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What Kind Of Real Estate Investing Makes Sense Today?

By Paul Sian | June 8, 2020

With some types of real estate investments impacted due to travel bans, businesses unable to pay their monthly rents, and residential tenants unemployed due to the economic shut downs from COVID-19 many investors may be reconsidering their opinion of investment real estate.  While the short-term shocks currently being suffered by the market are sure to run deep that does not mean real estate investing as a whole is not a good idea.  In fact real estate investing offers something tangible as opposed to investing in something like a virtual currency or a stock which is only owned via some online portal.  This article explores some of the different types of real estate investment options that are still viable means of investing’s one money.

Think Past The Short Term

Certainly the short term impacts of the corona virus shut downs are very harsh for many people who cannot run their businesses nor go to work.  Many are not getting paid and that means they cannot pay for the rent on their homes or businesses.  Airbnb and other short term rental owners have seen bookings go straight to zero overnight and they still have mortgages to pay.  While long term residential property owners still have tenants, many of them are unable to pay their rent due to not being able to work and evictions have been put on hold while the virus works its way through the world.  Even with all that there are tenants who continue to pay their rent either because they are still working, they are getting money from unemployment or they have enough savings built up.

The lack of payment due to virus related economic shutdowns is not permanent.  Economies will eventually open back up again and people will be able to go back to work as the threat of the virus begins to shrink.  Businesses that are still able to stay afloat will be able to offer their goods and services to those who want/need them.  Basically, commerce will start up again and people will still need a place to live and still need a place to conduct business.  People will start travelling and going on vacations again.  While things will get better from the current state there likely will be changes that come out about as a result of the virus.

Research Property Types

Prior to beginning invest any money in anything it pays to research Prior to beginning invest any money in anything it pays to research thoroughly the investment one wants to make and real estate is no different.  With the many types of investment real estate (residential, retail, warehouse, office space, industrial, land and more) there is quite a bit to understand about each type individually.  Therefore investors should start off by sticking to one type of investment real estate and understanding it fully as they begin their investment journey.  Investors also need to stick with one strategy to start with, like buy and hold or fix and flip investment strategy.  Once investors feel they have acquired enough of one type of investment property they can diversify to other types as they expand their understanding if they desire.  Of course, investors can diversify their investments into non-real estate areas as well based on their preference.  

Determine Whether A Property Manager Is Needed

Having a property manager can make a real estate investment truly passive if that is what the investor is looking for.  On the other hand the investor looking to squeeze every little bit of cash flow out of their investment that they can may prefer to self-manage the property.  Done right the investor who self-manages can have great cash flow.  Of course depending on the location of the property, the types of tenants in place sometimes a professional touch is needed from a professional property manager to make sure things work smoothly.  Sometimes it just makes sense to hire a property manager since the investor can better utilize their time to find more investment properties to own rather than lose focus due to having to manage the properties as well.

The Importance Of Cash Reserves

Mortgage lenders are seeing smaller pools of funds from which they use to fund their mortgages and that means tighter restrictions when it comes to lending.  Restrictions like lending to borrowers with higher credit scores, greater down payment and showing sufficient cash reserves are increasingly common.  While lenders look to different types of cash reserves (like retirement accounts, savings account, stock accounts and more) those accounts are not always easily accessible.  Banks are willing to count funds in those non-liquid accounts because if worse comes to worse the money can be pulled from those accounts to help pay the mortgage. 

Investors on the other hand need to have liquid reserves not just for mortgage purposes but to make sure they can take care of their property due to sudden expenses or when the tenants can’t pay the rent for whatever reason.  The COVID-19 shutdowns have put an economic strain on many tenants which in turn will get passed to the property owner.  In places where shutdowns were imposed, courts were also shutdown which means evictions could not be processed either.  Evictions aside many tenants who did not pay their rent could not do so since they had no income coming in and very little savings.

Any type of investment comes with some sort of risk and real estate investing is no different.  The best way to deal with real estate investment risk is by keeping on hand at least six months of cash reserves to cover the payment of mortgages, taxes and insurance in the event the tenant(s) stop paying.  Those reserves are also very handy to have when something goes wrong with the building like an HVAC unit fails, there is a roof leak, or some other large expense that the investor is expected to pay for.  The six-month worth of savings looks good in the eyes of the lender for being easier to access and will help the real estate investor feel more comfortable since they can weather any short-term expense easier.

Final Thoughts

Real estate still represents a good investment strategy for those who are considering it.  Just as with any investment the investor looking at real estate needs to do their research to make sure what they are buying will stand the test of time.

Paul Sian has been helping buyers and sellers of real estate for over 14 years.Paul works with homeowners, home buyers, as well as investors helping them to realize their real estate goals.Paul publishes real estate articles on a variety of sites and has a podcast.
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