It’s no secret, the coronavirus disrupted real estate almost overnight. As homeownership changes, so does the rental market. Finding a place to rent for tenants is now dramatically different. Apartment tours take place virtually, and where people need to live no longer matters as much.
Even with these changes, there’s still money to be made in both the short and long term as an investor. One survey of current property managers, landlords, and investors even found that the majority are optimistic about the rental property sector, especially going into 2021.
Why you should continue investing even during a pandemic
While coronavirus has brought about a lot of uncertainty, there continues to be potential for real estate investors. Even in the recession resulting from the pandemic, rental vacancy is going down. The US Census puts rental vacancy at 6.4% as of October 2020, which is lower than it was at the same time in 2019. Additionally, asking rents have continued to rise.
Even with some negative impact on real estate investing, more than 65% of investors in this sector have found new opportunities during the pandemic. It’s more than just trends in renting that make rental property investments a good idea, even amidst COVID-19.
Home values dropping
As is natural during a recession, home values are going down. This means investors can potentially find better deals in competitive markets throughout the country.
Similarly to the Great Recession of 2008 during which, according to a CNN report, 7.5 million homeowners owed more on their mortgage than their homes were worth, this time around is projected an equal amount of homeowners with negative equity who will be forced to sell their property through a short sale transaction.
During the 2008 crisis, about $3.3 trillion in home equity was erased, with more than $6 trillion in value lost since the market peaked in 2005.
While such an unfortunate situation is devastating for the housing market in general and for the homeowners in particular, it opens up a huge opportunity for savvy real estate investors who are prepared to take advantage of the returning opportunity of the massive influx of short sales on the market which we last saw during the 2008 Great Recession.
That said, buying short sale properties requires a certain skill and know-how since these types of transactions are considered pre-foreclosure. They also can take significantly longer to close (about 6 to 12 months) if processed by an investor who doesn’t know how to handle short sale transactions, according to this short sale buying guide. If you are investing in pre-construction units and looking to acquire them at a lower price, you can also check this guide to buying condos on assignment.
But on the other hand, once you learned how to handle short sales, you can buy them 0.60-0.70 cents on the dollar.
Acting quickly, even during the pandemic, allows investors to take advantage of the market now. Delaying investment can lead to paying higher prices. This is because the real estate market is expected to bounce back faster than other industries as the threat of coronavirus wanes. Within a few months after the end of the pandemic, home values will probably be back to their pre-COVID-19 state.
Distressed properties increasing
Another key opportunity for investors right now is to access distressed properties. While the properties need work, motivated sellers can help bring the price down far enough below market value to optimize the investment. Even with the cost of repairs, the cash flow from higher rents, once the building is ready, can make the purchase worthwhile. You can also try running the numbers on a prospective property before buying, using a free rental income calculator.
Aside from the hardships facing today’s economy, real estate remains a great way to protect assets. Especially in today’s climate of low-interest rates and the increasing demand for rentals, investing today makes sense for long-term appreciation and cash flow.
Where to find lucrative investment opportunities?
There are opportunities across the country for rental property investors. Amid the pandemic though, where those areas have shifted. Cities and towns experiencing the highest drops in home value, while still historically having a strong real estate market are ideal investment spots. Here, you can spend less and have lower recurring expenses, which automatically raises the rate of return on a rental property.
Cities on the rise, with affordable housing and diverse economies, are most likely to recover post-pandemic. A few contenders across the US include:
- Tampa, Orlando, and Jacksonville in Florida
- Dallas and Houston in Texas
- Cleveland, Cincinnati, and Columbus in Ohio
- Kansas City and St. Louis in Missouri
- Huntsville and Birmingham in Alabama
- Anaheim, California
- Detroit, Michigan
- Indianapolis, Indiana
- Atlanta, Georgia
Factors that contribute to a strong market include job and population growth as well as affordability. Areas that showed growth prior to the pandemic are still good opportunities even if things have temporarily stalled.
Look for cities that people are continuing to move to, those that typically employ large numbers of people, and places where job opportunity focuses on industries that will stay relevant in the future, like technology and healthcare.
According to this extensive report of Houston TX city produced by Kristina Morales, a local realtor, there has been a 27.3% home appreciation rate and 9% population growth since 2010. Investing in property in Houston among others will produce some of the highest appreciation rates for your rentals over time.
How to view current listings on your own?
It’s possible to track down rental investment properties, on your own using real estate marketplaces like Zillow, Realtor, and Redfin. that list all types of homes for sale. However, it isn’t always the most efficient way to shop for rental properties.
Instead, opt for marketplaces that specialize in investment properties. Various investment property marketplaces are available online that not only help investors find lucrative opportunities but offer additional benefits such as:
- Finding a property manager for you.
- Helping you acquire a lender if necessary.
- Providing you with additional listing information like estimated cash flow.
- Shortening the closing schedule to just a couple of weeks.
All costs associated with these benefits are often included in the purchase price, making it easier to calculate if a property really is a sound investment.
In the end, you’ve found a property where you didn’t also have to deal with the tedious process of micromanaging all the moving parts of investing in a rental property.
Is now the right time to invest?
Even with a pandemic disrupting the real estate industry as a whole, it’s still a good time for rental property investing. By focusing on the right markets and watching for good deals, it can even become a more lucrative time to increase your portfolio of buildings.