Richmond is a good place to be as an investor. Richmond is positioned very well!
Per a Redfin study published on April 1st, Richmond is one of top 10 cities in the nation best prepared to weather a coronavirus-fueled economic storm.
Cities best positioned to weather the storm tend to have stable housing markets and diversified economies while those with high home prices, high levels of personal debt and large numbers of people working in the hospitality industry are most at-risk. Los Angeles, Miami and San Diego have the greatest likelihood of suffering serious economic problems due to the virus, the study said.
Richmond’s booming economy has been attracting professionals for years. In Richmond we are home to high numbers of law, finance and tech professionals who can work from home and, as a result, it has only a 43.2 percent chance of economic risk due to the virus.
“Because the impacts on other, non-housing sectors of the economy, especially employment, are likely to be very large, some metro areas face a greater economic risk during the 2020 recession,” the report states. “Those that are hit the hardest overall are also likely to be more at risk of a real estate downturn.”
The demand for jobs is not going away. The demand for restaurants, hair salons, and coffee shops is not going away; however many of those small businesses may have to permanently close as a result of being shutdown for 2 or more months. If small businesses survive, there will be built up demand for their services which could help the economy to begin recovery by early fall or late summer. But if there are significant business closures this could take longer. “The hopes that everything will pick up quickly when the pandemic ends aren’t necessarily realistic,”“I don’t believe the economy will immediately start up again and everyone who had a job will suddenly have a job again.”Some small businesses may never reopen. The leading indicators to watch are the number of permanent business closures and our local unemployment rate. Once the unemployment rate begins to recover, we can expect housing prices to shoot up again.
Mortgage rates continue to fluctuate
Since my husband deals in hard money and is also a traditional mortgage lender, we have been fielding a lot of questions about mortgage rates. There are 2 things impacting rates.
When more people are buying government bonds, then the government can offer less interest to banks to get the money to lend back out as mortgages. People typically buy bonds when they want to pull their money out of something more risky like the stock market. The more people are running away from stocks to bonds, the lower the rates from the government to banks becomes. Mortgage rates are tied to those bonds.
How busy the mortgage companies are
When rates go down mortgage companies get busy. Demand sky rockets. Companies become overwhelmed with applications. They can’t process in time and need to start paying overtime. Costs go up. Profit goes down, and that pushes rates back up to cover costs.
So if trying to time rates perfectly then wait for the stock market to dip (but not so dramatically that peole go to gold and cash), money flows to bonds, interest rates on mortgages go down. When they go down, you’ve got to jump in right away. If you wait too long mortgage companies might become overwhelmed which will drive the rates back up.
Investment Opportunities in RVA
While it is impossible to predict, I believe that there could be numerous investment buying opportunities in the next 60 to 90 days. The homebuyer funnel is shutting down now so we can expect to see a drop in home prices in 60 to 90 days. People thinking about home buying now are now sitting on the sidelines since they might be worried about their jobs. Real estate agents are especially excited about working with investors since April through July are likely to be tighter months for them.
Richmond real estate is still a good investment. Talk to any 50 year old+ investor and ask when rents went down long term because they haven’t. Recessions cause people to loose their homes and need to rent. That causes rental demand to increase and rents rise. Then the economy recovers, people buy homes, the number of available rentals goes down. Rental supplies drop and rents go up. Short term challenges like the Coronavirus can cause rents to go down but it will be temporary. You just need to be able to survive this storm.
If looking for a property now, look for a property with tenants in place who can afford their rent. Essential workers, grocery stores, medical, etc. If get a property w/o tenants, due your tenant screening and due diligence. Call employers to verify job status is still valid with the same number of hours. Diligent Tenant screening is sometimes overlooked in a good economy. Call the previous landlords to see how the tenant treated them. Create great processes and strategies for finding great tenants. Call those references!
Every deal you get into has to make sense as a long term rental even if you intend to flip it. Flipping high end properties right now is extremely risky. In a market like this one, the deal has to work with multiple exit strategies. You want to ensure any investment that you take on now can rent for a least a year with positive cash flow and that you have the reserves needed incase tenants loose their jobs. Run your numbers conservatively using the least you are likely to get for rent on that property instead of the most you can rent it for.
Now if you’re listening or reading this and thinking I really need to get a handle on my investment strategy in general, we would love for you to check out our Invest Smart RVA YouTube series. We publish a new video each Thursday afternoon.
I would like to know, if you are a real estate investor in the Richmond area. If so, what do you think about the Richmond investment market during Covid-19? Put those in the comments below.