving their aging parents into facilities at this moment. And there was already significant downward pressure on this sector due to over-supply.

The panel said to watch for near-term consolidation as bigger players gobble up smaller ones.

That may be true in the short-term. But as Brandon Turner recommended in his recent video, we need to look at the big picture and the long-term. Smart investors will buy with an eye to the 10-year or longer window—not just today.

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

Turner referenced Tesla’s stock price plunge after Elon Musk smoked pot on the Joe Rogan podcast. This was an obvious buying opportunity for smart investors, since the stock quickly rebounded later. The share value is based on Tesla’s business—not a stunt by its CEO.

And I think senior housing may provide the same opportunity. Why?

For one thing, the demographics of the baby boomer generation will help this sector—a lot. Baby boomers start turning 75 next year, and the demand for all forms of senior housing will boom for the next 20 to 40 years. Longer lifespans from dramatically improved medical technology will also bolster this sector.

Affordable Housing

At the other end of the spectrum, affordable housing will continue to prosper. About 10,000 Americans per day turn 65, and six out of 10 have $10,000 or less saved for retirement.

Many can trade in home equity or can afford mobile home park lot rent, however. And mobile home parks are the only asset type with diminishing supply in the face of healthy demand. That's why Brandon Turner is betting big on mobile home parks. And my investment firm is, too.

Caravan and camping, static home aerial view. Porthmadog holiday

Mobile Homes & Self-Storage

A recent Crowdstreet webinar said that mobile home parks are the darling of all commercial real estate right now. Joined by self-storage, these are two of the bright spots of the real estate world right now.

In this week’s report, Crowdstreet says that though storage operators have been dropping rates in recent weeks, storage occupancies and delinquencies are expected to be in much better shape than other property types.

As an example, Radius Plus just reviewed self-storage delinquencies in Las Vegas, theoretically among the hardest hit U.S. markets. As of this April 30, delinquencies are up from the normal 2 to 3% to a modest 7.5%, which is an encouraging sign (considering the severity of this crisis).

Radius Plus predicts a lot of capital will flee other asset types to invest in self-storage in the coming years. Professional self-storage tenants on autopay, the relatively small cost of storage, and the ease of eviction in storage compared to residential will help self-storage weather this storm.

The four Ds (death, divorce, downsizing, and dislocation) are all happening in this crisis, and these sad events often strengthen self-storage performance.

Markets Likely to Recover Quickly

Nuveen’s research team analyzed major U.S. cities based on their exposure to COVID-19 (mortality rates, etc.), the ongoing health of their economy, the concentration and type of small businesses, government employment, unemployment claims, and the concentration of lodging and travel.

Many cities that landed on top for quickest recovery are in the sunbelt. These include Raleigh, Charlotte, Austin, Dallas, and Nashville. Other cities like Denver, Salt Lake City, and Minneapolis were mentioned, as well. Diversified cities with colleges and governments like Columbus also make the list.

These are cities that were already attracting jobs and people before the crisis. And this event will likely be catalyzing people to move where they have long wanted to go anyway, as they reshuffle priorities and make lifestyle and job changes.

Cities that may struggle include Las Vegas and New Orleans, both heavily dependent on tourism. I have heard Orlando is on this list, as well. I always look for roller coaster pricing in the sand states of Florida, Nevada, Arizona, and California. I would also expect oil production, transportation, and refining regions to be hit hard.

If you’re in the quick recovery cities, this is good news for you and your economy. If you’re in areas likely to struggle, don’t despair. Enormous profits can be made by buying real estate and businesses at the bottom of the cycle. Brandon Turner discussed this on an insightful recent BP video. If you are in a city or region that experiences massive swings, I believe the lease option sandwich/subject-to strategy I described above could be a great way to make massive profits while helping others who are suffering.

Opportunities in Distressed Markets

Preqin recently reported there is $320 billion sitting on the sidelines worldwide waiting to invest in real estate. The recent stock market difficulties haven’t hurt real estate either.

Melissa Reagan said that predicting the shape of this recession and future recovery is a fool's errand, and I agree. This could be V-shaped, U-shaped, W-shaped, or the dreaded L-shaped recession.

The goal for you, my investor friends, is to figure out where we are in the cycle and act appropriately. I often recommend the Howard Marks classic Mastering the Market Cycle to understand this more.

Here are sample recession and recovery shapes as a reference point anyway, courtesy of Wikipedia:

How to Invest Post-Coronavirus

Crowdstreet’s Ian Formigle recommended a barbell approach to investing in the wake of this crisis. On one end of the barbell, choose great assets with strong tenant bases that may be discounted 5 to 10% in the coming months. These are lower-risk deals. (I would add that these should be asset types and operators you’re most deeply familiar with.)

On the other end of the barbell, he recommends preparing to seek opportunistic deals in harder-hit areas like Las Vegas, New Orleans, and Orlando.

My main focus continues to be on recession-resistant assets like self-storage and mobile home parks. That is the conservative end of my barbell and by far the heavy end. In the middle, I plan to look for opportunities from distressed sellers among these asset types. I don’t expect that many, except from underperforming mom-and-pop sellers.

Related: Crisis Investing 101: The Most Recession-Proof Real Estate Niches

On the other end of the barbell, the light end for me, I will plan to look for deeply discounted pre- or post-foreclosures assets in property types I'm deeply familiar with like multifamily, which I've been warning BiggerPockets investors the past several years due to over-zealous apartment buyers bidding up prices.

And I’m really interested in putting together a distressed debt fund or a distressed asset fund to take advantage of these opportunities.

Least importantly, for fun, as I’ve discussed on my BiggerPockets live shows on Saturdays that I intend to acquire a distressed condo in Orlando or a coastal Florida location in this crisis.

So, what about you? How do you see this crisis playing out?

We’re all hoping for a v-shaped recovery. But there is a real possibility it will be another shape.

How will you build wealth for you and your investors in this unprecedented era? How are you preparing to do that now?

I’ve written earlier on the importance of preparing yourself, your team, and your tribe. There’s no better time to start than today.

Recession-Proof Real Estate book blog ad

What are you doing to prepare, and what actions are you taking today?

Share in the comment section below. 

After graduating with an engineering degree and then an MBA from Ohio State, Paul entered the management development track at Ford Motor Company in Detroit. After five years, he departed to start a...
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    Kris Patel Investor from Arroyo Grande, California
    Replied 4 months ago
    I like recession and virus proof Stydent Housing guaranteed by parents, and Drug store with 25 yr Corporate guarantee. Have both and happy. Good info. Thanks
    Paul Moore Investor from Lynchburg, VA
    Replied 4 months ago
    Hi Kris, Sounds good to me. I hope those continue to go well for you.
    Brenden Mitchum Rental Property Investor from Atlanta, GA
    Replied 4 months ago
    Thank you, Paul for this insightful post. As a new investor I am trying to find my niche and have recently shifted focus from apartments to mobile home parks. This is where I am devoting all my investor energy and time right now so glad to hear that I'm on the right track. I will definitely be starting to look for deals in those areas hit particularly hard by the pandemic and the resulting recession, but am hesitant for the same reasons as I am excited. But I am confident in the mobile home park strategy. It is one of the few that does not make me nervous when thinking about the future.
    Paul Moore Investor from Lynchburg, VA
    Replied 4 months ago
    Brenden, Thanks for sharing. We are very happy with collections at the mobile home parks we invest in this month. And encouraged by a steady stream of requests to move in.
    Barry H. Investor from Scottsdale, AZ
    Replied 4 months ago
    PAUL - Nice summary on all asset classes ! I concur with you RE SFH as rentals. I am a Turn Key Seller in Kansas City MO and I have seen INCREASED Buyer interest in the past 2 months. 20%+ annual ROI is attractive in all market phases.
    Paul Moore Investor from Lynchburg, VA
    Replied 4 months ago
    Thank you, Barry. That's great to hear. I'm glad for my brethren still in that business.
    Alex Olson Real Estate Agent from kansas City, MO area
    Replied 4 months ago
    Great write up Paul. Interesting look at different recession points. On the MF front I am not sure I am seeing that, at least not in the KC market. Recessions cause people to rent more and rent cheaper. An apartment is cheaper than a house. The demand for apartments will go up and any oversupply here will be absorbed.
    Paul Moore Investor from Lynchburg, VA
    Replied 4 months ago
    Hi Alex. I really hope you are right and that the pundits are wrong. The problem I see is that many have been overpriced and over-leveraged, and that could bite some operators when it is time to refinance.
    David Krulac from Mechanicsburg, Pennsylvania
    Replied 4 months ago
    @Paul Moore, Great article as usual. J Crew is closing. GNC is close to bankruptcy. Locally Applebee's has close their restaurants permanently, and they are the 14th largest restaurant chain in the country. Gap, Old Navy, and Banana Republic did not pay rent in April or May. A family owns a retail center with several big national chains, they have always gotten their rent for the last 25+ years. Now all their tenants have stopped paying rent for the first time in history. So far 1000 restaurants in Pennsylvania have closed permanently since the Corona virus pandemic. One local Mall has 17 vacancies and that's the majority of stores. A regional bank has told back office employees numbering thousands that they will working at home through June at least. Employers will see that they don't need big office buildings, and there will be a surplus of these buildings and fewer new builds. In our town, businesses have already closed permanently, one business closed their second location, another business owner passed not from the virus, but their reopening is in question. Another business just opened in January, but are under state closure orders and may not survive.
    Paul Moore Investor from Lynchburg, VA
    Replied 4 months ago
    David, Thanks for your kind words... as usual. Yes, this is much worse than most people want to admit. Your comments are evidence of that. Yikes.
    Adam Bell
    Replied 4 months ago
    With regards to senior housing, I agree that small operators of institutional facilities are done by the end of the decade; they were on their way out anyways for a host of reasons and the coming regulations will hasten this. I worked in that field for a few years, and the margins aren't feasible for small owners anymore. I do think that small, residential type facilities will be something to keep an eye on. They have less stringent licensing and zoning requirements, and I would imagine are easier to manage from an infection control standpoint.
    Miranda Paton
    Replied 4 months ago
    Adam, the bulk of your post contrasted with your last sentence surprised me. I know small operators, like so many small businesses, can't gain the traction that large ones can, even in this field. But when the trade-off for a solvent large nursing home is worse care (as they have been a bit notorious for already) and now, higher infection rates, I don't see how those large places can keep the same profit margins, either. Everyone, from airlines to restaurants are going to have to do more (in terms of infection control) with fewer customers. If this is true across the board, how can larger places keep the current staffing and population sizes that make them profitable?
    Paul Moore Investor from Lynchburg, VA
    Replied 4 months ago
    Adam, Yes, I agree. It is likely there will be a consolidation by major operators gobbling up these small operators. And the no/pre-skilled facilities (individual condos) should do well.
    Stephen Keighery Rental Property Investor from New Orleans, LA
    Replied 4 months ago
    Comprehensive article. I am sharpening my "Subject to" skills as agree that this is going to be a big opportunity over the next couple of years.
    Paul Moore Investor from Lynchburg, VA
    Replied 4 months ago
    Stephen. "Subject To" is going to be HUGE in the coming years. I just read "Real Estate on Your Terms" by BP's Chris Prefontaine about that exact topic.
    Brian Ploszay Investor from Chicago, ILLINOIS
    Replied 4 months ago
    Most on B.P. are small to midsize investors in residential real estate. I am watching and continual to evolve my opinions daily. Will this turn out to be a soft market or more of a distressed market? I am a veteran of the last downturn, so I have a few things to say. First, foreclosures take awhile to make it to the market. In my local market, a judicial state, a theoretical foreclosure wave would take two years to hit the market. The courts simply take that long. But a glimpse for the future is to look at the volume of foreclosure filings, which are court cases and public record. My gut feeling says the distress market will be more mild this time for residential assets. But a soft market still gives investors strength in their increase their ability to find deals. I enjoyed the rebuttal of the "V" shaped curve, an entirely fictitious and optimistic belief for an economic recovery.
    Paul Moore Investor from Lynchburg, VA
    Replied 4 months ago
    Thanks for weighing in, Brian. Yes, the last time it took 3+ years to hit bottom on the foreclosure filings. So many unknowns this time, however.
    Brian Garlington Realtor from Oakland CA investing in Cleveland & Oakland, CA/East Bay Market
    Replied 4 months ago
    Great article Paul!
    Paul Moore Investor from Lynchburg, VA
    Replied 4 months ago
    Thanks so much, Brian!
    Carl Fischer Rental Property Investor from Ambler, PA
    Replied 4 months ago
    Great article. Thank you my friend.
    Connie Steele Investor from Oklahoma
    Replied 4 months ago
    How do you go about finding the "lease option sandwich deals"? We have a multi family unit that cash flows really well and we are looking to diversify into other areas. Not sure where to look for those deals.
    Paul Moore Investor from Lynchburg, VA
    Replied 4 months ago
    Hi Connie, First I would read Chris Prefontaine's book "Real Estate on Your Terms." He describes how to find these deals. I would focus on expired MLS listings as well as pre-foreclosures that just had an auction announced. That is how we have done it.
    Steve Hiltabiddle Lender from Eastern Pennysylvania
    Replied 4 months ago
    Hi Paul, I always enjoy the thoughtful commentary you provide. You share a lot of wisdom in a balanced way. Much appreciated. I was at an engagement with Chris Prefontaine and picked up a copy of his book. You've given me good reason to read it. Over the last year+ there were a lot of whispers of a coming correction but few if any saw it in the way it has unfolded and continue to roll out. I think we're still barely past the first out of the first inning. All that being said, I did my best to heed the advice as best I could and am now trying to prepare for life with Covid. Robert Kiyosaki speaks of what we think of as l 'normal' is history and we need to look at what the future will be as the virus and the way work is done and our lives are led is being altered. Be open and flexible and read broad articles like what you share to stay educated by the smarter folks in the room. Be well and be safe, Steve
    Paul Moore Investor from Lynchburg, VA
    Replied 4 months ago
    Steve, Thanks for your kind and thoughtful comments. I agree with Kiyosaki... and you.
    Katie Rogers from Santa Barbara, California
    Replied 4 months ago
    No one ever considers that maybe the tenant-buyer DOESN''T have a credit problem at all. Maybe they have a credit score north of 780. Maybe they don't want to deal with banks, especially because you can shop around for a loan, create a relationship with a lender, and a month after the loan closes get a letter from a lender who didn't make your cut that THEY are now your lender because they bought your loan. Interest has to be paid to someone. Maybe the tenant-buyer would just as soon pay it to the seller. We should never carry around negative stereotypes in our mind that may color the negotiations.
    Paul Moore Investor from Lynchburg, VA
    Replied 4 months ago
    Katie, Great point, and one I have not thought of before. You are 100% right. I just told our BP Live audience this morning that if I had a choice, and didn't own a home right now, I would love to be a tenant-buyer. It is a great place to be, and many with great credit should consider it. Thanks for opening my eyes to this.
    Adrian Smude Rental Property Investor from Plant City, FL
    Replied 4 months ago
    Great article! Thanks for sharing!
    Paul Moore Investor from Lynchburg, VA
    Replied 4 months ago
    Thanks so much, Adrian!
    Ben Raygor CPA from Rochester, MN
    Replied 4 months ago
    I love the quick run-down of the lease-option sandwich. I've seen it played out a few times and it appears to be a great tool to add to the toolbox. I enjoyed reading your book The Perfect Investment as well. Great stuff Paul!
    Paul Moore Investor from Lynchburg, VA
    Replied 4 months ago
    Hi Ben, Thanks for you kind comments. I hope to have a new book on self-storage out soon.
    Matthew T. Investor from Springfield, Massachusetts
    Replied 4 months ago
    Very good read. Thoughts on converting office space to indoor storage facilities?
    Paul Moore Investor from Lynchburg, VA
    Replied 4 months ago
    Hi Matthew, Wow, that is something I have not thought about. I know a guy who is leasing about $2 million (per year) in office space near DC who just told me they might break their lease. The work-from-home revolution may kick into full gear, and if so, this could be an option. I would think that you would want to look for class B space to do this in. Interesting idea. Check out the BiggerPockets show from July 4th, 2018 with AJ Osborne to see how he did something similar. https://www.youtube.com/watch?v=Sm9sNGyegMI