Business analysts hold varying opinions about many things but until recently, all agreed on one thing – that real estate is one of the safest investments that there is. Today, in the midst of a world pandemic, many things that were once certain are in question. Among them is the issue of how investors should proceed. Is real estate still a safe investment or is it an Intertops Casino Red gamble?
Real Estate Investments
Investment counselors have traditionally advised clients to invest in real estate. They point out that real estate investors have options for tax breaks, that the value of real estate tends to increase over time, that real estate investment provides for passive income, that there are internet tools that streamline the tenant-selection process and that on average, there’s more supply than demand in the real estate market.
But in the span of just a few months, everything seems to have changed. The market has slowed down almost everywhere, consumer confidence is low, sellers aren’t listing their homes, home tours, appraisals and inspections are affected by people’s reluctance to move around and investors are rethinking whether now is the time to invest in the market.
All that doesn’t answer the question – is 2020 the right time to invest in real estate?
Analysts disagree but many believe that getting involved in real estate investment strategy now could be a profitable venture in the long run. There are a number of factors that must be worked out first. Investors should have a good level of liquidity, the ability to problem-solve quickly and creatively, an understanding of the market into which they want to enter and, most of all, a solid plan of action.
Flippers and Landlords
Real estate investment is generally divided into two categories – landlords and flippers. Landlords buy properties with the intention to hold that property for a period of time in order to rent out the property and collect the rental income. Flippers buy properties, make renovations and repairs and then sell the properties at a higher profit.
During the Coronavirus economy, both types of business plan models face challenges.
People who want to buy properties so that they can rent them out are dependent on a general level of stability in the housing market. If the rental property can be used as a supplementary source of income, and if the landlord has the resources to buy in cash and rent it immediately, such an investment could be a positive move.
As for people who want to buy, fix up and then resell at a profit, the outlook is dependent on the local market. Supplies may increase due to uncertainties in the market but once the property has been renovated, it could conceivably remain unsold for a period due to buyers holding off on purchases of new homes.
On the other hand, someone looking into buying a flipped property may regard that purchase as a good deal that he was able to get while the market was down. If an investor is intending to flip a home, s/he should be careful to have a clear timeline and be sure that s/he can get the house renovated, listed and sold quickly even while taking into account supply and labor shortages due to the pandemic.
Prior to March 2020, the rental industry was strong. Now, many renters have lost their income and can’t pay their rent. In many areas it’s become illegal to evict a tenant who can’t pay rent due to coronavirus. It’s likely that such laws will be adopted in other locations as well.
If you are dependent on taking a mortgage loan in order to purchase the property that you plan to rent out, you should take that into account. It’s true that, as a homeowner, you can apply for mortgage relief but you’ll need to weigh that uncertainty into the equation.
Another point to take into account involves liquidity. Do you have disposable income available – enough to hold you through a financial storm? If you’re going to put your investments into real estate and you don’t have savings to hold you in case of an upset in your real estate investment, you might want to rethink a real estate investment.
Some questions that you should ask yourself include:
- Can your present savings cover your needs for at least three months if your rental/flip property doesn’t bring in the expected income?
- Are you covered financially in case of a medical emergency?
- Is your job situation stable?
- Are you responsible for others who might need your financial help in the coming weeks or months?
- Do you have other assets that you could use in case of a loss of income?
Stocks Vs. Real Estate
Given a choice between investing in stocks or investing in real estate, most consultants today advise their clients to choose real estate, though in either case, the investment should not overextend the buyer’s personal liquidity. Most analysts predict a significant period of financial uncertainty and they say that a large non-liquid investment, such as a real estate property, should not be undertaken unless your emergency funds are secure.
Even if the investment has the potential to be profitable, first and foremost it’s important to secure your savings.
Some markets are judged to be better investment locations than others for real estate investment purposes. Some markets will inevitably experience more of a slump than others, especially those regions where much of the workforce is employed by an employer who is expected to experience long-term difficulties.
In the U.S., some of the markets that have been identified as being ripe for real estate investment, both for flipping properties and for rental investments, include areas with moderate property prices, low price-to-rent ratios and cap rates of 4% and over. They include: Cedar Key Florida, Fort Mitchell Alabama, Blythe California, South Holland Illinois, Rotonda West Florida, Colerain Township Ohio, Pontiac Michigan, Southgate Michigan, Saint Albans West Virginia and Lake Ariel Pennsylvania.