There have been only a few times in history where real estate investing was an unstable business — such as the 2008 recession. While many experts are concerned about the state of real estate investments during COVID-19, entrepreneurs like Jon Parrish remains hopeful. But Mr. Parrish, like his peers, possesses a healthy dose of respect for the woes currently befalling tenants and property owners.
Unfortunately, things are likely to get worse before they get better.
Residential Property Investments
COVID-19 has caused buyers and tenants to navigate the market with greater timidity, notes Jon Parrish. Too much remains uncertain and moving to a better home drops on a consumer’s list of priorities.
But there are other key metrics that signal the future of real estate investing. Despite federal stimulus packages, many economic consequences of the current global pandemic emerge and put pressure on investors.
Federal and local eviction moratoriums stayed the swell of homelessness in the Spring of 2020. By the summer, evictions resurfaced, and many are out of lodging.
By and large, evictions occur as renters lack paying jobs and the prospects of finding new employment. It is also questionable (at present) how easily it will be to replace evicted tenants. At some point, residents will return to work, and it is likely that income-earning renters will be shopping for homes and apartments once again.
For the same reason that evictions rose in June 2020, homeowners face bank foreclosures. As foreclosed properties hit the market, investors should be able to profit, resell, and/or manage rental properties while the economy recovers.
Few experts are ready to discuss the purely economic effects of COVID-19 deaths since these analyses come too soon and may betray insensitivity. But for real estate investors, increased deaths (along with lower birth rates and fewer immigrants) affect the availability of future buyers and tenants. According to The Atlantic, A recent study found that during March, April, and May, the number of deaths — from any cause — in the U.S. was about 122,000 higher than would have been expected in the absence of a pandemic.
The majority of COVID-19 deaths are senior citizens and adult minorities. Additionally, some regions — particularly densely-populated areas — were hit harder than others. These deceased consumers and rent/mortgage-payers will impact demand for residential properties in the Fall and Winter of 2020/2021.
Jon Parrish on Commercial Property Investments
There are fewer safety nets for commercial properties than there are residential properties and rightly so. However, the economic impact of the novel coronavirus has crippled local business and with it, the office and retail space in which it once operated.
Failing tenants face evictions and some property owners are also foreclosing. Due to the fact that commercial properties do not provide basic shelter for residents and their families, many legislators can’t be bothered to address these issues directly as yet.
However, distressed properties will return to market — either as rent space or property investments — at a discounted rate. Real estate investors with the resources to invest should have an easier time consolidating their assets, but the pressure will be high to convert those properties into positive cash flow.
Permanently Closed Businesses
After a business closes for good, they surrender their space. New and relaunched businesses are finding financial profitability through e-commerce as a way to save money and serve quarantined consumers.
Commercial real estate investors are going to have to think differently about how they encourage tenants to move into their space, says Jon Parrish. One idea that spread in New York City (as rent prices rose too high) was the idea of one retail space featuring a coop of multiple pop-ups. The “pop-up” idea may resurface across the United States as the economy begins to recover.