To buy or not to buy? The in’s-and-out’s of portfolio diversification and real estate investing during the pandemic.

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Now that the novel coronavirus has spread across the land, businessmen in New York City and beyond are beginning to wonder if this is an opportune time to scoop up real estate. After all, the real estate mantra – and that of investing as a whole – is to buy low and sell high. It appears as though we might be moving toward a low point in terms of real estate value and interest rates. If you have been considering a real estate purchase, be it commercial or residential, this might be the best time to buy in recent years and also across posterity.

1. Real Estate Investing During the Pandemic is a Question of Risk Tolerance

Investors who have ample capital can afford to put some of their “dry powder” to work, taking chances with somewhat risky real estate purchases. However, there is no guarantee that commercial and residential tenants will still covet New York City and other high demand real estate areas at the same level as existed before the pandemic. More and more people are transitioning to the suburbs (e.g., the Hamptons, Westchester County, and Fairfield County, Connecticut) with comparably less population density, choosing to telecommute to work or make the daily commute into the city by car. It is quite shocking to learn Manhattan’s new rentals dropped by a whopping 70% in April (compared to last year’s numbers), following the spread of the virus. In addition, 

If you believe the demand for urban commercial and residential property will return to or near pre-COVID levels, this might be the optimal time to scoop up a piece of metropolis property or two. Manhattan properties plunged 57% in July, especially the high end of the market. However, if you suspect there will be a significant and lasting migration out of New York City and dense urban spaces to the suburbs, investing in real estate amidst the pandemic might not prove prudent.

2. Interest Rates are at an All-time Low

Though real estate prices in Manhattan are not dropping as quickly as most assume, it is quite tempting to invest in urban real estate simply because interest rates are at an all-time low.  There is no sense tying up all of your dry powder when you can take out a real estate loan at an incredibly low rate and use your remaining capital for other, potentially more lucrative purposes.  The Fed has lowered rates in an attempt to encourage borrowing, spending, and economic activity in general. Meet with a real estate professional at one of New York’s top firms, such as Coldwell Banker, and you will find there is no guarantee these low-interest rates will last beyond the pandemic. Economists fully expect interest rates to increase as the economy regains momentum. 

The only question is how long interest rates will remain low. If you suspect the economy will bounce back to normal with a “U-shaped” recovery, do not hesitate to take out a real estate loan while interest rates are low. However, if you believe the economy will stagnate in a lengthy recession or depression, you might be better served to wait until the real estate is less-expensive and interest rates move even lower.

3. Ready to Buy? Not so Fast.

Though the price tags on commercial real estate in New York City have slightly dipped as a result of the pandemic, there is a chance these numbers will stagnate or possibly decrease even further as time progresses. The pressing question is whether commercial and residential tenants will be able to fulfill their monthly rent obligations moving forward.  

It is quite possible that those who purchase real estate in the months to come will not receive promised rent payments for the foreseeable future. However, if the economy regains steam and unemployment drops below 10%, there is a good chance property owners will be paid in full and on-time as society gradually returns to at least a semblance of normalcy.

4. Some Rental Properties are More Attractive Than Others

Purchase a rental property used for an essential service, and you are likely to be paid in full and on time each month without exception. Alternatively, if you were to purchase real estate through the likes of a local firm, such as Elliman, and that property is used for nonessential purposes like dining or selling upscale fashion items, you would take on comparably more risk. It is also concerning to learn half of the retail rents have gone unpaid during the pandemic.  

There is no guarantee the coronavirus will dissipate in the weeks or months ahead.  Furthermore, there is no guarantee that COVID-19 is the sole pandemic of the 2020s.  COVID-22, COVID-23, and other viruses might emerge in the future. Precisely why you must be careful when bidding on real estate in New York City or elsewhere.  

When in doubt, opt for properties occupied by corporate tenants that provide essential services where social distancing is possible. If the property in question is not currently occupied, it is prudent to use your mind’s eye to consider how it might be used as the future plays out. If space is designed for a mom and pop shop, such as a café or barbershop, there is no guarantee you will find reliable tenants capable of working throughout the COVID-19 pandemic as well as subsequent pandemics. Sort through all the listings provided by the likes of Compass, Corcoran, and other top NYC real estate firms, and you will eventually find one that is likely to generate income even amidst pandemics.

Those who have their sights set on residential real estate should consider the fact that Gov. Andrew Cuomo recently issued a modified eviction moratorium up until late August. This moratorium prevents residential evictions throughout New York City until August 20 or possibly beyond. This protection may be extended well beyond the summer, putting the owners of residential properties in quite the precarious position. This protection is why purchasing commercial real estate where corporate tenants operate has the potential to be a much more secure investment than residential properties as the pandemic unfolds.

5. Recognize That Change is the Only Constant

The property you are considering for purchase might be unoccupied, comparably cheap, or otherwise flawed at the moment simply because the coronavirus has wreaked havoc on New York City and other urban spaces. However, as is often said, change is the sole constant. 

The best real estate investors have a vision for the future of properties up for sale. Use your intuition to envision how the property you are eyeing will look and function after it is fully developed. Take some time to consider whether the specific location you have in mind will prove vulnerable to internet migration. Both brick-and-mortar retailers and offices are gradually shifting to the web, shunning conventional brick-and-mortar real estate to reduce overhead expenses.  Moving to the invisible real estate is an example of how our industry is rapidly changing. If the real estate property you are considering is incapable of generating stable income amidst such changes, it will prove to be a failed investment.  

6. Make an Educated and Well-Informed Decision

When in doubt, consult with the commercial and residential real estate experts before pulling the trigger on a real estate transaction. If you do not feel confident in your assessment of the property’s potential use across posterity, the current asking price, or any other aspect of the purchase, do not move forward with the deal. Instead, consult with a real estate professional, demographer, futurist, or technology expert. Lean on these informed professionals for expert insight into your prospective real estate investment, and you will be able to make a truly educated decision. 
Via Unsplash by Micheile Henderson

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