People hoping to build up a long-term investment and secure their wealth for years to come have traditionally looked to real estate as a reliable option. In times of crisis, such as the recent COVID-19 pandemic, it can become more of a challenge to make a profit in real estate, but for shrewd investors, it’s certainly not impossible.
The COVID-19 effect
Industries around the world, as well as stocks and oils prices, have been rocked by the pandemic, but has real estate suffered in the same way? In many ways, it has — a shortage of new homes, a movement to suburban living, and a reluctance to sell among homeowners has contributed to a harsh market.
How a housing crisis begins
In a healthy housing market, there is around a six-month supply of properties ready to hit the market. This means that anyone looking for a place to buy will be able to get what they want for the next six months at least, and there’s a good balance between supply and demand. A shortage begins to happen when this six-month period is reduced, creating a market that’s more favorable to sellers — because people are struggling to find properties.
A move away from urban areas
Although demand for housing was low during the lockdown, this slowly began to change as people left urban environments for smaller towns and rural homes. This trend was amplified by the lack of building taking place. It’s hard to keep a supply chain running when there’s a national lockdown and shortages can quickly snowball. This was compounded by a catastrophic natural event. We all saw the devastating wildfires that stretched across the west of the US, and this produced a lumber shortage. In turn, the price of lumber rose, making it harder to build the type of homes that investors are willing to make a play for.
Fewer good homes for sale
Boulder City Council candidate Steven Rosenblum has spoken out about the shortage of affordable homes in his city and the importance of creating a good “housing mix and housing quantity” — a challenge that is facing many towns across the US. Aside from a lack of new builds, fewer homes are becoming available because people are unsure of the market. Moreover, after being in lockdown, working from a home office and losing money during the crisis, many homeowners are opting to renovate their living spaces instead of upgrading to a large home.
Does a crisis present any opportunities for real estate investors?
Although the housing market lacks stability, there could be opportunities for investors who are willing to become involved with industrial and retail real estate. In times of financial crisis, the high street sees a downturn in sales, and coupled with the boom in online buying, many businesses may want to sell their brick-and-mortar assets. Similarly, many office blocks are now too large, as the army of people working from home has dramatically reduced the physically present workforce. This phenomenon is also likely to result in businesses selling their property or downsizing to smaller premises.
Developments and repurposing
Office blocks and retail outlets in cities can be repurposed by real estate investors to become coffee shops, gyms and restaurants that are more suited to the lifestyle of local residents. If this seems like a risky strategy for some, they may prefer the relative security of rural real estate space. Both during the pandemic and afterwards, people have been drawn to large outdoor spaces and the relative quiet of smaller towns. In order to support this movement, buildings in more secluded areas could become repurposed as farmers’ markets, dance studios and homes. The suburbs have become increasingly attractive to buyers as the crisis has deepened. This means that suburban houses are likely to see their value increase and are therefore a good risk. Just be wary of paying too much for a property you are treating as an investment.
Fixing, flipping and selling up rental properties
People who have already amassed a portfolio are more likely to do well in times of crisis than new investors. They are in a position to sell their assets to reinvest elsewhere, flip the homes they have for a profit, or fix up their rental properties and find new tenants. This can be a particularly lucrative plan for landlords with suburban rentals, as they can capitalize on the movement away from city life towards working from home in smaller towns.
Consider your options
Real estate investing is not for the faint-hearted, and as ever, those who act smartly and swiftly in response to trends are likely to be the survivors. This is true not just in the midst of this crisis, but also for the future as the industry rises out of the current situation and begins to remodel itself.
