Recently, Motley Fool reported on the ways that COVID-19 may change real estate investment as we know it. None of these predictions surprise us, really. Here’s a quick rundown of what their analysis predicts:
Commercial Demand will Drop — The shift in commercial demand that we’re likely to see is not necessarily a result of lost revenue or having to shut down. Rather, so many retailers and businesses that have been able to pivot to online storefronts are finding that doing so — without a brick and mortar store — may be ultimately more advantageous, fiscally speaking. In the same way, offices are finding benefits to remote working for their employees, which may shift the need for large office spaces as many of these work-from-home employees stay there permanently.
Commercial Size will Change — Not every business will stay solely in a digital space. Physical storefronts will remain, but how they operate is likely to change. Not only will sanitation and health regulations alter procedures, but space will become a top-of-mind priority. For businesses to allow adequate distance between customers, larger retail and office spaces will grow in demand.
Apartment Demand will Drop — This is one point we’ve brought up several times ourselves. While rental demand is on the rise, apartment demand is slipping. This is simply an issue of proximity. Coronavirus fears are prompting apartment dwellers to look for different housing options in suburban and rural areas, as to minimize contact (and subsequently, the transmission of germs) with others. Not only do apartments pose a social distancing issue, but in big cities, like New York, the spaces are so small and cramped that residents experience “cabin fever” much more readily than those with their own outdoor spaces.
So with these things in mind...what should real estate investors do? After all, real estate investment covers a wide variety of niche property types and strategies. As real estate shifts with our changing culture, where should investors focus their attention? To get on the right track, there a few essential questions every investor must ask themselves.
3 Questions Real Estate Investors Must Ask as the Market Shifts
Which investments have staying power?
As we see a downward trend in multi-family housing and commercial properties, investors have to ask: which investments will really last? While we can’t make predictions with 100 percent certainty, we can look to historical data and new trends to get a good idea of where our money is best invested.
A global pandemic was wholly unanticipated. As such, we couldn’t begin to know how to prepare or what the expect. What we’ve seen is a shift in priorities that, by and large, has prioritized personal and community health. Certain properties, as a result, are struggling in terms of demand and investor revenue. Because the hospitality sector was hit so hard and travel restricted, vacation properties have struggled. Commercial real estate? Struggling. Apartment demand? Dropping.
On the other side, single-family rentals are facing increased demand. With more space for residents as well as locations in just about every market, it’s the solution for many in a tough homebuying climate.
Be sure to check out: Investors of Every Size Benefit from Single-Family Rentals
There will always be a demand for single-family rentals. People need a place to live, and SFRs don’t post the proximity complications that apartments do. For the real estate investor, we must question which investments are sustainable in face of risk — even the risk we never saw coming.
How much can I reasonably take on?
As we move through a recession, we’re seeing opinion piece after opinion piece about how now is the time! Invest! Whether its property or stocks, the pressure is on acting now. After all, we don’t want to miss out!
Here’s the truth: missing out on an opportunity is more preferable to taking on an investment you are not prepared to handle. The object for real estate investors is not latching on to sudden opportunities for fear of missing out. While recessions can reveal unique possibilities, we must be prudent. We all have a personal level of risk tolerance and fiscal capacity to invest responsibly. Scaling a portfolio must be done with care and strategy. Instead of letting your emotions drive your decisions, let the numbers speak for themselves.
Know your own risk tolerance. Know what you can handle. This will help you know when to grow your portfolio and when to hold onto what you have.
How can I best manage new and emerging risks?
The world is changing. That much is clear. With so many unanticipated consequences beyond the realm of real estate investing — in public health, in the economy, and in ways we’ve yet to see. Because there are so many factors at risk in the world, so many changes happening, it is easy to feel overwhelmed — even paralyzed — by it all.
As investors, it’s our job to manage our risk. We do this through due diligence — careful research, evaluation, and management of our investments. It’s tough to do that alone. Thankfully, real estate investors don’t have to!
With a turnkey partner like REI Nation, you can benefit from access to top investment markets, expert portfolio and property management, and our decades of combined experience in the industry.
Partner with us and build passive wealth in real estate!