Pandemic challenges real estate investors
Sales of existing homes are sizzling hot. Almost 7 million homes sold in October, up 26.6% from a year ago, says the National Association of Realtors.
Almost 3 out of 4 homes sold in less than a month. So housing inventory is at a record low level of only 2.5 months.
Yet, the pandemic presents new challenges to active real estate investors.
How do you safely view, buy and sell real estate in a pandemic? As a real estate investor and a medical doctor, here’s my advice to keep yourself safe these days.
Start with virtual viewings
Most property searches start online.
You need deep familiarity with the area where you’re purchasing. Ideally the property will be close to your home, so you can easily keep an eye on it.
Make sure you know the city and the neighborhood. A sweet spot to focus on is affordable housing, since it’s in shortage.
To get your first look at a house, a virtual showing works.
Insist on a live session where you can interact with the seller on camera via Zoom or FaceTime. Don’t settle for a prerecorded, slickly edited video.
During a live video session you can ask the seller to step into the shot so you can better see each room and its proportions. You can also ask about sounds, colors, odors and temperatures – things the camera can’t show you.
While virtual viewings are necessary, they’re not sufficient to make a purchase. That’s true even though about 3 out of 10 U.S. homebuyers are willing to buy without a physical showing.
To be sure, see it yourself
Insist on seeing the house in person. Take the usual personal precautions – wear a mask, keep social distance, minimize time indoors with others, use hand sanitizer and wash your hands.
If you decide to move forward with a purchase, a home inspector will need physical access to the property. Since inspectors are backed up with work right now, you may need to wait longer than usual for an inspection.
House appraisers can do their jobs remotely. Handle title reviews remotely too.
Do the closing virtually
Before closing, always do a final walkthrough in person.
But you won’t need to meet in person to close the deal. Instead, close virtually.
Use tools such as DocuSign. Note: notaries are allowed to work remotely in Tennessee and certain other states.
It’s hard to see: who’s creditworthy?
The biggest problem is finding out which borrowers you should lend to. Active investors are suffering from low visibility into creditworthiness.
That’s because mortgage lenders offered forbearance to borrowers under the CARES Act. About 2.7 million, or 5.5% of all mortgage holders, are in forbearance now, says the Mortgage Bankers Association.
Starting in March, mortgage borrowers got 180 days of forbearance, and now the clock is running out. They may request an additional 180 days.
Note that lenders are not required to report which borrowers are in forbearance, creating blind spots for credit rating agencies and investors who offer seller financing.
If you decide to extend seller financing to a buyer, make sure you negotiate the right terms. To minimize your health risk, employ third-party payment collectors and property managers to interact with buyers and renters.
That’s how active real estate investors keep going safely during a pandemic.