Is There A Real Estate Silver Lining In This Crisis?
The ongoing crisis has thrown everything and everyone for a loop. Social distancing means that schools and businesses are shut down and many people are out of work. A question for our industry is how is this affecting the broader real estate market — and how can investors who are still actively looking for opportunities possibly use the current market situation to their advantage?
If you have cash on hand and good credit, you have a leg up. In response to the economic uncertainty of the current crisis, large homebuying institutions are pausing or backing out of contracts, and banks on the coasts are tightening lending (although I have not seen that as much here in the Midwest yet). Banks will continue to lend, but since a number of borrowers will no longer be able to borrow due to credit restrictions that I anticipate slowly coming to all markets, if you have cash — in the form of a draw from a line of credit, loan from a universal life insurance policy, self-directed IRA, self-directed HSA or cash in the bank or other cash locations — now is a great time to take advantage of it.
One way is through flipping properties. Housing stock is currently extremely low here in St. Louis. According to our analysis of MARIS data, only 11,585 properties were on the market in February 2020 — the lowest number of available properties in the month of February since 2017. There are a number of reasons for that, with one being that housing starts are down and people in general are leery of listing their property during this crisis.
But, factor in that while people are quarantined in their homes, many are realizing that their current houses are inadequate. And then, couple that with the fact that a flip house is vacant and unlived in for showings. While conforming to safety guidelines, it is a good time to renovate and flip a house. Per our analysis of MARIS data, housing prices are continuing to go up, with an average cost of $162,500 in February 2020, almost a $20,000 increase since February 2017, presenting a great opportunity for investors who take action now.
Another possibility for real estate investors lies in rentals. Here in St. Louis, more tenants are deciding to renew their current leases than ever before. My property management company has the lowest amount of rental stock on the market than we have ever had — slightly lower than a normal winter rental stock. We are also still signing leases for vacant properties, but the normal seasonal churn that we see heating up in April has not happened.
Between the low stock and the decreased amount of churn, investing in rentals right now would be a smart idea, especially since the federal stimulus and unemployment packages should allow some people affected by the crisis to continue to pay rent. However, I don’t recommend investing in super high-end properties, because we can expect that wages will continue to be depressed while the public health crisis is ongoing.
Whether you decide to flip properties or rent them, between the depleted stock and the number of institutions exiting the market, the current unfortunate situation does present an opportunity for real estate investors. Although I anticipate a little bit of price churn as things normalize to the new reality, investors who want to use the overall market situation to their advantage have a prime opportunity to do so.