Ok, so I'm willing to bet you've never spent so much consistent time in your house, before these prior few weeks - that is assuming you've never been bed ridden for any reason or on house arrest or anything like that. But I'd imagine house arrest must feel somewhat like this experience of largely remaining in and around the house on otherwise beautiful days - when you'd rather be out doing something. But here now, your house has become the center of your universe - not just where you return in the evening to eat dinner, watch a little TV and sleep. What impact might this have on Real Estate Investing?
Welcome to Episode #54 - Now It's All About Home
So like everyone else, I've been on lock down in my house for weeks. I've played monopoly, cards, domino's... I've done some home projects around the house (in fact my wife is not entirely happy with me for repeatedly going to Lowe's and Home Depot). She doesn't want me out around other people not in our house. I finally watched Avenger's Endgame on Disney Plus, along with started watching The Mandalorian with my son - because Disney Plus is FREE for a year if you have Verizon Unlimited cell phone service.
I'm really becoming accustom to my home - it's now all about the home (and what's in it) - which is family. I'm now thankful that I had previously done so much to make my home a sanctuary.
I can make my coffee - even Cappuccino and Lattes with my Keurig Cafe. My breakfasts, lunches and dinners are great - since I've got (not 1, not 2, but 3) freezers in my home to stock up. Which I had done well before any of this got started - as that's just how I roll. Not a full-on "Doomsday Prepper", but I like to be prepared.
I've got my fully adjustable bet, that's great for working, relaxing, watching TV and sleeping - all in the same place. Got my fiber connection from AT&T with up to 1GB speed, so I can work, my son can play on his X-Box, while we all stream from multiple devices. I've even taken time to play some Star Wars Battlefront with him - something I haven't done in awhile before all this.
I've got an office in my house for when I need to have silence for a meeting - and things like recording this Podcast. Pretty much everything I need is right here. And good thing, because it looks like I'll be stuck at home (like everyone else) for awhile. And I'm not looking forward to becoming a home school teacher here next week now that my son's spring inner session is over.
It's all about the home... So how do you feel about investing in them (Real Estate) during a Global Pandemic?
So just last week, during a global pandemic where much of the country (and the world) is essentially shut down - I closed on 3 additional Townhouse units in a community where I already own several that each rent very well. And I could have come up with no end of reasons to back out of the purchase. Like I said - global pandemic - everything shut down - we're all on lock-down in our homes - people are freaking out - recession looming - will Tenants even be able to pay their rent? I could go on and on...
Do you really want to be using your cash to buy Real Estate at a time like this!? I've heard and could make convincing arguments on either side - as to why now's a perfect time to buy; and why now is the time to sit on the sidelines and stack cash for the coming price drop - which is THEN the time to buy.
In this case (for me), I decided to proceed to closing on all 3 for a number of reasons. First, I didn't have to part with any cash for this purchase. My price for each property was far enough below their ultimate value (even when accounting for rehab required) - that I was able to get a loan against one from a Private Lender, that gave me enough cash back at closing to cover my down-payment and closing costs for the other two. In fact, I still had over $3,000 left over. And that's even before I pocketed another $7,000 for acting as my own buyer's agent on the transactions. That's why it's great to be a Realtor if you're a Real Estate Investor. It almost feels like cheating when you get paid for buying your own property.
So I was effectively able to get paid over $10,000 to buy 3 properties. Nice, right? And whereas I purchased the first with funds from a Private Lender; I got the other 2 with Hard Money Loans that included additional rehab funds. So I won't even likely have to come out of pocket for the rehabs of these - two of which are already occupied and therefore generating income from day one. And I got these closed just in the nick of time - before the Hard Money Lending industry essentially changed all their terms, and many have taken a pause on even making new loans.
So while others are retreating in fear - I took another look at these properties, and decided that they were good deals. I was thinking along the lines of the Warren Buffet quote... "Be fearful when others are greedy; and be greedy when others are fearful". I didn't want to back out for fear of all that's going on now and lose both my due-diligence fee and earnest money deposit - which totaled $1,500 on each property.
And I knew that I would have more cash in hand post purchase than pre - and I would also lose that money if I didn't proceed. And the two occupied properties were cash-flow positive (just barely) from day one, but were both substantially below market rent. And the vacant unit would be easily rented at market rent within a month or two. This would also give me a chance to add another Section 8 Tenant, which I want at this time (go back a couple of episodes for more on that).
So I decided NOT to back away from obtaining more rental units - even at this time of the greatest economic uncertainty since 2008 and maybe even since 1929. And as we're now several weeks into this global pandemic triggered shutdown, it occurs to me that the HOME is now the center of everyone's universe. And so having more of them is going to prove to be a very good thing.
With most people at home, and many unable to work to earn an income, you might think that being a Landlord would be the last business you'd want to be involved in right now. But consider that the government is getting ready to essentially print (or really just create electronically) trillions of dollars - billions of which will be used to get money into everyone's hands. And one of the things people are expected to do with that money is pay their RENT. Pay their mortgage. Buy food, and medicine. And pay bills of all kinds. And did I mention that high on that list of bills needing to be paid is RENT.
Why would I NOT want to be in a business for which the Federal Government itself is literally giving people money so that (among other things) they can pay me!? Joking aside, its nice to be in a business that is seen to be so critical to society that the government supports it with not just beneficial tax treatment (which is very true of Real Estate) - but direct cash infusions to its customers. And that's because it's all about the home.
I fully expect to see a Section 8 type program rolled out, where the government pays a portion (or ALL) of your rent - which will cover some amount of just about everyone's housing expense. And I think we're almost certain to see some form of Universal Basic Income - where we all get some monthly stipend to cover our basic living expenses. Yes, call it Socialist or whatever you want, but if nothing else, COVID-19 will be the trigger for the cradle to grave society that many conservatives and capitalists have feared.
Because this event is going to be the portrait of why a system based upon having to work for the essentials of life is going to be considered un-realistic or un-reasonable / un-fare. And so a global pandemic comes just when we're already debating if healthcare should be considered a human-right. And just like the debate on marijuana - if you don't see where that's going, your just not paying attention or you're blind - so maybe you need to go get some healthcare coverage to fix your sight. If you can't pay anything else because you're laid off - at least pay attention!
You don't have a candidate like Burney Sanders if there's no appetite for this sort of thing. So forgive me if I'm trying to align myself on the receiving side of all this money that about to start flowing from the government. Housing is a critical element society and of human life. Someone has to provide it, and the government will be paying those individuals for doing so. Now's a great time to be a Landlord - and it's only going to get better.
Sure, you've got some Landlord unfriendly states and cities, and right now you couldn't evict someone if you legitimately needed to because they hadn't paid rent for 6 months prior to COVID-19. But that problem is going to be handled to a large extent by the government taking over payments.
Watch... It won't happen instantly, but it will happen. So all you Landlords who don't like Section 8... Just wait. It's going to be expanded greatly or replaced by something far more all encompassing. Housing is going to be considered a human right. And since people are being prevented from working to provide it (and all else) for themselves - it will be provided by the government. Don't you want to be on the receiving end of that?
As a society we're going to provide for the basic necessities of life for everyone in the near future. Food, Clothing, Shelter, Healthcare, Education, Transportation... These and other things are going to be considered basic necessities of life and we as a society (the government) will be tasked to find an equitable way to make these things available to everyone to some extent.
So excuse me for wanting to be in on the ground floor of a movement where (already), but certainly even more so in the future - the government itself is paying people (like me) to provide an essential aspect of life to as many people as one can arrange to handle. But I'm getting off topic. The point that I'm trying to make is "It's All About The Home" - and I want as many of them as I can get.
So, "Home Sweet Home". You've been stuck there now for what - we're in the 3rd week now? Or is this the 4th week? Time is starting to run together. One weekend looks just like the next when you've done the exact same stuff for 3 in a row, maybe 4 - I don't even know now.
Prior to this shutdown, I was working with several investor clients as their Realtor - trying to help them find a property to purchase to offer as a rental. Some wanted turn-key and others were seeking some level of distress - to have a problem that could be fixed to make a profitable (BRRRR) deal. I've spoken before about BRRRR (Buy, Rehab, Rent, Refinance, Repeat) on prior episodes.
But now I'm getting mostly crickets. Almost everyone has either backed away due to fear or because they have no viable lenders or source of funds because they also have all retreated. I can't even say if I'll be able to buy anything else here, as like I said - I just got the last purchase of 3 closed in the nick of time before all the lending terms changed. And I would not be willing to purchase anything under the terms I'm seeing now.
Interest rates have increased by 1 to 3%. Points also up by 1 to 3. One of my lenders has increased their per loan service fee from $749 to $4,000! Credit score requirements have increased, reserve requirements increased. So it may fully be the case that its just not possible to purchase anything right now, in this environment. Which means that if you can somehow, there should be some good deals out there. But I'm not even really seeing any major price drops on the MLS or in the email's I'm getting from Wholesalers.
So for right now, I'm also taking a brief seat to see how things go over the next month or two. But I fully expect things to open back up at some point here soon - once some of this government money starts to flow and this shutdown loosens. And then, will you be ready to buy? I will - because it's all about the home. And I wants lots more of them.
Your home is now the center of your universe - and likely (hopefully) some of your favorite people are there with you for these past weeks and those to come. And thankfully with technology being what it is today, you're likely able to connect easily with those loved ones who live outside of your home.
Also thanks to technology (depending on your specific job) - your also likely to be rather productive and continue working from home. But have you equipped and stocked your home with all your comfort items? Do you need your daily cup of coffee, and so your venturing out to get your daily Star Bucks fix? Or can you make it right there in your home with your Keurig or other deluxe home brewer? I've certainly got mine.
And we've all got the large flat screen TV's with Netflix, Prime, Hulu and all the myriad of other streaming services. Or even if you've got regular cable or satellite - you know that you're sharing someone's streaming login - right? Be honest! However you handle it, your entertainment needs are set.
And you've also stocked up on not just a ton of toilet paper, but you've got weeks worth of your favorite foods and drinks. I heard that alcohol sales went up by over 60%. So we're sipping on a little something while at home.
And so in this episode of the... and Landlord Rental Real Estate Investing Podcast - I talk about the home, and how it has become the center of our universe. And then what that may mean for the future. What does it mean to be a Landlord in a time when it seems the government has positioned itself to start covering the expenses (including RENT) for those who now cannot work due to no fault of their own.
And what will this mean for the future once this concept takes hold? Well, that's a bit political - and so I explore why I am willing to move forward with purchasing properties, even now amid all this economic uncertainty. I'm buying now (while I can), but with lending terms changing daily, that ability is quickly coming to an end. So I'll be working to get set for buying even more properties, once things start to open up again. Because I want to own as many properties as possible once the government starts paying everyone's rent - or whatever becomes the system to make sure that we're not in this same virus inflicted financial crisis all over again.