The current COVID-19 pandemic has turned every single industry upside down, including real estate investing, as well as virtual property tours and rentals. While both investors and agents are facing multiple challenges as a result of the imposed restrictive policies and in an attempt to stay healthy and safe, this doesn’t mean that buying an investment property is impossible right now. Actually, the current crisis offers some good opportunities for property investors to make money in both the short and the long term as long as they follow certain tips and recommendations.
If you’ve saved up some cash and are looking for the best way to invest it amid the uncertainty of your 9-to-5 job and other investment opportunities, we’ve put together with guide with the best tips for buying a rental property during a pandemic.
Why Now Is a Good Time to Invest in Real Estate
Before we get into how you can buy a property under the current circumstances, let’s have a look at why investing in rental properties, and understanding all of your tax options, is a good idea during the Coronavirus pandemic.
First and foremost, home values are going down as very few home buyers and investors are purchasing at the moment. Although a housing market crash is not expected, property prices will continue to decline for at least a few more months until things start going back to normal. What this means for real estate investors is that they can get a really good deal. Even traditionally overpriced markets like New York, Los Angeles, San Francisco, and Chicago are becoming a bit more affordable. Meanwhile, reasonably priced locations are also experiencing a downward pressure.
Moreover, since the roots of the current crisis are not directly related to real estate, the housing market is forecast to bounce back relatively quickly. Within a few months after the end of the pandemic, home values will probably be back to their pre-COVID-19 state. Consequently, now is the time to buy real estate not only for earning rental income but also for making money from appreciation.
Thirdly, as there are fewer buyers on the market, distressed sellers are desperate to sell to anybody looking for a property in their market. As a result, you can easily buy an investment property below market value. This, in turn, is one of the best ways to optimize return on investment in real estate.
Last but not least, as home buying activities are slowing down amid the uncertainty, many people will continue to rent. This means that demand for long term rentals will stay stable or even go up for a couple of years from now. That’s why becoming a landlord or expanding your investment portfolio now is a good idea.
Tips on Buying a Rental Property during the Pandemic
Now that you know the benefits of investing in new properties at the moment, let’s have a look at how to make this feasible.
Tip #1: Search for a Market with Major Decline in Property Prices
To take advantage of the current situation in the US housing market, real estate investors should look for rental properties in locations that are experiencing the highest drops in home values. This strategy has a few important benefits. Buying cheap real estate lowers both the initial cost (down payment and closing fees) and the recurring expenses (monthly mortgage payments, property tax, home insurance, etc.). This automatically enhances the rate of return on a rental property. Moreover, investing in affordable properties lowers the risk of defaulting on mortgage repayments and ending up in a foreclosure. Additionally, the markets which took the largest plunges will experience the highest appreciation rates when the pandemic starts subsiding and things begin to go back to normal.
Tip #2: Consider Investing in Smaller Towns
One important real estate lesson which the Coronavirus pandemic is teaching us is that small, isolated towns might be the optimal location for investing. Major cities have been disproportionately affected by the COVID-19 spread, while smaller towns have been significantly less impacted. This means that investment properties in such locations might be better protected against different types of crisis as small towns are generally less connected to the global economy in specific and the global system as a whole. Thus, you should avoid the mistake which many beginner investors make, thinking that cosmopolitan cities are the best place to invest. To the contrary, look for alternatives, where prices are more affordable, and rental rates have not gone down a lot.
Tip #3: Look for Distressed Home Sellers
In spite of the slowdown in buying and selling real estate activities, there are still plenty of property owners who need to sell their home urgently. Indeed, their number might have even gone up as a result of the crisis. Those sellers have a very limited pool of property buyers to market their home to as most potential buyers are hesitant to engage in major transactions right now amid the ensuing uncertainty. This means that distressed sellers are even more desperate to sell at the moment, and they will be relieved to see any interest in their property for sale like these. It is possible to score a very good deal at the moment when buying an investment property.
Tip #4: Ask Around Your Network
Another way to find properties for sale at the moment is to ask your friends, colleagues, or other acquaintances if they are selling their home or know of someone looking for a buyer. The logic is the same. Homeowners are likely to agree to a significantly lower price at the moment if they find a buyer. You never know who’s selling before you ask.
Tip #5: Check Out Real Estate Listing Websites
For obvious reasons, it is not advisable to move around excessively looking for “For Sale” signs. It is even less advisable to go to property showings or attend open houses if they are allowed in your market. The safest option right now to find an investment property is to search for one on real estate websites. There are plenty of websites with listings where you can see all the information and data you need to decide if a property is a good investment opportunity or not. Moreover, most websites offer plenty of professional photos and even virtual tours amid the pandemic. Some websites will even provide readily available rental property analysis.
Tip #6: Work with an Agent
Hiring a real estate agent is always a good idea for beginner investors, but it is even more beneficial during the current pandemic. Real estate agents are professionals with lots of connections and access to plenty of resources. So they are able to bring the need to meet with anyone in person during the process of buying an investment property to virtually zero. That’s why working with an agent is one of the best ways to stay safe as a real estate investor at the moment.
Rental Property Management Tips
Rental property investing implies challenging tasks. Like any other service-based business, the costs associated with property management differ greatly. When you choose to invest in rental properties, you’ll have many choices to think about, such as tenant screening and vacancy management.
Here are some rental property management tips:
- Tenant screening: This may seem to be one of the simplest things to manage, but it’s actually quite complex. In order to determine who’s going to stay in a property, you must collect the necessary information from the tenant. Because of this, some property owners choose to hire a property manager to conduct tenant screening for them.
- Vacancy management: If a tenant decides to move out of the property at any time, there needs to be someone at the property to handle the tenant turnover. Same with the tenant screening process, there are many options for the property owner. The tenant can choose to have their rent automatically deducted from their paychecks, allowing them to save money each month. Some property owners prefer to have tenants pay their rent with a pre-paid cheque or even pay by direct debit.
- Creating tenant policy: Most property owners choose to take a more hands-on approach to manage their rental properties. However, if the property doesn’t sell very well, a tenant may decide to leave at the end of the tenancy and may not have any type of plan for how they leave the property. A tenant policy can provide tenants with the guidelines even before they move in or out of the rental property. Most policies are very detailed, and tenants must understand them completely before they sign the document.
When looking for a property to invest in, consider hiring a property manager to do tenant screening and eviction control. This is an excellent option to avoid spending large amounts of money when a tenant decides to move out. Once the tenant is gone, the property owner can continue to make the necessary repairs and improvements without having to worry about the expenses that’ll arise after the move.
Staying safe and protecting the health of everyone else should be your immediate priority. However, this doesn’t mean that you should not invest in real estate under the current circumstances. With the 6 tips above, you can easily buy an investment property during the pandemic to benefit from both rental income and appreciation.