Opportunity amid COVID Chaos

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Opportunity amid COVID Chaos

Robin Morales
Member since 2020 · 77 posts · 18 votes

Good Morning BP

Recently, I halted my first multi property investment in fear of the uncertainty brought on by the virus. Although, it was a tough decision, I feel there will be a better opportunity to come. I’m not sure how the housing market works when it comes to cost of homes supply and demand, but what led to my decision was the unemployment claims that almost tripled what was expected.

Do you expect lower prices ? How do you time the housing market ? How long do you wait to see if prices come down ? Etc.

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James Wise
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
6y
Originally posted by @Robin Morales:

Good Morning BP

Recently, I halted my first multi property investment in fear of the uncertainty brought on by the virus. Although, it was a tough decision, I feel there will be a better opportunity to come. I’m not sure how the housing market works when it comes to cost of homes supply and demand, but what led to my decision was the unemployment claims that almost tripled what was expected.

Do you expect lower prices ? How do you time the housing market ? How long do you wait to see if prices come down ? Etc.

 The opportunity is already here. From my experiences I've had two types of investor clients.

  1. Those who are backing out of deals and want to remain completely liquid.
  2. Those who have become ultra aggressive, making more offers than normal.

The fact that so many investors on both the buy and sell side are backing away mean there is a lot less competition for the aggressive buyers. As such, I've already transacted 15+ deals that saw buyers take down properties for a lower price then they would have without the COVID-19 hysteria.

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  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
    6y
    Originally posted by @Robin Morales:

    Good Morning BP

    Recently, I halted my first multi property investment in fear of the uncertainty brought on by the virus. Although, it was a tough decision, I feel there will be a better opportunity to come. I’m not sure how the housing market works when it comes to cost of homes supply and demand, but what led to my decision was the unemployment claims that almost tripled what was expected.

    Do you expect lower prices ? How do you time the housing market ? How long do you wait to see if prices come down ? Etc.

     The opportunity is already here. From my experiences I've had two types of investor clients.

    1. Those who are backing out of deals and want to remain completely liquid.
    2. Those who have become ultra aggressive, making more offers than normal.

    The fact that so many investors on both the buy and sell side are backing away mean there is a lot less competition for the aggressive buyers. As such, I've already transacted 15+ deals that saw buyers take down properties for a lower price then they would have without the COVID-19 hysteria.

    11Reply
  • Andy Mirza
    Lender · Ladera Ranch, CA · Member since 2014 · 1k+ posts · 1k+ votes
    6y

    @James Wise Interesting. In the note business, it seems like most note trades have stopped.

    @Robin Morales In my business, most people seemed to have backed out of their trades. I believe that they are waiting for the worst of the crisis to pass and to see markets stabilize before putting their capital at risk, which I think will happen in the next 2-4 months.

    For anyone who needs to sell because of liquidity concerns, they might have to take a good discount until buyers return to the market as well.

    This is a unique phenomenon as the economy was in good shape and the crisis was a man-made shutdown to reduce the lethality of the pandemic. I'm in the camp that thinks we'll see a quick comeback once everyone can see that the worst is passed us and there are solutions to our problems.

    2Reply
  • Robin Morales
    OP
    Member since 2020 · 77 posts · 18 votes
    6y

    @Andy Mirza so you are seeing you would get in now and leverage the fear ? Maybe going after a preforeclosure and going in even lower than asking ?

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y

    @James Wise  other than investors or owners who have some acute need for liquidity why would sellers who 4 weeks ago had a certain value or price in mind suddenly drop their prices.

    I can see though landlords who might have mass non payments be forced into it.. but really how many will not pay rent and with all the help out there .. this could be triaged over the next 30 to 60 days..

    to me the last buying opp in the GFC it took a few years for values to crash. I just have a hard time thinking values are X one day and 3 or 4 weeks later they are Y..

    i mean real estate is not the stock market its not nearly as liquid and moves much slower

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  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
    6y
    Originally posted by @Jay Hinrichs:

    @James Wise  other than investors or owners who have some acute need for liquidity why would sellers who 4 weeks ago had a certain value or price in mind suddenly drop their prices.

    I can see though landlords who might have mass non payments be forced into it.. but really how many will not pay rent and with all the help out there .. this could be triaged over the next 30 to 60 days..

    to me the last buying opp in the GFC it took a few years for values to crash. I just have a hard time thinking values are X one day and 3 or 4 weeks later they are Y..

    i mean real estate is not the stock market its not nearly as liquid and moves much slower

     I stopped trying to understand the motives behind why people do what they do many hundreds of deals ago. All I can do is explain what I've experienced in the market over the last couple weeks on no less than 15 deals.

    1Reply
  • Steven Lowe
    Real Estate Agent · Scottsdale, AZ · Member since 2019 · 448 posts · 320 votes
    6y
    Originally posted by @Robin Morales:

    Good Morning BP

    Recently, I halted my first multi property investment in fear of the uncertainty brought on by the virus. Although, it was a tough decision, I feel there will be a better opportunity to come. I’m not sure how the housing market works when it comes to cost of homes supply and demand, but what led to my decision was the unemployment claims that almost tripled what was expected.

    Do you expect lower prices ? How do you time the housing market ? How long do you wait to see if prices come down ? Etc.

     I think there will be some great opportunities going forth.  Anytime there is significant change in the financial market it spells opportunity in some areas, good or bad.  I am forecasting a lot of blood in the streets in the next year or two.  That spells opportunity for some of us.  

    I think capital for deals is going to dry up for the average investor.  Unless you put down a big chunk of money or pay a high interest rate it's going to be hard to get a loan.  From what others have told me this is already starting to happen.  Lenders still have liquidity however.  Investors that have good relationships with lenders and strong financials are going to feast because they still can get their deals financed.  So anyone who really needs to sell is going to get lowballed because the number of buyers who can get financed is going to shrink dramatically. 

    The fallout from this crisis could be astronomical in terms of collateral damage to both the housing market and the commercial real estate market.  Retail, hospitality, small multifamily, shopping centers, all of these sectors will be adversely affected to varying degrees.   

    1Reply
  • Brian Ploszay
    Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
    6y

    Agree with @Jay Hinrichs     I'll say this in my own way:  Deep discounts during the GFC occured because lots of properties went bank to the banks, combined with bank lending freezing up.  We are not there now.

    Most landlords and property owners won't take deep discounts this quickly.  They will sit and wait.  Plus, most properties have some leverage on them, so that is a threshold that is difficult to cross without the bank getting involved.  It takes two years to unwind.

    For sure, the bull market for multi-family is over.  I predict we will see less transactions.  

    2Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y

    Unemployment claims were right in line with what was expected. 3 million were expected, and 3.3 million filed.



    "Do you expect lower prices ?"

    Generally no.  Some markets will be stable, some will be hurt, others will rise in value. You really need to look at the microecomic outlook of your market. 

    "How do you time the housing market ?" 

    You Cant

    "How long do you wait to see if prices come down ?"

    Prices are determined by supply & demand. In 11 of the previous 13 recessions since the great depression, prices rose.  In 1 of the 2 where they fell, they only fell $1800.  The virus should put downward pressure on demand....however the virus is also putting downward pressure on supply. 17% of listed properties in my market have been moved to temp off market. Prior to that we had 6 weeks of inventory, now with those temp offs, and people delaying listings, we have less than 3 weeks of inventory. That is not a recipe for falling prices. (6 months of inventory is whats considered normal market balanced between buyers and sellers)

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  • Paulie Singleton
    Member since 2018 · 30 posts · 19 votes
    6y

    The market will suffer. But you know what they say, try to call the bottom and you will get burned. There is a lot less competition so now wouldn't be a bad time to enter the market.

    0Reply
  • Ken D.
    San Jose, CA · Member since 2017 · 69 posts · 25 votes
    6y

    @Russell Brazil Besides 2008, what was the other recession where home prices dropped. Were reasons similar to 2008?

    1Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y

    @Ken D.

    It was the 1991 recession. Home prices dropped something like $1800. Not really statistically significant to be honest.

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  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    6y

    @Robin Morales the housing market will drop when the mortgage market freezes.

    If they defer all residential mortgage payments too long, that will cause liquidity to drop significantly on the lending side. Unless the FED bails them out, then real estate prices will drop.

    This will take a while to happen and is entirely dependent on how long the recession is.

    0Reply
  • Steve K.
    Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
    6y

    @Robin Morales our market here is still a strong sellers market for the time being. People are still planning to move here and inventory is super low. It may soften a bit once we move out of the complete lockdown phase, as many sellers are waiting for that to list their properties, so there may be a glut around mid summer, and with the increased inventory may come slightly lower prices, although this market has literally never gone down significantly including during the GFC. We may also see less competitive offer situations on pure investment properties like small multifamily, but as of now that market segment is staying strong as well. CRE is already falling apart and seems to be set up to take the biggest hit. Maybe this is a good time to jump into commercial.

    0Reply
  • Patrick McGrath
    Rental Property Investor · Westminster, MD · Member since 2014 · 165 posts · 221 votes
    6y

    @James Wise

    I saved $21k on a deal because of the Covid-19

    Uncertainty. Had a contracted price of $130k and asked for a price reduction and got it.

    Opportunity is striking while the iron it hot!

    2Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
    6y
    Originally posted by @Patrick McGrath:

    @James Wise

    I saved $21k on a deal because of the Covid-19

    Uncertainty. Had a contracted price of $130k and asked for a price reduction and got it.

    Opportunity is striking while the iron it hot!

     Absolutely. Right or wrong some folks are really in a state of chaos right now. Chaos creates opportunity. Only time will tell if the seller was right to dump that property to you or you've made a hell of a move there.

    4Reply
  • Patrick McGrath
    Rental Property Investor · Westminster, MD · Member since 2014 · 165 posts · 221 votes
    6y
    Originally posted by @James Wise:
    Originally posted by @Patrick McGrath:

    @James Wise

    I saved $21k on a deal because of the Covid-19

    Uncertainty. Had a contracted price of $130k and asked for a price reduction and got it.

    Opportunity is striking while the iron it hot!

     Absolutely. Right or wrong some folks are really in a state of chaos right now. Chaos creates opportunity. Only time will tell if the seller was right to dump that property to you or you've made a hell of a move there.

     Was a fannie property, so they were trying to unload anyways and get it off the books. 

    I believe it will be my best buy so far as a REI, but you are correct time will tell.

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y
    Originally posted by @Russell Brazil:

    @Ken D.

    It was the 1991 recession. Home prices dropped something like $1800. Not really statistically significant to be honest. 

    unless your properties were in the SF bay area price drops were 20 to 50% .. it was exacerbated by the loma Preita earthquake. It was a rough time for us bay area real estate folks.  

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y
    Originally posted by @Jay Hinrichs:
    Originally posted by @Russell Brazil:

    @Ken D.

    It was the 1991 recession. Home prices dropped something like $1800. Not really statistically significant to be honest. 

    unless your properties were in the SF bay area price drops were 20 to 50% .. it was exacerbated by the loma Preita earthquake. It was a rough time for us bay area real estate folks.  

    I bet that was what brought the national average down. Inwouldnt be shocked to see prices rising significantly everywhere else. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y
    Originally posted by @Russell Brazil:
    Originally posted by @Jay Hinrichs:
    Originally posted by @Russell Brazil:

    @Ken D.

    It was the 1991 recession. Home prices dropped something like $1800. Not really statistically significant to be honest. 

    unless your properties were in the SF bay area price drops were 20 to 50% .. it was exacerbated by the loma Preita earthquake. It was a rough time for us bay area real estate folks.  

    I bet that was what brought the national average down. Inwouldnt be shocked to see prices rising significantly everywhere else. 

    it was really CA specific.  and northern CA the worse.. remember the bay bridge fell down.. people could not commute.. it was a mess. 

    by 93  Home savings and loan was the largest owner of real estate in the state.. that's how I moved to the Napa Valley was able to assume a home savings loan that was in default.  

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  • Account Closed
    Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
    6y

    @Jay Hinrichs Exactly. I have a property inder contract and in the final stages of closing. Im not rushing to re value. There has to be aarfe increase in supply or fall in demand to make home prices drop. Most sellers will just sit tight as long as they have cash and reserves or evdn if not because banks wont foreclose anytime soon.

    0Reply
  • Bobby Larsen
    Investor · Newport Beach, CA · Member since 2019 · 190 posts · 176 votes
    6y

    @Robin Morales

    I agree with what most people are saying. Now is probably the biggest discounts out there and it’ll only be from people that need to unload their property due to short term liquidity concerns. Otherwise, owners are putting their disposition plans on hold which has made supply/demand relatively constant. Uncertainty is what leads to opportunities and uncertainty will be at its highest between now and the next 30 days.

    Lending is the other risk out there which could lead to prices dropping but the Fed has been extremely aggressive to make sure that’s not a risk. Rates shot up over the past two weeks despite treasuries plummeting because investors weren’t buying those mortgage securities. The Fed is essentially buying 90% of those securities now to make sure rates still follow the path of treasuries/libor which is down or flat.

    Unless this truly becomes a 4 to 8 month shut down, uncertainty has peak and the biggest discounts are right now. I’m also in the camp that this will be a 2-4 month economic crisis and weight that more to the lower end of that range. Unfortunately I do think elevated deaths of the pandemic will last 12 months but we’ll get a better handle on it and the economic impact will be significantly short. This is just my opinion and it’s based mostly on areas that had relatively stable cap rates and modest rent growth projections to begin with. It will be area by area and locations like Phoenix that were trading multi-family at sub-4% cap rates based on projected 8% rent growth will be impacted more. Las Vegas will be impacted significantly and the impact will likely last much longer.

    1Reply
  • Samuel Pentowski
    Member since 2019 · 33 posts · 41 votes
    6y

    We have 2 real examples to look at with how the COVID-19 crises may end.  China is the first example and they are cautiously re-opening their economy.  However they also clamped down hard on the lockdown and turned it into a military-enforced lockdown and moved quickly to isolate Wuhan.  Their infection rate has dropped low enough to partially re-open their economy due to their extremely harsh reaction.  Italy also is a highly infected area and their reaction was rather lax and unorganized.  Thus their infection rates and death rates are rapidly increasing and show signs of continuing for months.  We are somewhere between I think, and our reaction has been very lax just like Italy so I expect a similar reaction here.  This virus has been here since January and yet going into April we are still trying to figure out how to isolate it, and thus we will suffer for our delay.  I figure this will shut down the economy for 3-5 months and only after ~2 months can a partial re-opening occur carefully.  I'm not sure how that will affect the real estate market as I don't have enough experience to piece that together myself.

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  • Michael King
    Rental Property Investor · Navarre, FL · Member since 2019 · 913 posts · 640 votes
    6y
    Originally posted by @Samuel Pentowski:

    We have 2 real examples to look at with how the COVID-19 crises may end.  China is the first example and they are cautiously re-opening their economy.  However they also clamped down hard on the lockdown and turned it into a military-enforced lockdown and moved quickly to isolate Wuhan.  Their infection rate has dropped low enough to partially re-open their economy due to their extremely harsh reaction.  Italy also is a highly infected area and their reaction was rather lax and unorganized.  Thus their infection rates and death rates are rapidly increasing and show signs of continuing for months.  We are somewhere between I think, and our reaction has been very lax just like Italy so I expect a similar reaction here.  This virus has been here since January and yet going into April we are still trying to figure out how to isolate it, and thus we will suffer for our delay.  I figure this will shut down the economy for 3-5 months and only after ~2 months can a partial re-opening occur carefully.  I'm not sure how that will affect the real estate market as I don't have enough experience to piece that together myself.

     Yes and the fact that so many people are defying the stay at home and indeed isolation, and in some cases, quarantine order. A big difference with China is that they did impose lockdowns. Here it seems like it's more of a laugh in the face because people believe in their right to freedoms that are ultimately assisting the spread.

    Spring break, anyone? Everyone needs to be on board to contain this stuff. 

    Anyway, back to REI. My neighbor just dropped the price of his house by 7.5% down from $2M to $1.85M. It's been sitting on the market since before the China flu, I feel as though it's going to be there for a while.

    Me I'm going to hold position for now, and if any tenants stop paying then I'll have to take it up with the respective bank that has a mortgage on it. I'm lucky I can still do overtime with my W2.  

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  • Erin Elam
    Little Elm, TX · Member since 2014 · 356 posts · 47 votes
    6y
    Originally posted by @Steve K.:

    @Robin Morales our market here is still a strong sellers market for the time being. People are still planning to move here and inventory is super low. It may soften a bit once we move out of the complete lockdown phase, as many sellers are waiting for that to list their properties, so there may be a glut around mid summer, and with the increased inventory may come slightly lower prices, although this market has literally never gone down significantly including during the GFC. We may also see less competitive offer situations on pure investment properties like small multifamily, but as of now that market segment is staying strong as well. CRE is already falling apart and seems to be set up to take the biggest hit. Maybe this is a good time to jump into commercial.

     This is where I see a potential problem that will affect lending - commercial lending. Sure small businesses are getting 'loans' to pay rent and utilities and residential mortgages won't be foreclosed on within 60 days right. But what happens when these business can't pay back their loans to the banks. Did the treasury sit down with each business to say ok you make XYZ per month, that is what you will get every month until things stabilize? No. People are on lockdown, brick and mortar businesses are getting $0 revenue for that rev stream. Basically online shopping is the only stream available to most because they simply don't have the same volume of business. So I think when companies can't pay their bills due to the simple fact of not getting the revenue, banking will restrict in a large way.

    0Reply
  • Robin Morales
    OP
    Member since 2020 · 77 posts · 18 votes
    6y
    Originally posted by @Andy Mirza:

    @James Wise Interesting. In the note business, it seems like most note trades have stopped.

    @Robin Morales In my business, most people seemed to have backed out of their trades. I believe that they are waiting for the worst of the crisis to pass and to see markets stabilize before putting their capital at risk, which I think will happen in the next 2-4 months.

    For anyone who needs to sell because of liquidity concerns, they might have to take a good discount until buyers return to the market as well.

    This is a unique phenomenon as the economy was in good shape and the crisis was a man-made shutdown to reduce the lethality of the pandemic. I'm in the camp that thinks we'll see a quick comeback once everyone can see that the worst is passed us and there are solutions to our problems.

     Hey Andy!

    I thought it'd be interesting to revisit this post as its been a couple of months. How has it been?

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