The world is navigating unprecedented circumstances with the novel coronavirus pandemic. It has put thousands of businesses in financial predicaments, people have lost their jobs, and it has greatly affected all types of industries in many different ways–the real estate investing industry included. Much of this is due to the large impact COVID-19 has had on the market overall. 

In this month’s Flip Tips: Advice Straight From the Experts, we are happy to share a series special where we touched base with some of the experts—whose advice you have come to know and love—to hear their take on how to best work through the pandemic. 

Question: 

Flip Tips Special: What Advice Can You Share to Real Estate Investors About Keeping Your Business Afloat During the Coronavirus Pandemic?

Kevin Lee:
California, 28 flips completed, 3 years in the industry
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1. What are the effects you have noticed that the coronavirus health crisis has had on the real estate investing industry?

“We have noticed there has been a withdrawal and slowing down of purchases of real estate from investors. This could be due to several reasons:

  • Market uncertainty. COVID19 affects the salability of real estate. For example, how do you see a property?  How do you buy a property while practicing social distancing?  
  • Most hard money lenders have suspended lending or tightened lending criteria. This dries up liquidity and indirectly affects demand.  
  • Eviction moratorium and forbearance prolong time for an investor to buy real estate in this market. If a tenant can stay and not pay rent, it just increases the carrying cost of an investor. So why buy? Might as well wait until this health crisis is over! Foreclosure is not particularly high because mortgage payments are temporarily suspended. It’s a strange time because there is a problem, but the problem is temporarily frozen in place.  

In addition, lines to home renovation stores such as Home Depot, HD Supply, and Lowes have grown long. It’s challenging to get projects done because of the difficulties to get supplies.”

2. What are you doing to keep your business afloat during this time?

“We have cut our in-house marketing team’s hours, thus reducing expenses. We continue marketing, but we are more efficient at directing our marketing to highest and best use.

We have also started paying back our private money lenders at a higher rate in exchange for cheaper money. Why pay a higher interest rate if the perceived risk of market uncertainty reduces investors’ expectation of the return on their money?    

Finally, we have become more selective in our acquisition of properties. Market comps in the last three months do not reflect the current sale price. We take a discount off of that. Moreover, we stay away from higher priced homes so we can move properties off our inventory in a timely fashion.”      

3. What advice would you offer other real estate investors regarding the current climate of the market?

“Be more selective in what you buy. Be more creative in acquiring real estate. The goal is to control the real estate with as little down as possible. Be more disciplined than ever.  This is not a time to NOT work. There’s still work to do–create it. Pivot marketing strategies accordingly. Finally, take care of your health.  Yes, gyms are closed. Yoga studios are not open. But there’s no excuse not to get that exercise in. That mental edge, not only a healthy body, is so much needed, especially in this time.”    

Daniel Carr:
Over 200 flips completed flips in Georgia, Alabama, and Florida, 19 years in the industry

1.What are the effects you have noticed that the coronavirus health crisis has had on the real estate investing industry?

  • “Lenders are drying up. GLAD to still be with LendingHome—STRONG and the processes are the best in the industry. Others have dried up and are waiting on loans to be paid off before they are able to lend as most secondary hard money lenders are not capitalized enough to keep lending. Primary banks are USELESS right now.”
  • Buyers are still out there. I have reduced my listings by 10% to get traffic, keeping in mind that the market is at an all time high valuation prior to the shelter in place orders. So there are still massive profits on the table.”
  • Cost of rehab has been affected. Materials are still very inflated. Gas is cheap and labor is getting more reasonable now that there are many companies shut down. Leverage the savings on the labor when you can to reduce the overall basis in the assets.”  
  • “Buying power. With ample cash and leverage from LendingHome, I am still buying from distressed/bank owned properties at an even higher discount because of the crisis. I am bullish. We are coming out of the mandatory shelters and ahead of this virus curve.  Summer is here and buyers are buying. I had good showings last week. I have two properties under contract and am looking for others.”
  • “Rental programs are gone. I am not a buy-and-hold guy but my friends that are buy and hold are screaming that they have no outlet for funding.”
  • “It is probably very scary for a less seasoned investor to see these times. However, I have been through 2001, 2007, and now 2020. These are times to reinvent your business model and realign your focus on finding good deals and being the best price leader in the market.”

2. What are you doing to keep your business afloat during this time?

“I am searching, negotiating, buying, rehabbing, and selling. PPP is a great relief. Also EIDL and the emergency $10K that is associated with it works as well.  

Refinancing cash out on some of my properties that I hold long term. RATES ARE GREAT. I am also refinancing a commercial piece I have—pulling $100K out and the payment is the same just a lower rate.

I also revisit houses to make sure they are best in class for the subdivisions and best price per square foot.”

3. What advice would you offer other real estate investors regarding the current climate of the market?

“I would tell them to study the trends, to get to know the pulse of your market at a micro level. Also, partner with seasoned investors, look at Connected Investors and Facebook for social media to align oneself with others of the same intention. SUCCESS IS A MINDSET.”

John Galarde:
North Carolina, 30 years in the industry
Website 
Facebook

1. What are the effects you have noticed that the coronavirus health crisis has had on the real estate investing industry?

“Luckily, we haven’t been affected too hard. We have five closings in May on new and/or renovated properties that went under contract after the virus breakout. In North Carolina, we have been able to remain building as an essential business. We are sticking to our formula of adding enough sizzle to our houses as possible to attract buyers with a ‘wow factor’.”

2. What are you doing to keep your business afloat during this time?

“Construction is still moving along. Somewhat slower, but steady. We secured a credit line two months ago which will help to fill in and we filed for the government PPP loan to keep our in house crews working.”

3. What advice would you offer other real estate investors regarding the current climate of the market?

“We feel like May will be a good time to purchase in our market. There are still lenders wanting to do deals. Be patient and do your research. Make sure you lower your ARVs to be safe when vetting new properties.”

Luke Weber:
Nevada, 500+ flips completed, 18 years in the industry
Website
Facebook
Facebook Group
Luke Weber’s Books

1.What are the effects you have noticed that the coronavirus health crisis has had on the real estate investing industry?

“I went from tracking my market inventory numbers from weekly to daily so I could see the direct impact the coronavirus pandemic had on active listings (increasing), closed sales (decreasing), and properties under contract (decreasing). I did this so that when the market changes, mostly driven by consumer confidence, I can buy at the right time. Right now, in several of our markets, I am already seeing consumer confidence going up and this is directly shown by the number of recent contingent and pending sales going up. It’s only been a 1.5 week trend (as of mid April), but enough to be called a trend and not just a blip.”

2. What are you doing to keep your business afloat during this time?

“We slowed down our purchasing and focused heavily on our wholesaling. We have a fairly large operation that typically has 35+ flips going at one time. Even though I stopped the majority of our buying, I know there are a lot of smaller investors and even rental buyers that are looking for good deals and will operate on thinner margins than me. Wholesaling the deals that I would have bought before helped all of us keep moving forward, including our various contractors and tradespeople too!”

3. What advice would you offer other real estate investors regarding the current climate of the market?

“There is too much false data out there, inaccurate stories, and negative media. Focus on you and yours and play safe, but with solid knowledge. You can truly know the facts before both sides report it!”

Cassidy Melhorn:
Over 150 flips, Knoxville, Tennessee, 7 years in the industry
Website

1.What are the effects you have noticed that the coronavirus health crisis has had on the real estate investing industry?

“In the short period of time since the coronavirus has begun to affect real estate investing, a lot has changed. Investors who have been preparing for economic uncertainty are better positioned to ride out the next year. The industry is at an “in-between” time. The full effects of shutting down economies has not yet been realized. Many investors understand that the previous 2 months will have significant impacts over the coming year. Flippers are paying less and wholesale margins are narrowing as a result (overall—but there are still deals to be found). Sellers are not yet willing to take less, generally speaking. Flippers are paying less because, for the most part, we are speculating that the economy will not be great in the coming months, however sellers have not yet accepted that they are going to get less, making for an awkward transition. In addition, many (but not all, LendingHome being a perfect example) lenders have canceled products or have stopped lending altogether to investors. With credit becoming increasingly hard to reach and deals being difficult to negotiate, it is imperative that investors adapt.”

2. What are you doing to keep your business afloat during this time?

“With the initial onset of the virus, many experienced companies overreact out of an abundance of caution, canceling marketing campaigns, subscriptions, and in some cases even furloughing or laying off employees. We first looked at expenses and determined what was either not producing or was not necessary and either canceled or suspended those services. In addition we also looked to shift focus to bringing more money back in house. Knoxville real estate is still lacking inventory, so for us, this meant focusing on getting as many properties as possible completed and listed on the market. We are also focusing on listing higher price point properties in our market first, because in the event of a prolonged recession, lower price point properties will always cash-flow as rentals where more expensive properties may not.”

3. What advice would you offer other real estate investors regarding the current climate of the market?

“Just because you have been doing business a certain way or using a particular approach successfully over the last several years does not mean that will be the case moving forward. Investors who survived the Great Recession know this. Changing how you do business day to day will mean stepping out of your comfort zone, being intentful and disciplined, and learning a new approach. This is an opportunity to add another pouch onto your investing tool belt, which will benefit you for the entirety of your investing career. Relationships will be key moving forward. Building relationships with lenders like LendingHome may mean the difference in leading the pack and falling by the wayside.”

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In the darkest of times, people can still find the light. Sometimes it takes some creativity, as these experts have expressed. But keeping an innovative, open minded, entrepreneurial spirit, alongside keeping yourself educated and making small adjustments, seems to be the overall sentiment from each one of these investors in regards to staying afloat and making it through the pandemic era.

The LendingHome team is happy to share this Flip Tips Special with our readers in hopes that it helps offer some direct guidance and additional support or inspiration from other real estate investors. 

Come back next month for a new edition of Flip Tips and visit our other series topics like real estate niches and strategies on getting contractors to finish a job.

Disclaimer: The above is provided for informational purposes only and should not be considered tax, savings, financial, or legal advice.. All views and opinions expressed in this post belong to the individuals referenced. NMLS ID: 1125207 Terms, Privacy & Disclosures. Copyright LendingHome Corporation 2020.