Investing during a Pandemic
As we grow closer to the end of 2020, it gives us time to reflect on some of the changes we have all personally experienced. For myself, my journey back into real estate investing was a high priority. In light of the pandemic, it became very obvious that the way in which we conduct business would be altered – I just do not know if anyone was expecting what laid ahead. As the managing partner of a consulting firm, I prepared myself for an economic slowdown – however with my vast knowledge of residential real estate investing, I drove my attention to the market where I knew I could survive and still have financial freedom.
If you asked investors in the real estate market if they thought that their business was a victim of the pandemic, many said yes. Full-time investors felt the heat of the pandemic in many ways. From the realtors not having the ability to show homes, courts and foreclosures were placed on hold, limited inventory of houses to sell, many homeowners taking their property off the market in fear of “COVID contamination” and all during a time of record-low mortgage rates – how frustrating. I can admit that I am one such victim. I own several rental properties and with instruction to not evict – I have several properties where I now have tenants that are behind months of rent, however, the mortgage, taxes, and insurance still need to be paid. The rule of 6 months savings was gone in a flash – we are all victims here- it is what you do to climb out and be on top that makes and defines you.
In light of the challenges, a good investor can look at trends and establish a plan of action. Like others in the field, I turned to mentors, gurus, and a solid marketing plan. The real estate game can be tricky and once the markets opened, having no plan is a plan to fail. In the last few months of the pandemic, I have focused on a niche in the residential space. I thank the world of social media marketing for the opportunities that have been created. Like many, turning to a creative platform allowed our business to stay relevant. The social media platform has allowed sellers to reach me even in the pandemic. I am working with families that are high risk and who would rather accept a “cash offer” from my team in lieu of a higher offer but expose their loved ones to COVID contamination. There are many families that will not show their home or allow outsiders in – this has created a unique opportunity for real estate cash buyers to make discounted offers.
Many real estate investors, including myself, have mixed reviews on the future of real estate – concerned over resale values, costs of materials, long term tenant strategies, and overall market shifts. Long time real estate investor, Christopher Chiarenza stated, “ There is a lot of opportunity in real estate but I always warn to navigate with caution.” Chris also feels that the short sale market will dictate where many investors may find the next wave of real estate opportunities. In 2020 we have seen a record in low-interest rates which is driving the resale value of properties up, in addition, the Long Island market is seeing a migration of families moving away from the city and into the suburbs, another driving factor in sales prices. I will expect that we have another bubble like 2007 and the future of real estate will once again focus on the short sale strategies. Short sales are a great way to obtain properties at a reduced rate, however, many real estate investors do not have the time or resources to wait 3-6 months for a bank to determine a market value or agreed upon sales price. Short sales require a team of people who can follow up on paperwork and phone calls. I spoke with attorney Lee Friedman located in Hauppauge who expressed that a large portion of his business is short sales. Mr. Friedman confirmed that his firm has a full-time staff that handles the short sales and explained that the application process and paperwork are extensive and sellers faced with the short sale of their home need to be patient and cooperative in order for a successful transaction.
If you take the time to understand the real estate investment market, you will discover that there are multiple strategies. The perception from the outside public is that it is a one size fits all – but this can not be further from the truth. Here are some of the real estate investment strategies that are available:
Wholesale: In real estate wholesaling, a wholesaler contracts a home with a seller, then finds an interested party to buy it. The wholesaler contracts the home with a buyer at a higher price than with the seller and keeps the difference as profit. Real estate wholesalers generally find and contract distressed properties, short sales, and even REO ( Real Estate Owned Properties are held by banks and other lending sources and these are properties that they have taken back via a deed in lieu of foreclosure ) The benefits to wholesaling are many including fast cash( an average wholesale transaction on Long Island can make as little as $10,000 or as much as $50,000 on average ) no holding time and no ( or limited ) liability. In addition, you do not need good credit, income verification, or asset verification ( the end-user may need to verify for transactional and contract purposes with proof of funds )
Fix and Flip: Fix-and-flip is the strategy of purchasing a property, renovating it, then selling it at a profit. Investors typically buy a property at a discount because of its condition. … After the investors fix up the property, the next step is to sell it as quickly as possible and at as much of a profit as possible. This is a transaction that can make or break you – it is important to know about construction costs, construction time, holding time, cost of funds, and resale in the market. If you do not plan correctly or miscalculate you can really get hurt.
Rental properties: ( residential and commercial ): Residential rental property refers to homes that are purchased by an investor and inhabited by tenants on a lease or other type of rental agreement. These types of properties are great for long term real estate investing and building residual income. It is important to analyze the risks. We all have heard tenant nightmare stories and I will be the first to tell you they are all true! I do not recommend having rental properties unless you have the ability to carry the costs ( 6 months average savings ) in the event a tenant fails to pay and you need to take legal action to remove them from the property. In addition, a buffer account for necessary updates such as fresh paint, carpet, appliances for a new tenant.
Vacation rentals: A vacation rental is the renting out of a furnished apartment, house, or professionally managed resort-condominium complex on a temporary basis to tourists as an alternative to a hotel. This type of investment has been my favorite for many reasons. The first is that I never have to worry about someone squatting or not paying. I am paid upfront for the booking and then they always have a home to go back to! I chose my vacation rental property in a place that my family loves to frequent, and I can block out any personal time I want. This is a great way to have the best of both – a place that pays you to vacation!
Notes: In the United States, a mortgage note (also known as a real estate lien note, borrower’s note) is a promissory note secured by a specified mortgage loan. Mortgage notes are a written promise to repay a specified sum of money plus interest at a specified rate and length of time to fulfill the promise. Many investors enjoy this investment strategy for many reasons including higher guaranteed interest rates, they have a security interest in the property if the person defaults and they do not need to be landlords.
Tax Liens: A tax lien is a legal claim against the assets of an individual or business who fails to pay taxes owed to the government. In general, a lien serves to guarantee payment of a debt such as a loan or, in this case, taxes. If the obligation is not satisfied, the creditor may proceed to seize the assets. Each state is different and even each county varies. The tax lien system can be lucrative but it is a very specific and defined niche often competing against big banks for blocks of liens.
How to get started is up to you. My recommendation is that you start with a mentor. If you speak with Charlie Weinraub, also known as the handsome homebuyer, he will tell you that he contributes his success in the market to learning from a mentor and attending as many educational real estate opportunity meetings and seminars as possible. It is impossible to jump in with two feet and have success in this business says investor Lisa Albinowski. Lisa, a residential real estate broker with Coldwell Banker has been on the residential side of the real estate business for more than 15 years, investing in the last 3 and she will tell you, she is always learning.
In an ongoing effort to educate our community, we will be hosting articles, guest content, and pictures in TheLongIslandJournal.com (The Long Island Journal). My co-publisher John Dowling Jr. (Publisher Model Citizens Magazine) and I will start publishing in January 2021. Each month we will focus on a different area and strategy for the real estate community. If you are looking to invest in real estate, follow us to find mentors, gurus, and online tools and resources to help your business. Thinking of selling? Follow us for our guide to Long Island #1 rated realtors on Long Island and why they made the list. Learn what you can do to quickly improve the market value of your home, find the best architects, builders, developers, and lenders – all in one place. The Long Island journal will be the Bible of real estate on Long Island and where to find what is new and exciting in commercial development, vacation, waterfront, beach rentals, and both update and downstate community reviews. Stay tuned!