Author Topic: Corona vs. Real Estate  (Read 3141 times)

Apple_Tango

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Corona vs. Real Estate
« on: March 22, 2020, 05:21:29 AM »
There are some people who use leveraged real estate to FIRE. Iím curious if coronavirus is making you rethink that strategy? What is your plan if tenants stop paying rent? I think I heard that banks are accepting loan forbearance in some cases, is anyone planning to utilize this if tenants stop paying? If not, what are your plans? Iím thinking people who have FIRED based on  5-10 rental properteries (or more) with mortgages might be struggling for a couple of months.
« Last Edit: March 22, 2020, 08:43:01 AM by Apple_Tango »

Papa bear

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Re: Corona vs. Real Estate
« Reply #1 on: March 22, 2020, 07:05:08 AM »
I have 7 units, leveraged, but not excessively.  I also keep a large cash cushion for new properties or rehabs. 

Iím still going to be looking for deals if I donít end up putting most of that dry powder in the market!

If you are leveraged at 75-80% at each property and are just covering your mortgage, because you speculated on non cash flow properties, youíre going to be in a big world of hurt right now.   


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Another Reader

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Re: Corona vs. Real Estate
« Reply #2 on: March 22, 2020, 08:16:28 AM »
I have 7 units, leveraged, but not excessively.  I also keep a large cash cushion for new properties or rehabs. 

Iím still going to be looking for deals if I donít end up putting most of that dry powder in the market!

If you are leveraged at 75-80% at each property and are just covering your mortgage, because you speculated on non cash flow properties, youíre going to be in a big world of hurt right now.   


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+1.  Bought several in 2009-2012.  Thinking another buying opportunity may be ahead.

rocketpj

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Re: Corona vs. Real Estate
« Reply #3 on: March 22, 2020, 12:32:09 PM »
I'm pretty leveraged for sure, commercial property.  Should be ok (storage units mostly) but I definitely don't expect to keep taking $$ out each month, which was the practice for the last couple of years.

If the shutdown goes on for a long time I will probably start losing tenants, or at least they will stop paying, but it is a comparatively small bill.

I do have two apartment tenants and one of them has been laid off.  Not sure what will happen with him, there is relief coming from the feds (Canada) so if he applies he should be able to pay.  I may have to help him apply (English not his first language).

srad

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Re: Corona vs. Real Estate
« Reply #4 on: March 24, 2020, 09:56:58 AM »
Iím curious if coronavirus is making you rethink that strategy?

What this has done is made me rethink my worst case scenario.  Before this month, i  never imagined a scenario where i could potentially be collecting zero rent checks...  Most vacancies I've ever had at the same time was 2 (out of 8).




alleyquit

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Re: Corona vs. Real Estate
« Reply #5 on: March 27, 2020, 05:03:48 AM »
For the Corona Virus my landlord decide not to take rent for three months and I'm still at the home for one month.

smoghat

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Re: Corona vs. Real Estate
« Reply #6 on: March 27, 2020, 06:55:23 AM »
I sold my property in 2015 and FIREíd. All that keeps me up at night now is whether I already have the virus (probably not, given itís been a week since Iíve last been in a store). Itís a lot better not to have to think about a property full of people who may or may not be sick but certainly couldnít pay the rent, a building manager who would keep working even though he was sick, and no relief in sight. What a nightmare. The best thing to do with apartment buildings is make your money and get out.

waltworks

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Re: Corona vs. Real Estate
« Reply #7 on: March 27, 2020, 08:57:55 AM »
For folks who got 1% rule or better type properties and haven't done anything stupid, this shouldn't be a big problem.

For people (you can find hundreds of threads here) who are only collecting enough rent to pay PITI (or sometimes not even that) but "my area is gentrifying! Appreciation has been 12% per year!", this will maybe be catastrophic.

I have money waiting too. I hope I don't get a chance to use it.

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Bloop Bloop

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Re: Corona vs. Real Estate
« Reply #8 on: March 27, 2020, 06:02:25 PM »
For folks who got 1% rule or better type properties and haven't done anything stupid, this shouldn't be a big problem.

For people (you can find hundreds of threads here) who are only collecting enough rent to pay PITI (or sometimes not even that) but "my area is gentrifying! Appreciation has been 12% per year!", this will maybe be catastrophic.

I have money waiting too. I hope I don't get a chance to use it.

-W

Properties in my city are massively overpriced (median $800k AU) so if this situation causes property prices to go down, I won't be complaining. Will make my future properties cheaper to buy and easier to pay off. I'm all for supporting housing affordability...for owner-occupiers and investors alike! ;)

waltworks

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Re: Corona vs. Real Estate
« Reply #9 on: March 27, 2020, 06:43:22 PM »
Australia has been waiting for a housing crash (and/or recession) for what, 28 years or something?

If/when it happens, it'll be epic. Should make the 2007-2010 US crash look like a kitten.

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Wrenchturner

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Re: Corona vs. Real Estate
« Reply #10 on: March 27, 2020, 09:52:50 PM »
Australia has been waiting for a housing crash (and/or recession) for what, 28 years or something?

If/when it happens, it'll be epic. Should make the 2007-2010 US crash look like a kitten.

-W
Similar situation in Canada.  Unfortunately it seems that our Canadian govt. is wholly committed to keeping the wheels on, and willing to do whatever it takes to keep it going.  Eventually it will break but you know what they say about markets staying irrational longer than people can stay solvent.

This moment will be a big test.  Apparently mortgages are permitted to be deferred for primary residences only.  AirBnB investors and other highly leveraged/tight cash property investors are going to run out of cashflow quick.  We'll see if the govt blinks and decides to bail them out.  Cap rates were already very weak to begin with.

If they don't do a bailout, we'll probably see a nasty price correction(good for me, I guess) and probably some collateral damage in banks, forex, etc.  And the economy more generally.  For all I know, we might see lending and spending seize up almost entirely.

waltworks

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Re: Corona vs. Real Estate
« Reply #11 on: March 28, 2020, 09:29:55 AM »
There are a lot of overleveraged nightly rental "investors" in the US too. If things clear up fast, they'll mostly be ok. If it's 6 months or more, they will all default.

Honestly, where I live, that might be a good thing. There are a ton of local gov't workers, teachers, etc who can't afford to buy a place because of the inflated prices due partly to nightly rentals. A significant drop, while on paper making me much poorer, would be a great thing for the community so long as the overall economy eventually recovers.

-W

Another Reader

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Re: Corona vs. Real Estate
« Reply #12 on: March 28, 2020, 01:41:02 PM »
There are a lot of overleveraged nightly rental "investors" in the US too. If things clear up fast, they'll mostly be ok. If it's 6 months or more, they will all default.

Honestly, where I live, that might be a good thing. There are a ton of local gov't workers, teachers, etc who can't afford to buy a place because of the inflated prices due partly to nightly rentals. A significant drop, while on paper making me much poorer, would be a great thing for the community so long as the overall economy eventually recovers.

-W

Seeing a few former AirBnB type rentals go up for sale or long term lease in the Phoenix area.  The ones that are fancier than the surrounding neighborhood are going to struggle with the competition.  The premium associated with upscale short term rentals is vanishing.

Wrenchturner

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Re: Corona vs. Real Estate
« Reply #13 on: March 28, 2020, 03:45:27 PM »
There are a lot of overleveraged nightly rental "investors" in the US too. If things clear up fast, they'll mostly be ok. If it's 6 months or more, they will all default.

Honestly, where I live, that might be a good thing. There are a ton of local gov't workers, teachers, etc who can't afford to buy a place because of the inflated prices due partly to nightly rentals. A significant drop, while on paper making me much poorer, would be a great thing for the community so long as the overall economy eventually recovers.

-W
The premium associated with upscale short term rentals is vanishing.
Interesting point!

Bloop Bloop

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Re: Corona vs. Real Estate
« Reply #14 on: March 28, 2020, 09:37:56 PM »
There are a lot of overleveraged nightly rental "investors" in the US too. If things clear up fast, they'll mostly be ok. If it's 6 months or more, they will all default.

Honestly, where I live, that might be a good thing. There are a ton of local gov't workers, teachers, etc who can't afford to buy a place because of the inflated prices due partly to nightly rentals. A significant drop, while on paper making me much poorer, would be a great thing for the community so long as the overall economy eventually recovers.

-W

But how do you know that after the drop the people buying in will be teachers and local government workers instead of investors like you and me? It will all come down to income and borrowing capacity. Sure, some investors will be out of the game because they're too heavily leveraged - but this also applies to some home-owners who took on too big of a mortgage for a residence.

If property goes down significantly in price I'll be looking to buy in heavily as an investor - following the Buffet principle.

Wrenchturner

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Re: Corona vs. Real Estate
« Reply #15 on: March 29, 2020, 04:44:34 AM »
There are a lot of overleveraged nightly rental "investors" in the US too. If things clear up fast, they'll mostly be ok. If it's 6 months or more, they will all default.

Honestly, where I live, that might be a good thing. There are a ton of local gov't workers, teachers, etc who can't afford to buy a place because of the inflated prices due partly to nightly rentals. A significant drop, while on paper making me much poorer, would be a great thing for the community so long as the overall economy eventually recovers.

-W

But how do you know that after the drop the people buying in will be teachers and local government workers instead of investors like you and me? It will all come down to income and borrowing capacity. Sure, some investors will be out of the game because they're too heavily leveraged - but this also applies to some home-owners who took on too big of a mortgage for a residence.

If property goes down significantly in price I'll be looking to buy in heavily as an investor - following the Buffet principle.

Isn't this a question of how many people went in overleveraged vs. how many people went in with reasonable leverage?  Seems to me there are more properties owned by the overleveraged, not only due to headcount but since the overleveraged own more properties per head!  I suppose we will find out.

smoghat

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Re: Corona vs. Real Estate
« Reply #16 on: April 19, 2020, 02:42:57 PM »
I was thinking a friend who purchased a country house as an AirBNB property was a little crazy since he didnít own an apartment. He bugged out there when the virus got bad, now he is ready to move there and get rid of his city apartment. So I stand corrected!

May all the gods, new and old, help anyone owning a larger apartment building. 

NonprofitER

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Re: Corona vs. Real Estate
« Reply #17 on: April 20, 2020, 09:49:44 AM »
Lots of talk about this on the Bigger Pockets (real estate website) threads, if you're interested in reading more there. 

Most seasoned investors are smart enough to have some solid cash reserves. 

We own three units and thankfully, have not been effected. Two of the three units are rented by grad students whose university programs/co-signed parents help subsidize their rent. I was thinking they might opt to move home with the university going online til Fall, but this has not been the case.  One set just renewed their lease for another 12 months, which was a relief.  We do have cash reserves to pay for all three units empty for a while, but obviously no one wants to run those down if you don't have to. 

Our third tenant utilizes a government program for VA veterans, not unlike Section 8.  No instability there. It made me glad to have this diversity in our portfolio, since even if the other two units ended up empty, the cashflow from the VA unit could help cover the PITI's on the other two.  All of our units kick off good cashflow after saving for CapEx, vacancy, reserves, etc., so we have wiggle room to lower rents in a serious crunch.  Pre-pandemic I was hoping to refi one unit we had rehabbed and pull out some cash, but I'll likely leave it be for the time being since bank appraisals are likely to be very conservative.

While I wouldn't wish financial distress on anyone, I am hoping for an opportunity to buy another couple of units in the next 12 - 18 months.

kamalesam

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Re: Corona vs. Real Estate
« Reply #18 on: April 22, 2020, 07:18:44 AM »
If tenants cannot pay, then I will consider alternatives. So far, even despite the difficult situation, all my tenants have assured me that there will be no problems with payment. What do you think about the real estate market in general? Will the current situation shake prices strongly? Before this whole situation, I was considering buying an apartment from the developer https://korter.com.pl/, and now I can’t understand what is the best way to proceed. The situation is rather uncertain.
« Last Edit: April 30, 2020, 06:41:02 AM by kamalesam »