Where to look for the best deals to earn money
I understand that this is a sensitive time and a sensitive issue. There are people all over the world who are suffering, and I am about to write an article on how we can benefit as investors. I want to start by saying that I really feel compassion for all the people severely affected by this pandemic, and in no way do I want to rule that out. Having been through two previous market crashes, I know the kind of pressure this can cause. While I wish this didn’t happen, I don’t want to close my eyes to the fact that it could create opportunities for those who are ready. I’ve been thinking about writing this article for weeks, but haven’t really been able to put something together. The reason for my struggle is that I am primarily a residential real estate investor and honestly, I don’t see an influx of opportunities in that type of product. That said, I think we will see some opportunities in other types of products, and possibly residential in the future. This is what I think could happen as we go through this crisis.
OFFICE:
The office is likely to be the worst hit asset class in real estate. With the recent closures, the majority of businesses that occupy office space have sent their staff home in quarantine. I don’t have the statistics, but there is a high percentage of people who can work from home who work from home. Offices are practically empty in most cities. So why would a business continue to pay rent when they are not using the office? Well … many are not. Businesses across the country have defaulted on office rent and most office building loans are owned by commercial banks with little flexibility in deferral of payments. There are moratoriums on foreclosures spread across the country that could be playing a role, but we haven’t seen a wave of foreclosures yet. That could easily change. As we work with stimulus from the government, which is helping office owners and employers decide to reduce or eliminate office space, more and more office owners will face financial difficulties. Combine this with the reduction in property value, and it becomes a challenge for homeowners to keep up with or refinance their debts. Personally, I will stay away from the office, but I think there will be incredible value in the near future.
APARTMENTS:
Because this will be the most similar to residential, it is an asset class that I understand much better. Behind the office, I think we will see this area more affected. I know I will be rejected, and many investors believe that neighborhood retail is in trouble, but before you stop reading, let me explain. First, I am limiting this argument to class C apartments. Class C would be the lowest income buildings. The reason I think this will be hit the hardest is because of the unemployment figures. If you dig into the numbers, there is a sad discrepancy. The American who does not work is the most affected in the hospitality industry and the worker with minimum wage. To this day, most of them earn more money from unemployment than working, so we haven’t seen a big drop in rents paid. That will change at the end of July, when the federal part of unemployment stops, unless the new stimulus plan is approved and this deadline is extended. The federal piece is $ 600 per week for all unemployed, regardless of how much they earned before losing their job. When it expires, unemployment payments will drop to about 50% of previous earnings, which is not enough to maintain this demographic. Over time, businesses will come back and people will regain the confidence to leave their homes and spend money, but while we wait for that, unemployment will continue to be a problem and rent in these kinds of apartments will be a problem. Two other areas that will be affected include small retail stores that have small restaurants as tenants and self-service storage. I think small retail could see quite a big impact as their tenants struggle to get back in business (many won’t survive), but storage will perform better. It’s common in tough times to see families consolidate, so I think it’s possible to see lower vacancy rates and higher rents with storage.
On the residential side, I don’t think we will see much change. I think things continue as usual, at least in the short term. I have written about my opinion on the impact of COVID-19 on housing and have posted videos on our channel, so I will not go into too much detail here. If you haven’t subscribed to our channel yet, please do so. We hope to increase subscribers and you can help. Although I don’t expect much of an impact, there is a possibility that we will see an increase in foreclosures in 18 to 24 months. Most non-giant loans are owned or guaranteed by the government. All loans in this category qualify for automatic forbearance, which I mentioned last month. Those agreements expire 12 months after inception, and then it will take some time to determine which borrowers can get back on track and which cannot. I am assuming that loan servicers will be much quicker with their foreclosures than they were in 2008, so I would expect problem loans to move quickly through the process. Although this is a real possibility, I don’t think it is likely. Servicers have great freedom to work with their borrowers after the tolerance expires, which should prevent many foreclosures. I also believe that our economy will recover for the most part in this time and unemployment will return to a manageable level. If I am correct, things will continue as usual for residential investors. Although I am optimistic, my eyes are open to what is possible.
OWNER FINANCING:
Heard a lot about upcoming opportunities with transactions subject to investments or other transportation operations from the owner. Although I believe that these opportunities are coming, I believe that there is much more ahead. I will talk about this in more detail next month.