Best way to invest money in real estate in upcoming months?

Question

Hi my name is chris in Clearwater, FL.  I was curious on people’s opinions on ways to invest in real estate in the upcoming months considering how the market is gearing towards with the COVID and everything.  I imagine there will be more and more foreclosures coming but also the prices of housing will go down as well too because I am guessing there will be a surplus of houses for sale coming soon.  Any advice on the best way to invest money in the real estate market in the near future? Thank you for stopping by and any and all advice this receives.

Dan Maciejewski · Answer

Hello, Chris!If I can, I'll give you a quick snapshot of where we are, locally, and what I see going forward.Here in the Tampa Bay area we have far more buyers than sellers at almost all price points short of true luxury (way above $1 million).

Buyer activity is back to where it was this time last year, while houses listed is nowhere near matching the demand.

We are not in such a seller's market that most buyers are waiving inspections (yet), but we are heading in that direction.  This month I had 2 houses in the range of $500,00 where the buyers waived inspections and appraisals to beat the other multiple offers.  And it's been fairly common for investors to have cash offers with short closings and waived inspections, too.  And we are still seeing appreciating prices.

As far as a wave of foreclosures, we are not going to see anything like 2009.  Around 85% of homeowners have more than 15% in equity.  And less than 10% of mortgages are in forbearance.  It's been holding around 8.5%.  So the odds of the mortgages in forbearance also being low equity are diminishingly small.  But even if we take 8.5% of mortgage holders (not homeowners) in forbearance, and assume that they all default and have to sell, they can still sell at (or near enough to) market value -- I don't predict many short sales.  And even if they go all the way to foreclosure, the banks aren't selling below FMV because they don't have to.  I just sold a HUD house that miraculously appraised high, but the sale price was very close to what I comped it at -- FMV.

And the buyer demand is just so high, that adding that small an amount of inventory just isn't going to slow appreciation, let alone lower prices.

Just my insight!I send out recurring regular market updates to my investor and residential clients -- I keep an eye on the market daily and like to share value.

Edit:

Last week in Pasco, Pinellas and Hillsborough counties more houses were put under contract than listed.  This has been the trend fore months and the gap is growing.

1158 Listed

1864 Under Contract

1035 Closed

Bryan Noth · Answer

Hi @Christopher Stechmiller, welcome to BiggerPockets!  The hard truth is no one has a crystal ball.  There could be some great opportunities in niche markets that were aversely affected by COVID-19.

If you consider 2008, a fundamental issue was poor lending oversight.  Loans were given on cringeworthy criteria and being sold on the secondary market as secure without any viable substantiation.  Look up the NINJA loans.

Fast forward to 2020, lending laws are heavily regulated with significantly stricter criteria.  However, the Black Swan event we call COVID-19 has hit certain markets quite hard.  If employment never recovers there, is it worth picking up rentals?  I would heavily factor those variables (ie vacancy) into my property and market valuation.

Many investors are looking at markets more likely to pivot well with changing times and able to weather uncertainties with diverse employment.

Great conversation starter!

Greg Koszkul · Answer

Hi Bryan! Do you think lenders have become more cautious of giving money out to only those that have a substantial W2 or multiple assets to protect themselves? It seems that more and more people this year who may not be cash-rich have turned to alternative investing strategies including putting as little money down on properties as possible to get into the RE market.

Edgar Rodriguez · Answer

My recommendation to most people is to invest in vehicles that more people can afford. The segments of real estate that I believe will be affected (if at all) will be luxury apartments/condos/flips/etc. People, even in a crash, have to live somewhere. So if you purchase a duplex and charge $1000 a side, I do not think you will have issues filling that vacancy or with collecting rent. However, that young millennial that works at a bar and lives paycheck to paycheck may have issues paying his $1700 a month "luxury" apartment rent in South Tampa. I could be 100% wrong in my thinking but that is the thought I have had.

Continue to buy and invest in properties that make sense for you and, in the long haul, you will be fine.

Darius Ogloza · Answer

I do not live in the Tampa Bay Area but visit regularly.  I generally think St. Pete has a great future.  Real estate is a long term play and this Covid thing is a blip.  Think past the immediate future and look to long term growth is my advice.

Christopher Stechmiller · Answer

@Dan Maciejewski thank you for the info Dan....so the immediate future doesn’t look so bad after all.  I partner with my sister we just finished our second flip so we’re are babies technically in he real estate industry but we did pretty well on those two....well our second one is on the market now with quite a few offers.  I will be investing my own money on the next one so I appreciate the outlook you gave me in the area here.  Thank you for your time!

Bryan Noth · Answer

@Greg Koszkul I do think so yes.  Loan products can vary quite a bit between lenders but broadly speaking the proverbial belt was tightened another notch.  Reduced rehab loans, higher credit score requirements, removal of down payment assistance programs, etc.  The stable W2 wage earner brings significant credibility to the lending approval algorithm for sure.

Roland Charles · Answer

@Christopher Stechmiller, I agree with a lot of the points listed here. I will connect with you offline to discuss any specific questions you have.

Christopher Stechmiller · Answer

@Samuel Caudle thank you Sam for the info.  As I told Dan....me and my partner (my sister) are debating on what to do...invest in more flips or go the rental route.  I am brand new to all this so thank you for your time and advice!

Samuel Caudle · Answer

As an agent in the Tampa area(more Pinellas/Pasco for me), I second what @Dan Maciejewski is saying here. I'm even hearing this from my brokerage when it comes to Florida (and this a big nationwide brokerage). Making it as a RE investor is still about getting the right deals. We are not in a time when everyone can find a deal to make 50% returns. Getting the "buy" right is always the first step.

Another thing to keep in mind about the Greater Tampa area is the rental shortage. We still have more demand for rentals than supply. St.Pete had some of the highest rental price growth in the past 5 years--BPInsights had them ranked at #1 with over 60% growth over the past 5 years.

I live in Tarpon Springs if you ever want to chat about the area.

Best way to invest money in real estate in upcoming months?

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