Are you Still doing deals?

Question

With all of the issue involving Covid-19, are there still being deals done, especially with the prospects that a property might be purchased and you wont be able to get renters in there or worse, you purchase a property with renters and they are not able to pay because they are not working?

Charles Carillo · Answer

@Wave Taylor

We have switched gears to 100% asset management until at least July 1. I am not sure how others can truly and accurately underwrite COVID. It is not like 2008 or 2009 when it was known that tenants from certain industries (mostly housing related) would have difficulties keeping/getting jobs. If your tenant base was predominantly comprised of these employees there would be an issue.

If you are purchasing deals at this point; how are you calculating reserves and vacancies? Are you stress testing; at what economic occupancy? Some businesses are keeping workers on still hoping for a quick turn around. Just because a tenant is working/getting paid April 1 does not mean that they will still be working/getting paid in 2 months if their employer has negatively been affected by COVID.

Erik W. · Answer

No, why would I do deals?  Everyone should hunker down in a cave and not compete with me....  ;-PMy tongue in cheek for the day!

Real estate is still real estate.  The only thing that has really changed in my area is I see about 50% of people wearing masks when I go the grocery store.  Other than that....nothing.

Our town/county went into "full" lock down about 9 days ago, but 75% of businesses were deemed "essential" including real estate services (title company, banks, inspectors, etc) so they are still open.  Also, with stimulus checks coming out and generous federal boost to unemployment, the reality is MOST tenants should still be able to pay rent.

The only reason not to do deals now is if you're cash strapped or highly leveraged and one month's missed rent would be your doom.  Those of us who have been preparing for a while are ready to find some bargains!

Trevor Ewen · Answer

@Wave Taylor

About to close on a home this week. We have the tenant in place and the lease signed. Granted, this deal has been in process since January. I don't think I would go out and get something started, today.

Now is a good time to re-tool, and to think up some scenarios that could come out of this. What would you do if properties in your target market dropped 5%, 20%, 30%, 50%? What would you do if your vacancy rate went up 5%, 20%, 30%, 50%? Same question with non-collections.

Anyone who tells you they know what's about to happen is a little too confident. But there are a number of different outcomes where you could stage your response.

Alex Ramirez · Answer

Yes sir! Many switch to defensive gear in times like this but we take it as a time of opportunity. We are considering 20% vacancy and higher cap rates.  Also, with times like this, you can leverage the situation to seek better terms with the seller.... perfect time to buy!

Ryan Daigle · Answer

@Wave Taylor while I'm not quite as bullish as @Erik Whiting, I am still open for business and underwriting everything I can get my hands on. It's hard in this climate, though, when we just don't yet know what we're dealing with regarding the impact of COVID on multifamily and rental assumptions (to echo @Charles Carillo).

I laid out some of my COVID recession underwriting assumptions here.

I think we're in the phase where most people have moved to the sidelines, especially sellers. And we don't have enough sellers in trouble yet to force them into the market. So it's a bit of a quiet period. I think if there are distressed sellers, we'll start seeing them 1-6 months from now.

Nicole Heasley Beitenman · Answer

I got a property under contract before the SAH orders began. We're moving forward as planned.

Michael King · Answer

@Wave Taylor I am cautiously looking but not in any rush. I really don't see myself doing anything til after the lockdowns, as I don't want to go out - which includes property inspections. I see the occasional price reduction on zillow, I guess owners that have had their property on the market since the start of this are trying to entice buyers to come look. They'd have to get pretty aggressive with their price reductions to get this buyer to come look.

Like the song goes, you've got to know when to hold 'em, and this for me is that time. At least for another 2-3 months, then reassess.

Greg Dickerson · Answer

I am opportunistic so yes but with very different assumptions. It's still a bit early for my model but I am looking at deals every day. Most people in my network are still full force but much more conservative on assumptions in multifamily. Real estate is hyper local so for multifamily its asset and market specific. Residential is all about the local market and demand. Some areas are red hot others not so much. This is the time to drill down on market data and be ready when the time and deal is right.

Are you Still doing deals?

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