The coronavirus is creating all kinds of headlines that are making opportunists wonder is now a good time to invest in real estate? Hearing things like “0% interest rate” “stock market crash” and even news about how the Bay Area housing market could shift to a less competitive buyer’s market soon is encouraging US real estate investors and even first-time homebuyers to start their search for property. But why? Is it a good time to invest in real estate? The answer could be yes. And I’ll share the thoughts of many experts in the real estate industry as to why this is the case. But before I list the reasons why now may be the best time to enter the US real estate market, let’s get one thing clear:
Is Now a Good Time to Invest in Real Estate for Anyone and Everyone?
Anyone with a hand in the field of real estate investing will tell you that it’s always a good time to invest in real estate. If you can find a real estate deal that:
- You can afford
- Is in a good rental market
- Will produce positive cash flow (this is key)
- Will appreciate in value over time
well, then buy it. And in a bit, I’m going to add a few other reasons to that list that would sweeten any real estate deal.
But this advice is never meant to apply to anyone and everyone- not before the coronavirus pandemic hit the US housing market 2020 and not now, while we are living in times of uncertainty. However, if you’re an experienced or even first-time real estate investor who:
- Is confident in your income stream and has job security even in the face of COVID-19
- Has the cash for buying an investment property or meets the mortgage loan requirements for approval (good credit score, low debt to income ratio, income, etc.)
- Has cash reserves that you can tap into for this real estate investment
In this situation, a quote by Warren Buffet comes to mind… “When others are greedy, be fearful and when others are fearful, be greedy.” This statement definitely exemplifies the current state of things. For some people, it makes perfect sense to buy right now as part of an overall financial strategy.
Remember, however, that it all depends on you and your current financial situation. Do your due diligence and see what makes sense for you. Yes, right now it makes sense to make all kinds of investments, real estate included, but only if those investments fit in with your needs, means, and goals.
Make an informed decision- it’s critical that you think about and predict how soon you will need any money you’re considering investing.
And Mathew Yu, the Vice President of Socotra Capital, a nationwide real estate lending and investment firm based in Sacramento, California, agrees that you need to be confident in your financial standing before making a real estate investment during this crisis:
People with secure jobs that don’t expect their income to change might be able to invest now, at a discount, and enjoy the rewards when the market returns to normal. If you have money to invest and are able to make the monthly payments, now is a great time to buy. It’s important to note that home prices could drop even lower than they are now, depending on the progression of the coronavirus. Be wary of the “falling knife” that is the current state of real estate. This advice does not apply to people who are facing an uncertain financial future. Those people should be much more conservative with their money, and wait until this situation passes.
Why Now Could Be a Good Time to Invest in Real Estate
Low Mortgage Rates
This is the housing market trend that likely prompted you to ask “Should I invest in real estate right now?” The US real estate market was actually already enjoying low mortgage rates a few months before coronavirus cases were reported in the country. But shortly after the WHO labeled the coronavirus a pandemic, the Federal Reserve swooped in to try and give the US economy a boost during these tough times. The federal funds rate was cut, bringing it close to a 0% interest rate.
This, of course, doesn’t mean that you will enjoy 0% mortgage rates in the US real estate market any time soon. It does, however, mean that mortgage forecasts for 2020 are all coming to the same conclusion: mortgage interest rates will continue to drop during this time. Lower mortgage rates can save you a lot of money when buying rental property– a few thousand dollars depending on your investment property and real estate market of choice.
Motivated Sellers and Fewer Buyers in the Market
It’s true that many sellers are pulling their listings or are planning to wait before listing their homes for sale. At the same time, some buyers have decided against entering the US real estate market- they’d rather wait to see how things play out. The latest Flash Survey from NAR (March 16th -17th) shows the extent of this change in buyer and seller behavior:
- 23% of residential members reported seeing sellers pulling listings
- 11% of residential members reported a significant decrease in buyer interest
- 37% of residential members reported a decrease in buyer interest
At the same time, 69% of NAR members in the residential real estate market reported no change in the number of homes for sale in the market.
So what is the takeaway from these real estate statistics?
If you do decide that now is a good time to invest in real estate for you, you’ll still find a good supply of housing inventory to choose from. There are still homes for sale in the US real estate market. Even though a shortage in housing supply has been an issue in many major cities across the country, with demand dipping, you should be able to find what you’re looking for. Brian Davis, a real estate investor and the co-founder of SparkRental.com, commented on the state of the housing supply during the coronavirus outbreak and the importance of taking advantage of this now:
Now is a great time to find deals, particularly on distressed properties. Even with a suspension of most foreclosures, some homeowners and landlords will inevitably be eager to sell, even at a sharp discount.
Also, many buyers have pulled out of the market, but most listings remain active, creating a temporary oversupply of homes compared to the compressed demand. That won’t last however. Demand will reassert itself once the epidemic passes, and meanwhile, construction projects will have stalled for several months at least.
As Brian points out, you won’t face as much competition. Buyer interest is decreasing, likely from those who are worried about job security and their general financial standing. In real estate markets where you may have faced bidding wars with homebuyers, you may find you’re the only one putting up an offer during this time.
This would also mean that you’ll be dealing with someone who has likely become a motivated seller due to the current circumstances. The buying power and negotiating power will be in your hands. Andrew Helling, a Nebraska-licensed real estate agent and the owner of REthority.com, an online resource for real estate professionals and their clients, believes you will be dealing with motivated sellers as well:
I believe now is a good time to buy a house because rates are low and sellers are fearful, meaning they are more willing to take the first offer that closes the deal rather than holding out for a higher offer in times of severe uncertainty.
The coronavirus has shut down entire industries and cities. A lot of home owners are currently experiencing severe cash flow issues. If they aren’t able to work out a mortgage forbearance with their lender to suspend payments, they may be forced to sell their property to cover their bills. That means there could be a large wave of distressed sales coming onto the market shortly.
Brad Pauly, broker and owner of Pauly Presley Realty, added that:
Now is a great time for investors to pick up property for less than current market value. Since most of the US is or is about to be on lockdown, the only sellers who are selling their homes are people who NEED to sell.
Like I always say, there are 2 kinds of sellers, sellers who need to sell and sellers who don’t need to sell. If a seller needs to sell, a buyer has the opportunity to buy a property for less than market value.
Essentially, the real estate market has been thrown into a buyer’s market due to the coronavirus. Ashley Baskin, a licensed real estate agent who serves on the advisory board for Home Life Digest, told Mashvisor that:
Now is a great time to invest in real estate. The recent outbreak of coronavirus has caused a shift in the market, transitioning it more to a buyer’s market.
Additionally, sellers that are in a position where they need to transact may offer their property at a lower price. Although this is a saddening time, if you are in a position to acquire new real estate and have the capital for your down payment, you should consider your opportunities.
A Recession Will Slow the Growth of Home Prices
Real estate experts have released their US housing market predictions 2020 for home prices and how they are likely to be affected by the coronavirus’s impact on home sales and the economy. The general consensus of experts from Zillow and NAR is that home prices will remain steady. Learn more about these COVID-19 home price forecasts by reading: How the Coronavirus Will Affect US Home Prices in 2020 and Beyond. This means it could be a good time to invest in real estate before US home prices continue on their normal trajectory and prices go up. At the same time, if you do find yourself dealing with a motivated seller during these tough times, you’re more likely to benefit from a reduction in price.
Keep in mind these home price forecasts are preliminary. A recession could cause home prices to drop. So, is a recession a good time to buy a house? It is if you’re investing in rental properties. Price drops won’t matter as much if you’ve found a positive cash flow property. That’s because you won’t be looking to sell any time soon as long as your financial situation doesn’t call for it. Rather, you’re looking to find a rental property for sale that makes for a good real estate deal.
Right Now, Real Estate Offers Stability That Stocks Cannot
The sudden toll the coronavirus has taken on the stock market just reminds us how volatile it is. And while you may still be behind the stock market or might be looking to take advantage of it, you can’t deny that diversification in more stable investments is the best strategy for any portfolio. Right now, long term rental properties do offer that stability.
Ron Humes, the Owner and Principal Broker of HomeSelect Realty of Lexington, KY, says:
The stock market immediately suffered drastic losses evaporating any recent gains and caused widespread panic. In contrast, home demands are still exceeding current supply and selling quickly for top dollar.
When purchasing stocks or bonds, there are different risk levels. The higher the risk, the higher the potential reward. In some cases, you could lose any realized profit as well as your original investment. The performance of the individual stock or bond is completely out of your control. With real estate, an investor can improve, lease, sell, or borrow against the property at any time. In this way, money invested in real estate is more controllable and versatile than stocks or bonds.
How to Decide If Now Is a Good Time to Invest in Real Estate for You
The only way to truly know if today is the right time for you to invest in real estate is to sit down and talk to some experts. While I can tell you that, in general, the US housing market trends are lining up to provide real estate opportunities for some, I can’t tell you if it makes perfect sense for you. Seek out advice from a financial advisor and talk to a mortgage lender if you plan on getting a rental property loan. You can also run through these questions to find out if now is a good time to invest in real estate for you:
- How much money do I have saved up for real estate investing?
- Do I qualify for the financing for buying a house for investment?
- Am I ready to become a real estate investor and maybe even a landlord?
6 Tips for Real Estate Investors Looking to Enter the US Housing Market Now
If you find that now is a good time to invest in real estate for you, here are a few tips to help you on your journey to real estate investing.
Keep an Eye on Mortgage Rates and Find Out What Rate You Qualify For
Mortgage rates did rise recently week-over-week. That was mostly because of the demand in the refinancing market which put pressure on banks. So it’s best to start searching for investment properties for sale while keeping an eye on when mortgage rates drop next. Philip Georgiades, the head of real estate operations for FedHomeloan.org, says real estate investors may want to wait to make a move after the coronavirus stimulus package rolls out:
If you are looking to invest right now, wait for the stimulus packages to roll out. Once that happens, the interest rates should settle to their bottom. At that point, enter the market before everyone else does. If you can, you may see some serious short term gains.
You also need to realize that just because mortgage rates are at 50-year historic lows, that doesn’t mean a mortgage lender will offer that same rate to you. This is why getting pre-approved for a mortgage for investment property is the next tip.
If you really want to find out if now is a good time to invest in real estate for you personally, talk to a mortgage lender and see if you can get pre-approved. They’ll help you figure out your budget based on the loan amount you’re approved for, if you’re really going to be able to take advantage of low mortgage rates, and whether you’ll be able to cover future mortgage payments based on your current financial standing.
Choose a Good Real Estate Market
Some real estate markets are likely to be hit harder during this time and take longer to bounce back from the full effect of the coronavirus. Adiel Gorel, the CEO of ICGRE, a real estate investment firm based in the San Franciso Bay Area, lists a few real estate markets that are likely to stand strong in the face of a coronavirus-induced recession:
At the present time, especially in affordable markets like Oklahoma City, Tulsa, Baton Rouge, Central Florida, parts of Atlanta, Raleigh and others, there are currently no price bubbles. No major boom has happened. Thus the likelihood of a major price crash in such markets is much slimmer than the markets which crashed in the 2008 recession. There are very high priced markets now, the expensive markets in San Francisco, for example (which has already started going down in price last year). In such markets, there may be a stronger effect on prices.
I believe that the best way to invest in real estate right now is buy brand new homes, in affordable large metropolitan areas, where the rent numbers match well with prices.
However, the fundamentals of choosing a good real estate market remain the same even during these times. To learn more, I suggest you check out this guide: How to Choose a Real Estate Market to Invest In.
Use Real Estate Analytics to Find Positive Cash Flow Properties
Don’t just jump on the first cheap investment property for sale that you find. Now may be a good time to invest in real estate, but not every property is a profitable one. Randall Yates, the founder and CEO of The Lenders Network, a loan comparison website, advises buyers to make a move only if they’re confident in the real estate deal:
Be patient. Don’t rush into buying a property unless you’re confident it’s a good investment. There will be new opportunities every day, you just have to wait for the right deal.
I’m a big believer in making decisions based on data and analytics. If you have the data on rental income, occupancy rates, rental expenses, cap rates, and more, you’re sure to find positive cash flow properties that will make you money in 2020 and beyond. Leif Kristjansen, the founder of Five Year FIRE Escape, also believes in the importance of finding positive cash flow properties during this time:
Since we still don’t know how bad this recession will get, don’t go too aggressive on your home purchase. Look for a house that should cash flow positive even in the worst situations and purchase/leverage accordingly.
Run your numbers to account for the possible recession or downturn. You can still take advantage of the current climate if you are confident in your analysis.
Have Cash Reserves
Brian Davis offered a tip to real estate investors on having cash reserves:
Investors may need deep pockets to invest right now. Credit is tight, as lenders have little capital to work with, since their funding comes from institutional and wealth investors, who have all pulled back. Even more daunting, landlords in many cities and states cannot evict nonpaying tenants right now, so they have no way to enforce their lease contract. Tenants can live for free, and there’s nothing landlords can do about it.
So yes, there are opportunities to pick up great deals right now. But landlords will have a harder time generating revenue for the next few months. The deeper your pockets, the better positioned you are to capitalize on the opportunity.
And Remember, Rental Property Investments Are Long Term Investments
It’s important to emphasize the reason rental properties are the best way to invest in real estate right now. They are long term investments. Some may be thinking there is no way now is a good time to invest in real estate if prices or values may drop. But if you find a positive cash flow property and hold onto it, history tells us that real estate property value will always come back up and then some. Just ask anyone today who held onto or purchased a property during the 2008 housing crisis.
Adriel Gorel affirms this:
The act of buying good rental homes in large metro areas and holding them as a rental for the long term, where the loan erodes, is a future-changer. It does not change your future instantly or even within a short time, but over the long term, this strategy is a powerful future changer. I have seen people retire well, send kids and grandkids to college, and look much stronger financially thanks to these simple yet powerful investments.
Since these investments show their power over the long term, and since the interest rates are so favorable now, and since a possible impending recession is unlikely to have effects on prices like the 2008 recession, I believe this would be a good time to invest.
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