Updated: Apr 23, 2020
Summary:In this article, find out if buying investment property during COVID-19 is a good opportunity. Also learn how to choose a strong real estate market and where the strongest housing markets are right now. Finally, discover important factors to consider before investing during the pandemic.
When stocks drop and a recession seems imminent, it causes a lot of people to assume the same thing is happening in the housing market. When in fact, home prices actually increased during three of the last five recessions. Sometimes, investing in a recession can actually be the best time to buy real estate because it’s less volatile than the stock market. Plus, there isn’t as much competition from other buyers. The smartest real estate investing strategy during these times is finding properties that cash flow today but also have a great chance for appreciation over the long term.
In 2008, thousands of homeowners lost their shirts due to the housing bubble bursting. However, it’s important to note that single-family rentals actually performed positively as a whole. That’s because people are always going to need a place to live, even during times of recession. Yet another reason so many investors consider real estate to be a safe haven.
The trick (not really a trick at all) is to look for key indicators of a strong real estate market and invest there. The question is, which housing market indicators should we be paying attention to during the COVID-19 pandemic?
5 Steps: How To Choose a Strong Real Estate Market During COVID-19
Is buying investment property during a worldwide pandemic, with seemingly no-end-in-sight, a smart decision? Interest rates are so low right now, it makes cash flow on affordable rental properties even stronger in most markets. BUT have we hit bottom yet? It would be pretty safe to say that we just don’t know. Some metro areas are seeing strong sales activity today while others have slowed down quite a bit. This is why it’s so important to look carefully for areas that have strong population growth mixed with affordable housing – especially during these volatile times.
Step 1: Look for Historically Strong Markets
To determine a good real estate market, we almost always look at the following indicators: job growth, population growth and affordability. The question is, should we still be looking at these three trends or should we be paying attention to others?
When looking for a strong market, it’s important to identify areas that have jobs “of the future.” This would include technology, health care, bio-tech, military, and higher education. Look at the job growth prior to changes from COVID-19. Will the industries that are hurting right now come back? Look for markets with affordable housing and stable, resilient economies.
Step 2: Avoid Areas That Have Dipped Really Hard
States and cities with already weak economic foundations are expected to fall the hardest from the effects of COVID-19, and may have an even harder time recovering. An example would be North Dakota, an area already struggling from the oil collapse of 2015. The area is even more challenged today, along with other towns in Okalahoma, Pennsylvania and Texas that have an oil-based economy.
Big cities like New York, Los Angeles and Chicago are getting hit hard, but these areas generally have very strong economies. Unfortunately, they are still very expensive – even today, so it’s difficult for most people to buy real estate in these areas – especially real estate that cash flows. Growing metros that are both affordable, and have diverse economies may experience a small dip, but will likely be quick to recover. Avoid those areas that were already struggling pre-COVID19 and look for opportunities in resilient markets where home values are stable.
Step 3: Go Where the Jobs Were & Will Likely Return To
Certain job sectors are growing, even today. It’s helpful to look into past trends to see if a market showed steady job growth before the COVID-19 crisis. It’s likely this trend will continue when the dust settles. Amazon warehouses, for example, were already a growth trend, but are even more so today. The same is true for the health care and tech industries.
Look for places with big industries that employ a lot of people but are now on hold, due to “stay-at-home” orders. For instance, Disney has been forced to furlough tens of thousands of employees in both Orlando and California. Or Chicago, where workers in service industries have been highly affected, but their job growth has historically been steady and their rental demand remains high. These areas have very diverse employment and tend to overcome recessions quickly.
Businesses will start up again and the economy will recover. And many businesses haven’t stopped at all, as they have been deemed “essential,” like hospitals, military, and distribution centers. In the meantime, real estate investors may not see lower housing prices due to the fact that there has been a shortage of housing up until now, but they may have access to more desirable inventory that was difficult to obtain over the past years due to strong competition of buyers nationwide
Step 4: Are People Still Moving There/Will They Be?
Just like job growth, population growth prior to the pandemic should be considered when choosing a strong real estate market. Spring is usually the time when real estate deals pick up and people begin making moves as summer approaches. But in 2020, fewer people are choosing to relocate.
Population growth may certainly slow down in many U.S. markets, but there may be people who have lost their jobs and are simply looking for work in less impacted areas and stronger economies. At RealWealth, we are continuing to see strong migration trends to Texas, Georgia, Alabama and Florida.
Step 5: Invest for Potential Appreciation, Not Cash Flow
The stock market has been declining since the spread of the Coronavirus has intensified. Some investors pulled their money as soon as they could, while others looked for ways to lower risk by looking for investments to diversify their portfolio.
Real estate has proven to be a great way to protect assets, particularly when the economy is suffering like it is now. Buying investment property for cash flow could be better than ever today due to low interest rates and increasing rental demand as fewer people are able to afford to buy a home. The pay off will be both long term appreciation and cash flow.
Markets That May Have Good Investment Opportunities Right Now
Follow the five steps listed above as you research housing markets that may have good investment opportunities during COVID-19. Here are some options for possibly the best places to buy rental property in our current situation.
Please note: Real Wealth Network, LLC is an educational company and is not acting as a real estate broker. Always seek the services of licensed third party appraisers and inspectors to verify the value and condition of any property you intend to purchase. Never send funds directly to a seller but instead, use the services of professional title and escrow companies. Check in with RealWealth® before purchasing property to verify that property teams and markets have not changed in quality or performance. RealWealth® does not provide legal, tax, accounting, or other professional advice. Nothing on this website email is intended to form a contract or binding legal commitment.
Disney World just announced that they will be furloughing its employees indefinitely, following last month’s closure. Walt Disney World in Orlando encompasses Animal Kingdom, the Magic Kingdom, Hollywood Studios and Epcot theme parks, employs around 77,000 and brings over 52 million visitors every year, along with billions of dollars in revenue.
As of April 10th, more than 170,000 residents of Florida have applied for unemployment benefits. Needless to say, the housing market in certain parts of Florida is at a higher risk to suffer due to the Coronavirus. But because we know Orlando will eventually bounce back, this market could present an interesting opportunity.
However, Miami is the area most affected in Florida by COVID19. Florida offers much more than Mickey Mouse. Orlando, Tampa, and Jacksonville have a strong military presence, universities, hospital systems, port systems and technology sectors. Many workers have continued to work either from home or as “essential” businesses.
Anaheim (Orange County)
Real estate investors generally should avoid “bubble” areas like Anaheim (and California as a whole) with super overvalued home prices. But many experts in real estate, including myself, expect the top-tier housing markets to get hit the hardest.
Orange County’s economy is already seeing a major hit due to the Coronavirus. The Disneyland Resort closed in March causing a huge drop in tourists, and subsequently impacting the surrounding hotels and restaurants.
Cal State Fullerton’s recent study shows that Disneyland contributes $8.5 billion annually to the economy in Southern California. It also produces over $500 million in state and local taxes (as of 2018).
Disneyland has announced that they will furlough their employees (over 31,000) during the COVID-19 pandemic. Which means, employees will keep their jobs, but won’t be paid.
We know that the OC has a solid economy and will eventually come back. And with its insanely high home prices, it might be worth keeping an eye out to see if you can snag a deal on an investment property or finally purchase the primary residence of your dreams.
Low housing inventory coupled with high demand in the Detroit metro has driven home values up over the last several years–but generally homes are still pretty affordable. Detroit’s economy as a whole has been improving steadily, especially since the Great Recession of 2008. This has a lot to do with Michigan being home to some of the world’s largest automobile manufacturers.
Car sales across the U.S. are expected to take a massive dip, so Michigan’s economy will likely suffer causing the housing market to slow down too. How much will it slow down and what should potential buyers do? Answers remain unclear as we continue to see emerging effects of the pandemic.
For real estate investors looking to buy in the Detroit area, there should be less competition right now and high rental demand. Don’t forget, right now the best investing strategy is long-term and buying during times of uncertainty, when others are afraid to, could very well pay off in the future. The Big Three are expected to participate in some of the massive bailouts.
With over 50% of Chicago’s population renting, this metro continues to be a good place to invest in rental property, even right now. While the number of real estate deals has slowed due to COVID-19, Chicago is known to have one of the most stable and balanced economies in the United States.
Even with soaring unemployment rates, huge cities like Chicago aren’t going anywhere. The economy will swing back, steady job growth will pick up again and high rental demand will continue.
Investors who bought rental properties in Chicago with Section 8 tenants are largely unaffected by COVID19 because the rent is paid by the government.
Indiana is one of the least affected states in the country in terms of the number of employees who work in severely impacted industries. But it’s #19 on the list of states whose economies are most vulnerable or “exposed” to COVID-19.
This poses an interesting question because the Indianapolis metro is a big hub for healthcare (IU University Hospital, St. Vincents) and education (Purdue and Indiana University). Industries that both strengthen and stabilize their overall economy, especially during a global pandemic. It also has a big bio-tech industry with Ely-Lily helping to build test kits and find the cure for COVID19.
While Indiana’s state economy may be negatively affected by the Coronavirus, the housing market and overall economy in Indianapolis seems to remaining solid. FedEx bought an older airport in Indianapolis and has made it it’s 2nd hub in the U.S.
There will certainly be less demand as people hunker down and avoid any big financial decisions. This could present a perfect opportunity for real estate investors to invest in Indianapolis. RealWealth’s preferred property management company in Indianapolis has experienced a record number of rental applications of qualified tenants during the month of March and April rents were paid “as usual.”
Atlanta is home to the CDC’s headquarters and according to a study by WalletHub, Georgia has the least vulnerable economy to the COVID-19 pandemic. Fewer people are employed by small businesses and Georgia’s unemployment rate increase is the second lowest in the nation, second only to Utah.
We already like buying investment property in the Atlanta metro and because Georgia’s economy shows strong signs of stability, so this market could present excellent opportunities right now.
Nevada experienced the third highest increase in the number of unemployment benefit claims following the Coronavirus outbreak. It’s also the fifth highest state in terms of the amount of employees who work in highly impacted industries, like hotels, casinos, restaurants, bars, etc.
With the Las Vegas strip basically shut down, it doesn’t come as a surprise that the state as a whole has one of the most at-risk economies in the nation right now. It’s still early to make any definitive predictions, but it’s likely Nevada’s home values may see a decrease, offering potential real estate investors a chance to buy undervalued property – but not yet. It may be awhile before people are willing to gather in large groups.
More Factors To Consider When Investing During the Pandemic
May Be More Difficult to Find Renters
One might think it would become a bit more complicated to find renters in the midst of the COVID-19 pandemic as social distancing has forced only virtual interactions. However, technology has allowed many industries, including real estate, to continue doing business as usual – but with masks and staying 6 ft apart.
So far, the property managers within our network have seen April rents come in as normal, with a record number of rental applications. Perhaps more people are looking to “shelter in place” in a nice rental home with a backyard for the kids and pets.
If you’re looking for strong markets with high rental demand, consider that 50% of people living in the Chicago metro area are renters. If there was high demand for affordable rentals before, there should continue to be in the future.
Section 8 Might Be A Good Option
Section 8 landlords are breathing easier than other landlords right now. Government subsidized housing, like Section 8, comes with government-backed rents. So, if your tenant is unable to cover their portion of the rent, the government still sends their portion of the rent to Section 8 landlords. Some Section 8 tenants have their full rent paid for by Section 8.
Find out more about where to find Section 8 properties for sale and if this could be a great place to invest right now.
You Can Always Raise the Rent Down the Road
Just because many renters are strapped for cash right now doesn’t mean there won’t be an opportunity to increase rent when the economy stabilizes and people return to work. Remember, buy investment property right now for future appreciation and cash flow, not immediate profits. The name of the game is patience and those who are willing to wait could see a pay off down the road.
Please note: In most states, landlords must wait until the initial term of the lease is up before raising rents.
Real Estate Will Outperform the Stock Market
Tenants are required to pay rent, even during a recession. Evictions stay on someone’s record for a long time and make it difficult for people to qualify for rentals in the future. Most people value living in a home today more than ever. All 15 property managers in our network have not seen an uptick in delinquencies for this reason.
Owning rental properties is much more stable than other types of investments, like the stock market for example. Historical trends show the real estate market is relatively unaffected by stock market volatility – another positive sign for investors like us.
Buying investment property during the COVID-19 pandemic may be a great opportunity–if you buy smart. Historically strong markets with fundamentally sound economies will recover faster than others. Don’t be afraid to look outside the box. We’ve never been in this situation before so predictions are just that, educated guesses. Unique opportunities for investors are still out there for those willing to look.
Author: Kathy Fettke . She is the Co-Founder and Co-CEO of RealWealth. She is passionate about researching and then sharing the most important information about real estate, market cycles and the economy. Author of the #1 best-seller, Retire Rich with Rentals, Kathy is a frequent guest expert on such media as CNN, CNBC, Fox News, NPR and CBS MarketWatch.
This blog post is the intellectual property of its author.
Damond Home Acquisitions, LLC is posting it for informational and educational purposes only, and does not claim any ownership of this content.