Unemployment's up, income's falling. Will owners of investment properties survive?
Even with the number of COVID-19 cases now well over a million, and the US rapidly catching up to Spain and Italy in the number of coronavirus deaths, the paralysis that has stricken the global economy is still, unbelievably, in its early stages. Over 6 million Americans have already filed for unemployment.
That is nauseating news for landlords across the country, who, already confronted with the possibility of months of missed or reduced rent payments, are now seeing stories about rent strikes pop up in their newsfeeds like mushrooms.
In tough times like these, investors can be blinded by short-term fixes. HouseCanary CEO and founder Jeremy Sicklick encourages them to keep an eye on the long game and their overall financial health.
“First, pay your mortgage,” he says. Forbearance is an option for many property owners, but as Sicklick explains, it is often only once component of a larger program, the details of which might be elusive for some investors. Any misinformation or assumptions could be both costly and damaging to an investor’s credit rating. “Reach out to your mortgage company,” he advises. “Don’t just skip out on paying.”
A high percentage of landlords in the US, either intentionally or not, have little contact with their tenants. That lack of a relationship could inflame any tensions sure to arise when renters are faced with a potential inability to pay. Sicklick says now is the time for investors to make contact and provide solutions for their tenants.
“It is critical that if you’re a small investor working through with your renters to try to keep them in their property and help support them during this time,” he says.
If owners and their tenants are able to work together, the rents, in some form, should keep flowing. That will be key to survival for investors, as Sicklick estimates rent values will not be increasing in the near future. The law of supply and demand may be the only thing to survive COVID-19 intact.
Sicklick is optimistic that sales activity, which he says has fallen 80-90%, will return in the third or fourth quarter of 2020, helping firm up prices and drive appreciation. Until then, damage will be done, the extent of which is anyone’s guess.
“Right now, the impact to real estate is going to be driven by how long we have a shut down for and what happens to unemployment,” he says. “Everything’s grinded to a halt, so until we start seeing some transactions flow, we don’t really know how bad the impact’s going to be on your $300,000 home. Is it now worth $200,000? $270,000? I think we’re going to know more in the next few weeks as we climb out of this and we start to see some transactions coming through.”
Comparisons to the financial Chernobyl of 2008 abound, but Sicklick says it’s too early to say if the shockwaves from COVID-19 will be enough to completely destabilize the U.S. housing market.
“The real question is are there going to be a lot of foreclosures and deep distress in the market, or is the government, or government programs, going to help enough people bridge through so that we don’t have that kind of distress,” he says. “If the government programs do not work and ultimately a lot of jobs don’t come back, it could look as big, if not much bigger than what we saw during the global financial crisis.”
Barring that apocalyptic scenario, Sicklick feels there will be no shortage of opportunities for investors looking to expand their portfolios once the market is back on its feet. He encourages well-capitalized investors to start getting ready now.
“Start thinking through and identifying markets and sub-markets where you would be interested in acquiring more properties, because you will see prices come down. You will see opportunities to invest at lower prices. Real estate prices will recover here, and it will likely be a very good buying opportunity for people with access to capital.”
Sicklick’s optimism is more than just talk. Rather than wait out the pandemic, HouseCanary recently acquired DropModel, whose tech supplies financial models professional investors can use to underwrite their investments in single-family homes.
Let’s hope investors find reason to use it in the coming months.
