Real Estate investing during the coronavirus (Covid-19) pandemic

Why you should act to buy a property as soon as possible, instead of waiting for the market to “crash”.

Right now can be one of the most perfect times to invest as interest rates are being cut in some countries but similar to the 2008 recession some banks are making it harder to get mortgages.

For example, JPMorgan Chase is raising mortgage borrowing standards as economic outlook darkens. Customers applying for a new mortgage will need a credit score of at least 700, and will be required to make a down payment equal to 20% of the home’s value.

This means that the average person looking to get good deals will get left behind the longer they wait and the mortgage rules start tightening.

If you have decided to buy as soon as possible then this article will help illustrate the cautious steps an investor should take to make sure they do not get burnt while investing in real estate during this turbulent period. There are 5 steps in total for real estate investing during the Covid-19 pandemic which should not be skipped.

Step 1: Pay down high interest loans.
The last thing you want right now is unnecessary expenses weighing you down. It is also unlikely you will find a real estate investment with a higher return than the high interest loan you are paying. Furthermore, having existing high interest loans will generally mean that you will qualify for a smaller mortgage.

Step 2: Make sure you have back up funds to pay for expenses.
This is important especially during the Covid-19 pandemic as tenants are unable to work and help pay down your expenses. Also evicting tenants will be a nightmare, the court systems are generally back logged and the Covid-19 pandemic is not helping. I would imagine an amount saved up for 6 to 18 months is appropriate for the Covid-19 pandemic.

A prudent investor should keep back up funds up to 18 months if they have a very low risk tolerance. Personally I have a moderate level of risk tolerance and I am planning for 12 months of back up funds (this is an individual preference).

Step 3: Buy a cash flowing (positive net profit) multi family homes – triplex (3 units) and up.
The main advantage is that you diversify your risk, if one unit does not pay then it does not mean the entire property is defaulting on payments as opposed to a single family home where the entire profitability is riding on that one tenant not defaulting.

Step 4: Find the below market value deals now. They are there but you need to hunt for them.
These are real estate properties selling for 20 to 30% percent below market value. This is the best way to ensure that you are getting a good deal. These properties will generally need cosmetic work but the cost to do the work should be much less than the comparative market price of the property. This will ensure that even if the market falls you will not be in the negative.

Step 5: Plan for a 15 year holding period for the property.
The goal is not to flip properties but to hold them for the long term as the longer you hold these properties your risk is reduced. Even if the value of the property drops in the short term, in the long term the property should go up in value.

Disclaimer: this article is not advice nor is it meant to provide advice of any kind. This is strictly an opinion.

— For more information: https://medium.com/@godwinarathoon/real-estate-investing-during-the-coronavirus-covid-19-pandemic-2b94e5445348