Updated: Mar 7
Many people are asking me as to whether now is the right time to buy real estate or not. On one hand, there are many investors who believe that it’s best to wait on buying real estate now due to the uncertainty of the economy. The COVID-19 pandemic has decimated many businesses, with massive unemployment numbers and unprecedented business closures. While there is some widespread opening of the economy, nobody is confident that we’ll be able to get back to the low unemployment levels the country was at prior to the pandemic.
On the other hand, there are many sponsors and passive investors who believe that now is a good time to purchase real estate. I’m a big proponent of this school of thought, as I believe that there are still deals to be made, especially in the multifamily property arena. While there might not be as many deals as there was pre-COVID-19, due to the misalignment between buyers’ and sellers’ expectations, there are many potentially lucrative deals out there. This misalignment is based on the buyers’ expectations that it’s a depressed market due to the pandemic, so prices should be much lower. The sellers’, on the other hand, feel it’s a sellers’ market because of reduced inventory, and are holding fast on prices.
Just to shed light on my approach to purchasing properties, as a former lawyer, I’m conservative in nature. When I look at deals, I’m always looking out for any potential negatives, as well as ways to mitigate the impact of those negatives on any deal. That’s part of my training as a lawyer and it’s how I approach all of my real estate investments. My conservative approach has paid off, as our properties are doing quite well despite the COVID-19 pandemic.
Multifamily Properties are Still Performing Well
Multifamily properties are still performing well for investors despite the fact that we’re in a global pandemic. When COVID-19 hit, there was an initial decline in rent collections, but the decline wasn’t that significant. The media played a role in stoking panic with investors, capitalizing on the fact that so many people were filing for unemployment and would most likely stop paying their rent. But the reality was that occupancy and collections remained steady, with anywhere from 92% to 95% of tenants paying on time.
Low Likelihood to Lose Your Investment if You Buy Multifamily
When investing in stocks, your entire investment could be wiped out due the volatility of the market as a result of the fallout from the pandemic. A $100,000 investment can turn into $40,000 almost overnight. Real Estate is different; it takes a very extreme situation to actually lose money there, for example, if your building is 30% vacant. In a 100-unit apartment building, that’s 30 units. Even during COVID it’s not likely to happen. While some investors might not realize the full projected returns on a particular property, earning 5% instead of 7% for example, is still a better result compared to the stock market’s volatility.
Before You Invest: Examine the Property’s Performance
Taking a closer look at the property’s performance pre-COVID-19 and its performance during COVID-19 will give you a pretty good idea of how the property will perform once the pandemic is over. If you find that a property was struggling between this past March and June, with collections down significantly, you need to look at the reasons why there was a problem.
The struggle could be a result of poor management, the property’s location, rent competition in the market, or a multitude of other reasons. If you’re able to identify the issue, you may find that the deal is still worth pursuing because the problem may be one that is easily correctable. If the problem is in fact due to COVID-19, you need to take steps to mitigate that problem.
Looking forward, you need to examine what else could impact the property. As I previously mentioned, I’m always looking at wh