Impact of Corona-virus pandemic on wholesaling and Real Estate investing
There is no doubt that buyers are spooked right now. Already social media is alight with posts of buyers backing out last minute. But truth be told, I think Wholesaling was due for some correction anyway – with the entry of a lot of ‘new-comers’ in the space the quality of deals has been sinking tremendously, to say the least. Events like current times will keep the “fresh off the boot-camp wholesaler” crowds at bay for some time, allowing good deals to flow a little more. The flip side is that many sellers are spooked too & seasoned wholesalers are probably going to pick up their marketing to lock even more deals. If you’re are wholesaling right now – ask for longer option periods to weather the storm.
There is a steady jump in the off-market distress & delinquencies – last week, we at Real Acquisitions posted about 8000 new distresses in Loan modifications, divorces, Property Tax, probates etc. You can access the full here.
Banks are going to announce forbearance programs
With schools being shut & many hourly wage workers being asked to sit at home will for sure have a huge economic impact. It’ll be felt more today since the ‘gig-economy workers’ now account for over 10% of the US workforce. That essentially means banks will be giving borrowers the option to defer their payments. Here is the problem – these payments will be due in full within 6 months or so & most people do not have the financial discipline or wherewithal to actually make those payments in full. This is exactly what happened when Harvey occurred – tens of thousands of loans were in default & people couldn’t get them current. But unlike the expectation of foreclosures rising (which never happened), banks modified the majority of these loans. I believe the same thing will happen again.
Here is the silver lining – it will be a wonderful time to pick up some great subject to deals. If you are not too familiar with Subject To (buying real estate using other people’s mortgage), you can watch a full-fledged training on Sub2– complete with contracts in the Real Acquisitions Learn Section.
Social media and online marketing
A lot of Real Estate coaching, education, programs are being sold today via events as sales funnels. But with events being shuttered, gurus are beginning to flood the internet with ads. Popular keywords like ‘Real Estate coaching’ have been an insane hike in PPC pricing. Many marketers are reporting facebook click charges have shot up as much as 30%. So if you’re planning to compete in that space get ready to shell some serious dough.
New build and construction
Builders were headed to 2020 with a smile on their faces, as the starter home inventory was at a remarkable low amount. In most Texas markets, we saw inventory shrinking to as low as 2% by Jan 2020. While COVID caused a brief panic as many construction supply chains were disrupted those fears were quickly settled as China wholesale markets got back to almost normal capacity by March first week. Most developers are closely watching the banking sector & to see if there will be any shrinking in lending – which is highly unlikely given the quick response from the Federal Reserve. Here is the catch though – a lot of speculative projects have now come to a halt simply because of uncertainty. So if you were looking into doing a project in an ‘up & coming’ area – I would say take a pause.
We are closely monitoring the inventory & sales-volume via the heat maps we publish. You can see the latest heap maps with a free account here.
Airbnb and Short-term rentals
My Short term rental friends are getting killed; most have over 80% vacancy. This time has exposed one giant misconception with the Airbnb model – that location is secondary & when it comes to short-term rentals you will always make more money than a regular 12-month lease landlord. Lakefront homes, destination properties, Beech homes close to large cities are still doing great as people stuck in their homes and traveling to nearby Airbnbs. Again the Airbnb space was starting to get too crowded with a steady decline in nightly rates.
(Ever) Lowering interest rates
The joke is we may be looking at negative interest rates in 2020. Bankable investors have options in the 3% APR range for getting a mortgage on rental properties. That is indeed great, with one challenge – closing durations have gone through the roof. Banks are deliberately taking way longer to underwrite loans; most probably to prevent over-committing in a turbulent market. Don’t get me wrong there is no one who should not be exploring refinancing right now but don’t have your hopes too high.
One positive impact happening is there are much cheaper hard money options becoming available. Folks tired from the losses in the stock market will also start looking for real estate backed private lending options – so get your private money pitches ready
Oil (and Shale oil lands)
You probably know this already, with the boom in the shale and fracking tech – US has become the largest exporter of crude oil in the world. Here is the problem – oil is down to almost $30 a barrel, Shale oil can’t compete. Here is the bigger problem – this isn’t the first time this is happening & investors have had enough of the uncertainty associated with Shale. While the economy is almost sure to bounce back rather quick – Shale country (especially west texas) is bound for some harsh times. If you’re looking to buy deals in Midland TX/Eagle or shale territory be uber-conservative. By the way, natural gas trading at $1.6 is not helping either.