Opportunity amid COVID Chaos
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.
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.
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.
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.
Steven! Crazy to see how things have turned out! i thought it was so interesting how accurate you were haha! What are your thoughts two months later? How is real estate in AZ right now for multi family? have you looked in vegas?
@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.
Steve how are things going around there?
@Robin Morales I think we're still seeing most players in my market standing on the sidelines. Those that have to sell are left with the few buyers that are left who expect significant discounts.
For non performing notes, I think we'll see the main deals in the next few months to a year come from mortgage note funds that buy performing notes or MBS and use leverage to amplify returns. As performing turns into non performing, they'll get squeezed and be forced to sell as they unwind leverage.
Foreclosures are starting to happen again or will in the next 1-3 months, tops. We started a FC in TN in early April and had the Trustee sale this week. Eviction moratoriums are still in place but you can avoid those if you can do cash for keys, which we always try first.
The longer the lockdowns stay in place, the worse the economic damage will be and the more pressure it will put on people to make their mortgage payments.
I still don't think we'll see a tidal wave of foreclosures. Maybe a long steady surge over the next year or two, maybe longer. Some main differences from 2008 and now is that the banks and government have a better playbook towork from to keep people in their homes, most of the loans involved borrowers that could actually afford their loans, and the big buyers of distressed debt from the last cycle are getting ready to handle whatever scenario we end up with.
Just my opinion :)
Steven! Crazy to see how things have turned out! i thought it was so interesting how accurate you were haha! What are your thoughts two months later? How is real estate in AZ right now for multi family? have you looked in vegas?
Thanks! At the time I wrote that I was just commenting on what I was already seeing and making an educated guess. Glad to see that someone was paying attention! There are some similarities with this downturn and the last one and that's what my comments were geared towards.
As for MF in AZ, I have been a lot more focused on self storage, but, from what I have seen, deals are still trading. Some people I regularly speak with have told me that they are only at 90% on rent collections for May so that might cause them to alter their short term plans.
I haven't looked in Vegas but I'm very interested in that market, particularly Henderson. What have you seen out there?
@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.
Steve how are things going around there?
The market is proving to be resilient here in terms of valuation. Inventory still super low (opposite of 2008-2010 when too much inventory was the problem). Very little downward pressure on pricing in fact I think a lot of people are scared of holding cash due to pending inflation (from the government printing an unprecedented amount of money), and are trading out of cash into hard assets like property as a hedge against inflation, so we may even see prices increase. By some metrics, pricing here actually went up 1-2% over the last month, but it’s hard to read the tea leaves and really compare stats accurately to pre-COVID times this soon IMO considering all the new variables like showings only recently being allowed again and the fact that we have about half the inventory/sales activity as normal). Although perhaps not as prevalent as before, multiple-offer, above-asking situations are still common around here (on anything priced reasonably). Institutional money is still coming into the $5M and up price band, plenty of individual investors eager to buy MF buildings in the $1-5M price range. Strong demand on the buy side, very little inventory. However any overpriced properties are sitting longer, and we’re seeing more price changes and listings being withdrawn than normal. Showings were restricted here for a month, and then opened up last week, then closed again and opened again so it’s been very hot and cold as far as new listings coming on the market, not the sudden glut I was expecting. I still expect more and more listings as we come into summer of course. It will be interesting to see how pent up demand and a lot of new supply balance out. As of now, still a seller’s market, with some signs of that possibly changing. I have been making a lot of offers on both on and off market deals. Not finding too many sellers willing to sell at a discount. It’s been a challenging time to get sellers and buyers to come to agreement not only on pricing but also things like inspection objection items, so we’re definitely seeing more deals in the multifamily space falling out of contract. Single family homes are a different story as anyone in that space on either side of the transaction seems to be highly motivated to get the deal done. On the investment side; how I’m seeing it is buyers would like to dictate the pricing and terms due to market uncertainty, but sellers are not desperate to sell and would rather just hold on to their properties and wait this thing out than discount their price. Since I can’t keep up with the macro-economics, and everyone’s Chrystal ball seems to be equally cloudy, I’m just focusing on analyzing deals based on their individual merits, and making offers on anything that fits my buying criteria.