When COVID-19 emerged as a domestic threat back in March, lawmakers were quick to react. Specifically, much of the country went into lockdown mode as local officials scrambled to get the pandemic under control. Students were pulled out of classrooms for the remainder of the school year. Nonessential businesses were told to close their doors. Curfews were imposed that impacted consumers, and the general fear that overtook the nation changed the way a lot of people lived their lives.
But things started to look up in May, so much so that many states began to ease the restrictions they'd put in place. Unfortunately, much of that easing happened too quickly, as evidenced by the recent surge of COVID-19 cases that has health officials extremely worried. And while we may not see a second lockdown that mimics the extreme nature of the first one Americans endured, some states are already rolling back reopening plans or imposing additional restrictions, from restaurant and bar closures to quarantines for out-of-state visitors, in an attempt to once again try to get the outbreak under control.
Not only will this have logistical implications, but it could also have financial repercussions, including in the real estate investing space. Here are three things investors may need to brace for.
1. Rental delinquencies
Back when things looked rosier on the COVID-19 front, economists were quick to talk up the possibility of a rapid escape from recession territory. But despite declining unemployment levels that may have triggered initial optimism, additional restrictions could once again cause the jobless rate to skyrocket (and to be clear, it's currently at 11.1%, which is by no means good). With higher unemployment comes the potential for fewer people to keep up with their rent payments, which is clearly bad for landlords -- especially mom and pop landlords who rely on that income to cover their own expenses.
Commercial landlords risk a similar fate. If businesses are forced to close their doors or severely limit capacity, their revenue will decline and their ability to pay rent may be compromised.
2. Sluggish hotel revenue
Anyone who's heavily invested in hotels right now may be in for a blow as safety restrictions impact travel plans and quarantine mandates turn summer -- a popular time to take a vacation -- into a complete bust for the hospitality industry, which is already struggling. If guests are hesitant to book lodging for fear that they'll be subject to lockdowns upon arriving from other states, hotel revenue will decline, and investors will bear the brunt of it.
3. Halted construction
Many states put the brakes on nonessential construction when the COVID-19 outbreak really seemed out of control. And while that type of construction has been allowed to resume in much of the country, local officials could reverse that decision if the outbreak continues to rage. That's bad for house flippers and real estate investors who may find that their money is tied up in projects that are suddenly going nowhere.
Investors may be in for a rocky ride
Clearly, it's a tough time to be a real estate investor. If the COVID-19 outbreak worsens and restrictions increase, the financial blow could be huge -- and that's something investors need to prepare for.