Difficult times require us to take well-thought decisions and the COVID-19 outbreak is one of those risks that create a lot of uncertainties in the short-term. If you would like to know what you should do in the months ahead for real estate investing, my name is Ofir Bar and I will provide 5 useful tips that will certainly alleviate most of the risks.
Rely on insurance policies
Now it’s the right time to renew your insurance policies and if it’s possible, make changes to provide compensations for financial losses determined by the COVID-19 pandemic. Although standard insurance policies for real estate companies and property owners don’t provide business interruption coverage for losses related to a pandemic, some non-standard forms may include such coverage. Revisions should be required for tenants as well, even though insurers will be faced with a wave of upcoming claims. If you own real estate in an area that’s not severely affected by the outbreak, making insurance changes won’t be too hard. If you’ve managed to make the changes, it will be critical to take into account all requirements the policy asks, including providing timely notice, so you will manage to use the insurance, in case any unwanted situation will occur.
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Include a proper force majeure clause
Construction agreements, lease contracts, purchase and sale agreements, as well as many other contracts can include a force majeure clause. It will excuse a party’s performance due to unforeseen circumstances (labeled as “Acts of God”). I know that many of you have already included such a clause in your contracts, but given the current conditions, it will be better to include a specific reference to the COVID-19 pandemic. One of the most important things to do is taking precautions, even though the negative events might not happen at all. Be prepared and the chances of you been taken by surprise by anything are severely reduced.
Focus on cash-flow generating investments
Now is the time when very expensive real estate drops in value and it won’t be appropriate to invest there, given that the profit margins will improve in a few months. In case you want to put your money to work, buy-to-rent would be the most reliable approach, since it will provide you with monthly cash-flow to cover some expenses. It doesn’t have to be an expensive property since even cheaper ones can generate returns. However, take into account that if you want to rent to individuals, choosing the people wisely will be critical. Unemployment will rise for a few months, so make sure you rent to someone that has a stable job or enough capital to pay the rent even though the income will drop in the short-term.
Be combative when others are fearful
Based on the current conditions, the economic situation at a global scale will get worse before it gets better. That does not mean the end of the world is coming, but it must imply that you time your investment decisions accurately. The best time to invest is when the economic crisis bottoms and to know when that happens, a few indicators will be very effective. Firstly, a temporary cure or drug will alleviate some of the pressure. Optimism will start to build once news will start to spread. Still, mitigation methods won’t be removed all at once, in order to prevent a new sudden rise in the number of people infected. Second, we should look at unemployment figures and how that evolves as compared to other economic downturns. When unemployment is very high, that’s when the economic conditions can get better. Lastly, we should analyze each country individually, since some had been proactive and managed to prevent the spread. At the same time, leadership matters the most and the economic measures that will be taken in the months ahead will determine how smooth the recovery will be.
Have a conservative approach
You’re probably monitoring some potential real estate investments and now that valuations had started to ease a bit, there a growing temptation to act. As I’ve already mentioned, things will get worse before they get better and if wait for a few months, your upside will increase more. Avoid putting money to work, unless you need it. Now is the time to be conservative and wait patiently until things start to settle. The market will keep moving up or down and even though people get anxious when a downturn happens, that’s when opportunities arise for real estate investors. I am Ofir Bar and I hope all the tips provided in the current material will serve as a great help in navigating the months ahead.