There's no question that COVID-19 has changed the way we go about life these days: how we work, shop, socialize, and travel -- just to name a few. And guess what else the coronavirus has affected? It's changed what people, both homebuyers and renters, consider the best places for property.
Savvy investors need to understand market trends before everyone catches on. Here's the scoop on what people consider the best location spots since and during a worldwide pandemic.
The work-from-home trend
As people are working from home, apartments in the business districts of cities have been greatly affected, and not in a good way. These locales have historically been expensive places to live mainly because of the short commutes they offer and all the city amenities.
But who cares about a short commute to a city office when you're not going into the office much (or at all) and are commuting only from your kitchen to your home office? In fact, those city apartments can start to feel a bit claustrophobic when you're stuck inside one all day, particularly if you live with others who are also stuck at home.
Landlords are prioritizing other factors
If your business model has been to buy in a city, you might want to change your tactic, at least for now. If your business model has been based on other factors, however, such as area affordability, employment rates, and population growth, you can keep on doing business just as you always have … with one caveat: It's probably best to avoid huge metropolises at the moment.
Other than avoiding urban centers and areas directly impacted by COVID-19 such as vacation spots, look at factors like whether the neighborhood is safe, the schools are good, there's job growth and a strong job market, and whether the area offers interesting amenities. If you can invest in an area that offers all that, you have a good chance of success, whether during coronavirus or not. Hint: You might want to look in the suburbs.
Cash flow is king
Although there's great uncertainty surrounding the future of cities, it is possible to get a good deal if you buy now. But if you're buying property in a big city to rent, you might have a difficult time finding renters. That means you won't be generating cash flow, and cash flow in the landlord business, is king. So unless you can afford to wait out this rough time, you might need to avoid big cities for the time being. Use this time to watch for signs of a city's comeback or further decline.
If your rentals are in bad locations
If you already own rental properties in areas experiencing high unemployment, you're not alone. Tenants who can't pay the rent and are breaking their leases as a result or are breaking their leases because they want to move away from the city, perhaps back home with their parents, are on the increase. Zillow reports that, as of April 2020, 32 million adults were living with their parents or grandparents, the highest number ever on record.
If you're experiencing nonpayment of rent from tenants or increased vacancies, you can bet other landlords in your area are dealing with similar issues, making it even more difficult for you to find tenants.
Mitigate your damages
One way to mitigate your damages is to try to keep your tenants from moving out. Try to work out a plan for your tenants who are having difficulties, such as letting them pay a reduced rent -- either through a permanent rent reduction or by allowing them to make up for it later.
Here's an example of how making it up later would work: Say your rent is $1,500 a month (or $18,000 for the year), and your tenant has nine months left on the lease. You could see if they can afford to pay you, say, $1,000 a month for the next three months. If they can, you could, for the last six months -- when they presumably have their job back or have another job -- have them pay $1,750. You'll still wind up with the $18,000 for the year, only you've given your tenants a break during a tough time.
Reducing your rent and taking a loss might be a better option than having a vacancy, especially if there are other vacant units around you. As of April 2020, Zillow reports that of the 50 largest metros, Oklahoma City, Austin, and Nashville saw the most young adults (18 to 25 years) moving back home.
The Millionacres bottom line
Just because people aren't living and working in the city during COVID-19 as they once were doesn't mean location in real estate ceases to be important. Location is always important, and a savvy investor will keep up with the trends, understanding when a hot area turns cold and vice versa.