With all of the uncertainty related to the covid virus, real estate investors are asking if it is a smart move to buy properties right now or should they wait until things settle down a bit. It is a good question to ask as the future is not quite as clear as it seemed to be just a few months ago. But, despite all of the uncertainty I would answer yes to the question. Yes, that is, if the property is a good cash flowing deal. It is important to remember that real estate investing is all about the numbers, especially the cash flow number. And if the cash flow is positive, then I say buy.
That said, I would add a couple of caveats that investors should consider these days. First, the market for investment properties is pretty frothy right now. Everyone is chasing investment real estate. I have had more people ask me about real estate investing and how to get into it recently than I ever have in the past. Prices are high right now. I am seeing prices for properties here in the Memphis area that I never thought I would see. But then again rents are up as well and investors are pushing into different markets and different parts of town. How long will this party last? Who knows.
Second, a pandemic can definitely affect both prices and cash flow. Obviously, if everyone is locked down and economically suppressed, or even worse become sick and die, then demand is going to slow significantly driving prices and rents down. Plus the pandemic, or at least the fear of it, may cause people to rethink where they want to live, thus affecting market values. People may no longer want to live in a downtown high rise, clustered among several of their “closest” friends. People may opt for perceived safer spaces in the suburbs or in smaller duplex type properties. What the future holds in this respect is not quite known as we are still, as a society, trying to determine exactly how and if this virus will affect us. In fact, some larger investors are already betting on this move to suburbia.
One thing for sure, the future is uncertain and it is hard to plan. So much has happened in recent months and their long term effects on the real estate market remain to be seen. The bottom line however is still all about cash flow. A real estate investor simply must have positive cash flow to be successful. But how does one calculate future cash flow during these uncertain times? Can you continue to plan on increasing prices and rents? When will the music stop and who will be left holding the bag? It really is hard to know right now.
At the very least, investors have to think that they are perhaps seeing the top of the market and become a bit more conservative with their future rent and price projections. I might also utilize a “covid discount” in my asking price to try to mitigate potential future risk. Will I acquire the properties with such a discount? Maybe, maybe not. But then again I was overbid on many properties in 2008 and 2009 only to pick them up at a later date when the music finally did stop.
Keep a close watch on your market. Watch the trends and keep an ear to the ground. And always, always, listen to your numbers. If the future cash flow appears to be in positive territory, even with all of the uncertainty, then by all means go for it.
Kevin Perk is the founder and publisher of Smarterlandlording.com. He is the author of Advice From Experience To New Real Estate Investors. Subscribe to Smarterlandlording here. Contact Kevin here.
