The Coronavirus pandemic has taken over every aspect of our life, including real estate. When hit by a calamity of this magnitude, it is important for investors to analyze the situation carefully and draw conclusions on how to tackle their real estate investments in future cases of uncertainty and recession. Here are the 6 most important real estate lessons which the outbreak and spread of COVID-19 are teaching us.
Real Estate Properties Are the Best Investment Strategy
One of the oldest dilemmas in the investment world is stocks vs. real estate. Both investment strategies have plenty of promoters and distractors as they offer different advantages and disadvantages.
The COVID-19 pandemic is about to settle this dispute once and for all. The US stock market started showing signs of an impending crash as early as February when the Dow Jones, Nikkei 225, and the S&P indexes took on a downward trend.
Meanwhile, different US real estate markets have been affected by the Coronavirus pandemic outbreak in varying ways and to variable degrees. Naturally, areas with the highest numbers and concentration of COVID-19 infections such as the NYC housing market and the Seattle real estate market have been impacted most seriously.
Nevertheless, nationwide real estate data analysis based on current real estate market trends and performance during previous pandemics shows no signs of an upcoming US housing market crash in 2020. Experts don’t even expect a switch to a buyer’s market this year. Similarly, home prices in 2020 are not forecast to decline significantly, if at all, based on experiences from previous pandemic outbreaks. At the same time, a stock market crash 2020 still remains a feasible scenario.
Related: Coronavirus Real Estate Update: Is a Buyer’s Market on the Way?
In the past couple of weeks buying and selling real estate has definitely undergone major changes to protect the health and safety of all involved parties including real estate agents and brokers, homeowners, property buyers and property sellers, and real estate investors. Nevertheless, activity has not ceased. Even more importantly, the fact that property values have not taken a downward plunge demonstrates the relatively few risks associated with investing in real estate, even at times of an economic crisis.
COVID-19 is teaching investors that residential real estate investment is the optimal strategy, even in face of a pandemic. Buying an investment property to rent out is a low-risk strategy, especially compared to investing in stocks.
Location Is Key
As mentioned above, the effect of the Coronavirus pandemic has been different on different areas within the US real estate market. The housing markets with the largest number of infections have been most impacted. This is in terms of property prices, number of listings, rental activities, and Airbnb business performance.
A good indicator of how important location is in times of a pandemic accompanied by an economic crisis is the performance of Airbnb rental properties. For example, Airbnb NYC – the epicenter of the COVID-19 outbreak – experienced a major drop in the short term rental industry. The Airbnb occupancy rate in the New York real estate market decreased from 70.7% in March 2019 to 49.3% in March 2020. Mashvisor’s Airbnb data also reveals a sizeable decline in Airbnb income in the same period: from $3,260 to $2,350.
Related: The Effect of the Coronavirus on Airbnb NYC
The situation with vacation home rentals is similar in the Seattle real estate market. The Airbnb occupancy rate there underwent a negative change from 74.3% in March 2019 to 54.0% in March 2020. Airbnb Seattle hosts are also experiencing a drop in rental income: from $2,890 to $2,250.
Related: The Effect of the Coronavirus on Airbnb Seattle
Meanwhile, Airbnb hosts in some smaller, isolated locations such as Joshua Tree are reporting an increased demand. New Airbnb guest groups have emerged, comprised of the elderly, families, and remote workers.
With regards to general real estate activities, there have been major differences too from one location to another within the US housing market 2020. In response to the Coronavirus pandemic, many states, counties, and cities have ceased all related activities such as showings, open houses, and others. Other locations like the Bay Area housing market and the New York City real estate market deemed real estate an essential business, so agents and brokers can continue to work under certain safety and health regulations.
Thus, the second real estate lesson to be learnt from the current pandemic is that at times of crisis location becomes an even more important factor in the residential property industry.
Traditional Rentals Are the Safest Real Estate Investing Strategy
The outbreak of the Coronavirus is showing real estate investors something very significant about the optimal rental strategy. Namely, under the current conditions in the US housing market, traditional rental properties have emerged as the better real estate investment strategy, both for beginner and experienced investors.
It is true that in many locations landlords are concerned about the inability of their tenants to pay rent in the coming months. To make matters worse for investors in long term rental properties, many local authorities have issued orders preventing evictions in case of missed rent payments during the pandemic. In times of economic crisis, it is important to protect the most vulnerable, including renters.
However, real estate investors should not feel at a disadvantage either. The government has taken measures to assure the well-being of their rental business as well. For one, if you used a federally backed loan for buying an investment property, you can request a mortgage forbearance for up to 180 days. This is one of the provisions of the CARES Act which helps a landlord avoid a foreclosure even if he/she does not receive rental income as a result of the COVID-19 pandemic.
Related: How the CARES Act 2020 Will Impact Real Estate
Under the CARES Act, being a real estate investor makes you eligible for small business loans. You can use such money to cover the mortgage interest and utility costs of your traditional rental property.
What distinguishes long term rental properties from short term rentals at the moment is that the former have not witnessed any significant drop in demand. People always need a place to live, no matter if there is a crisis or not. Very few – if any – tenants will be forced to leave their rentals in the coming months because of the legal protection from eviction. Rental rates are also not expected to drop majorly as they are much less sensitive to economic and social changes than Airbnb daily rates. This means that traditional rental income in the US real estate market is not expected to undergo major declines.
At the same time, the negative impact of the Coronavirus on the Airbnb rental business was immediate. Airbnb hosts started losing income right away. Airbnb guests started massively cancelling their reservations as soon as COVID-19 reached the US.
The current pandemic is showing that buying an investment property to rent out on a long term basis is the most secure form of real estate investing.
Airbnb Investors Have to Be Flexible
Current developments in the US real estate market do not mean that the Airbnb rental industry is doomed. To the contrary, it still has a major potential as proven by the success of some real estate investors in the past few weeks.
The pandemic is teaching us once again that flexibility is a must in the short term rental industry. Airbnb hosts in many major US cities were already finding themselves under fire way before the outbreak of COVID-19. In recent years local authorities prohibited non-owner occupied vacation home rentals in some of the most important markets such as New York City, Los Angeles, Miami, Boston, San Diego, Las Vegas, Chicago, San Francisco, and others. Those who have bought investment properties for the sole purpose of renting them out on Airbnb or other homesharing platforms had to find ways to continue making money in the new legal reality.
Thus, the Coronavirus pandemic is just another challenge which Airbnb hosts are sure to overcome. Importantly, they are not alone. The platform released a $260 million Airbnb relief package to provide compensations to hosts whose bookings between 14 March and 31 May get cancelled. The CARES Act provisions also cover the needs of investors in short term rental properties in some cases.
Last but not least, even if hosts are facing drastic declines in Airbnb occupancy rate and Airbnb income from tourists and business travelers, there are other groups of guests to whose needs they can cater at the moment. For instance, many doctors have relocated away from home to assist the locations most affected by the COVID-19 pandemic. Some of them are choosing to stay at vacation homes which hosts are offering to them at discounted rates. The elderly and other vulnerable groups are also looking for a safe haven in more secluded locations. Third, some people working remotely prefer to leave the busy cities with major Coronavirus outbreaks and move to short term rental properties in safer places.
Related: What Airbnb Hosts Can Do with Their Rental Properties during the Coronavirus
The pandemic is showing that those who aspire to invest in Airbnb should not give up. However, they should demonstrate flexibility and adaptability.
Virtual Reality Is Taking Over
Even though real estate is a relatively traditional industry, real estate technology has been slowly imposing itself in recent years. The Coronavirus pandemic is definitely accelerating this process.
Real estate agents as well as property sellers in all US housing markets have switched to virtual tours. Even in locations where real estate is declared an essential business, agents are advised against holding showings and open houses.
The advancement of real estate technology has made virtual tours accessible even for beginners. With available tools agents and homeowners don’t need a professional to create virtual tours of homes for sale and post them online.
The outbreak of COVID-19 is showing us that the time is ripe for the disruption of the real estate industry where virtual reality will become the new normal.
Real Estate Investment Tools Are Crucially Important
Property tours is not the only aspect of the real estate business which is going virtual in response to the current pandemic. Actually, the past decade has seen the emergence of a myriad of real estate investment software tools which both investors and agents find particularly handy at the moment.
For example, manual real estate market analysis and rental property analysis are impossible at the moment, under the shelter in place policy. Real estate investors can’t walk around neighborhoods looking for real estate comps and rental comps to decide on the fair market value of a home they are planning to buy and on how much they should rent a house for.
What they can do instead is to use Mashvisor’s real estate investment app to conduct rental market analysis and investment property analysis from the safety and comfort of their home. The real estate investment tools available on the Mashvisor platform help investors search for and analyze investment properties for sale quickly, efficiently, and safely.
Our real estate investment software gives investors access not only to MLS listings but also to foreclosures, short sales, and bank-owned homes and even to off market properties listed by other investors or homeowners. For all listed properties, property buyers are provided with homeowners data as well as a user-friendly CRM platform to contact them by phone or email, without the need to leave their home amid the COVID-19 pandemic.
To start searching for rental properties for sale in any US market from the safety and comfort of your own home, sign up for Mashvisor now with a 15% discount with promo code BLOG15.
Mashvisor is not the only online tool which real estate investors should use at the moment. There are numerous other platforms which help investors with long term rental and vacation rental property management, tenant screening, homesharing, unlocking properties, and others.
The last real estate lesson which the Coronavirus spread in the US housing market is teaching us is that the industry is no doubt on its way to disruption through the adoption of technology, AI, predictive analytics, and big data.
The COVID-19 pandemic is something that we have not experienced in modern time. As such, it is showing us some important facts about the real estate business. While we’ve known some of those (that location is crucially important, for example), others are more novel (that virtual reality and technology are the new reality in this traditional industry, for instance). Both real estate investors and agents should keep these key lessons in mind as we start emerging from the pandemic and going back to our normal lives.