Will Coronavirus Cause a Real Estate Market Crash?

by | May 13, 2020 | Blog

Will Multifamily Investments Be Hit Hard by Coronavirus?

I do believe we could see a correction in the real estate market with big or small investment properties. However, I think that the smaller investment properties will probably experience less of a problem than the larger ones.

Because even with all the drama going on, there is (in most markets) not enough housing. There are more people trying to rent than there are properties being offered for rent. So I don’t expect a massive decline in rents or anything like that.

I think we may see some of the high-end apartment complexes having to lower their rents. During a recession, people tend to tighten their belts. They go and move to a lower-priced property.

But overall, people still need to have a place to live. They’re going to rent property. So I think the small multifamily market is going to be just fine.

I think that if you do a good job as the landlord and you offer a good quality product at a fair price, you’re never going have a problem finding tenants.

Even if the market turns terrible, as long as you’re better than everyone else (which is not hard to do) the bar is not very high in real estate. Be a little bit better, and you’re still going to get tenants. They’re going to rent from you.

What’s Going to Happen to the Market in General?

So finally, the last point to make is this: If the market does crash, what does that mean?

It means that property values go down. It doesn’t usually mean rents crash that much.

Yes, I know during the current COVID-19 crisis, there’s a problem with people paying rent. That said, I’m over 90% rent collected for the month—well over 90%, in fact. I think I’m at about 95%.

And that’s pretty typical. We’re usually near 95-98% rent collected at this time. So, it’s still coming in.

However, if people don’t pay rent next month or the month after or the month after, am I really that worried?

Not particularly. Here’s why:

  1. I have reserves. That’s why we say it’s important to have reserves in real estate.
  2. Even if prices drop, hopefully I still get 90 percent of my rent.
  3. I still have cash flow if rents go down a little bit—so, that’s OK. That’s why I have cash flow! I can handle that.

So, if I have a property that rents for $1,300 a month, my expenses are only $900 a month, and I’m making $400 every month in cash flow, I’m still OK if rents drop a couple hundred dollars a month.

aerial shot of neighborhood with two-story houses close together

And then if prices go down, I’m just going to buy more.

I’m buying now. I bought last month. I’m buying next month.

If the market drops, I’m going to buy at the lower amount even more aggressively.

So, what’s the market going to do?

I have no idea—but I don’t really care. I’m going to take advantage of whatever happens.

I’m going to make sure that I run my numbers. And no matter what happens, I’m going to keep educating myself and getting better and better, so that I’m prepared to take on whatever comes.

Now Is a Perfect Time Begin Investing or Buy More

A lot of people have been saying, “I’m going to wait for the market to crash before I get into real estate.” Or, “I’m going to wait the next few months.”

You guys, if you’re trying to get into real estate, now is the perfect time to build your business, to build your portfolio. And what I mean by that is build your knowledge and your experience, build your processes, build the foundation.

Now is the time to sharpen your ax. Then, if the market does crash, you’re going to be so prepared to take down that tree in fewer swings.

Basically, I’m not worried about a decline or a crash. I’m preparing for one.

I’m thinking that one might come, but it doesn’t mean I’m not looking for deals still today. It doesn’t mean I’m not still buying today. And that would be my advice for everybody: understand that a crash might happen. Prepare yourself for that.

But don’t stop. Keep moving forward and get better.

It’s like that quote: “Don’t wish things were easier. Wish you were better.”

That’s my wish for all of you guys today.

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