Coronavirus Market Disruption: What Will Happen And How Best To Navigate It  

FO 14 | Coronavirus Market Disruption

FO 14 | Coronavirus Market Disruption

 

The COVID-19 pandemic has been wreaking havoc all over the world. During these uncertain times, we can’t help but feel uneasy about how it will continue to affect us. Addressing this elephant in the room, Paul Lizell talks about working around the new Coronavirus market disruption. He discusses what to expect and how best to navigate the current market both immediately and in the near future. What will happen in the markets? Will this impact us more than the 2008 Financial Crisis did? What should your first move be, and what should you do for both the short term and long term? Join Paul in this episode as he answers these questions and talks about the bumpy ride ahead.

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Coronavirus Market Disruption: What Will Happen And How Best To Navigate It

This is going to be a solocast about the state of the market, this is the Coronavirus market. Unfortunately, it’s a whole new market which is wreaking havoc all over the country, especially in particular regions. We have different states with different governors doing different things. Some states are on full lockdown, some are not. For instance, Dallas, Texas. They’re technically on lockdown, but they are allowed to show real estate still. In Pennsylvania, our governor, not as good. He has us on full lockdown and we are not allowed to show properties. That can be a positive and a negative depending on your situation.

Get Rid Of Your Properties

I’m trying to make the most out of it. I’m trying to get rid of my properties as quickly as possible, knowing what a bunch of agents are doing are holding their listings, not showing them because they can’t. They’re not putting them on MLS. We have an inventory that looks low. As a result, mine will be the only ones that are on a market that are opportunities for people to get. We’re doing virtual showings. My properties are all vacant, so it’s not an issue with people going in there. As long as they’re willing to go with their own risk, they can go. Most of them drive by. Some of them would go out and take a look at the properties. We’re still selling them and getting them on contract to sell. Hopefully, they will sell in short-term.

What I’m trying to do is get them sold before people realize what’s going on and how that’s going to affect the market negatively. What I mean by that is if these agents are not listing these properties and taking them off the MLS, let’s say we open up in July or August. Everybody’s going to throw their listings on the market. We’re going to go from a low inventory level to a high inventory level. What is it going to do with pricing? Pricing is going to fall because it’s all basic macroeconomic, supply and demand. The more supply, the less demand. The less supply, the more demand. This goes from a seller’s market to a buyer’s market. What I’m trying to do is beat everybody to the punch here, get rid of these properties before people realize how bad things are and be able to move these properties for a decent profit.

That’s my goal and objective. Anybody, if you have properties you want to get rid of, I recommend doing it that way now if you can. By any means possible, get rid of these properties. If you’re going to make a profit, turn a move on because you’re going to be affected negatively once everybody starts listing these properties. It’s region-dependent. There are different areas where properties are moving with no problems whatsoever. People are still buying and selling and showing the properties. I know in Dallas, Texas, they can still show the properties even though they’re on lockdown. I know in Arizona and other markets, maybe Indiana and Ohio. I know Ohio has got issues with their governor with too many lockdowns, but real estate is moving in other markets. Right now, we’re being locked down.

I get why New Jersey is locked down because they have many cases. New York, in the outlying area, shouldn’t have the same rules and regulations what’s going on in the city because the city has been ravaged by Coronavirus, but the rest of the state has not been hit as bad. What these governors are doing doesn’t make any sense. When you’re talking about politicians, the IQ is at 50 or below. These are people who are incapable of running and doing anything in the real world. Unfortunately, they’re making our decisions that are going to affect us negatively, as you’ll see. If I’m right on this, I hope I’m wrong, but I’m anticipating this happening where we’re going to have an oversupply. We’re going to have a price drop of 20% to 30% and this can be a quick price drop.

Holding on to your properties during this time will only hurt you. Click To Tweet

Does that mean we have a lot of mortgage companies that are not lending? We have a lot of investor mortgage companies that aren’t lending, especially on a rental side. I use Lima One Capital, LendingHome, LendingOne. They all dropped their rental programs. This is negative. Some of them are still doing their short-term fix and flips, but they were reduced from 80% to 60% LTV. They’re contracting everything, which I get. They’ve got to do that to protect themselves. What’s that going to do? That’s going to put a chokehold on the market and you’re going to lose a lot of investors, but it’s not a bad thing when you’re out there looking to buy properties.

I already survived the last crash and I hope I survive this crash here, and continue to do the same type of things. We’re going to see a lot less people in this real estate business over the next couple of years as people get funneled and flushed out because of the market. That’s the turmoil that’s going to happen from the Coronavirus, unfortunately. It’s here to stay and I don’t anticipate it going away from what we’re looking at here. It’s going to be up and down, so we’re going to have periods of lockdowns. Maybe they open us up. Maybe they’d have to lock us down again to an extent. Maybe not the same extent, but if cases increase again, they’re going to do that. Anticipate that it’s going to be like that. It’s going to be a bumpy ride over the next years, potentially as many as five years out as long as this virus hangs around. Hopefully, it leaves sooner rather than later, but it’s already done its job. It started to wreak havoc.

It’s going to be catastrophic unfortunately, too, which leads me to another thing. You’re going to have less people with jobs, which you will have fewer buyers. Because of this, you’re going to have prices drop. The more buyers, the higher prices. The lesser buyers, the lower prices. That’s why I’m saying to get rid of whatever you can get rid of at this point if you still profit from it. Even if you’re halfway through a rehab and you get somebody who wants to buy it from you and you break even or make money, get rid of it. Even if it’s a little bit, don’t hold on and hope. Holding on will only hurt you. I’ll give you a sample of what happened with a property I had in 2007 to 2008 period. I had it under contract for I believe it was $325,000. The buyer, during that 2008 crisis, one of them lost their job and couldn’t close.

I ended up having to sit on this property for six months and end up selling for $255,000. We’re talking a $70,000 drop. I sold it until January of that year. It took a little while to do it, unfortunately. It was wreaking havoc. I anticipate this to be somewhat similar. I don’t think we’ll have that huge major drop-off, but we’re going to have a huge major drop-off with everything. The stock market is getting hit good, even though they’re pumping a lot of monetary methods into that with $454 billion, which can turn into $2.2 trillion if they add and pump into the market. They’re buying equities, bonds, corporate bonds, junk bonds and all kinds of stuff to try to pump the market up. The banks are not that solvent. They’re helping the banks out of reducing standards so that they can stay in business because they know it’s not going out overnight. It’s a business, not a free market. Unfortunately, we’re not in a free market and this is what’s going on. I want to tell you how it’s going to affect you in real estate. It’s going to be affecting you in a negative way.

Positives And Opportunities

Now that I’ve told you all the negatives of what we’ve seen here going on with this, I want to get into the positives. What are the positives that are going to come with this? This will put out of business 60% to 70% of the investors you’ve been fighting over deals with over the past several years. We’ve been in a bull market in real estate since 2013. I had a nice increase here. It’s been a pretty good period where you’ve had to fight for deals. Now, you’re not going to be fighting for deals. You’re going to be fighting for buyers for these deals. You need to change your focus. Shift your focus from spending time to find ways to find deals to finding ways to find buyers. You need to build that cash buyer and list in markets like crazy for cash buyers. You’re still going to need to market for deals, but you’re going to have far less competition. You can go in there and you’re going to be able to name your terms a lot better. There’s going to be a lot more opportunity for you and with that, a much bigger profit margins.

FO 14 | Coronavirus Market Disruption

Coronavirus Market Disruption: Get rid of your properties for a decent profit before people realize how bad things are.

 

Let’s say your average wholesale deal is $12,000 and you’re going to be getting $15,000, $17,000 or maybe $20,000 for a short period. The profits spread on these deals. The opportunity is going to be great. You need to maximize what you can on those two. The second is you’re going to get some great terms on deals and maybe you want to keep them as rentals, whether you do them subject to or you decide, “I’ve got some cash. I’m going to put them in rentals. I’m going to hold on to these properties because it is a good area. I’m going to cashflow and then over 10 to 15 years down the road, hopefully it will appreciate and I’ll be able to turn around and sell this property,” because who knows how long it would be a down-market for.

Nobody has a crystal ball who can say how long it would be down. Maybe we go through a period of deflation, which is likely to happen here with all the money that they’ve put into the market temporarily. You always have a period of deflation where values of things fall. What I mean by that is like assets, real estate, stocks, bonds and then other things increase such as cost of food and your living expenses. Gold and silver will go up. They’re always great to be in, in times and periods like this. You’ll have those things increasing. After you have that deflationary period, because we’re printing so much money, we could hit a hyperinflationary period where everything goes up. Food, real estate, values and rents continue to go up. All these things go up with it. Your money is being devalued.

It may be going up, but when you look at it, you’re not getting the same back because it may cost. Your rent may go from $1,200 to $1,400. If a gallon of milk goes from $4 to $10 or a loaf of bread goes from $2 to $8, you’re not getting that same value for your money. You’ve got to look at everything in perspective just because things go up like that in value. If somebody tells you, “Your new rents are going to be $2,000 on this property. That’s $1,200 two years from now.” You’d be like, “That’s great,” but when you think about it, what makes it go up that way? Is it great? No, because the cost of everything else is going up probably exponentially more than what your rent’s going up. It’s not going to be a good thing because those things always lag. They’re more lagging indicators there of what’s going on.

Hopefully, we don’t get hit too hard with the inflation, but when you print this much money and you throw in as much money at, we can’t understand how you couldn’t have inflation when you pump the money supply up as much as it’s being pumped up. We either have hyperinflation or we’ll have these lost decades like Japan had where you have nothing, no growth, nothing increasing. Maybe the lost decade is better than hyperinflation, I would think, but we need jobs back. What’s going to happen here with jobs? You have people losing their jobs. You have car manufacturers not making cars anymore because they’re making ventilators. You don’t have any new cars coming in and people are not making that and you have way less people working in these factories.

You have way less people in retail. Retail is going to be way down. I saw retail sales went out 47% in March 2020. It’s no surprise because people can’t go out and buy. Amazon is going way up, but everybody else is going way down. You have things like that happen and you have 33 million potential unemployed. They’re expecting the unemployment rate could be 20% to 33%. When you have the unemployment rate that high, you’ve lost 67% of your potential buyers with that. That is what it is, but you’re going to have opportunities at the wazoo, getting back to the positives. You’re going to have opportunities and deals out there to find. Let’s go through some of the other positive aspects of this lockdown.

Everybody's about convenience. People are willing to pay even a premium to get that convenience. Click To Tweet

People will be locked in, which nobody likes. I can’t stand it and nobody else can stand it either. You have smart people sitting at home, bored out of their mind and they’re going to come up with the innovative new businesses and new ideas. We’re going to hit a period like we did in 2008, 2009, but people weren’t in a lockdown. Now, people are locked down and the creativity in their minds are going to help create new products. We’re going to have technologies that you can’t even imagine. Things are going to be great from this because people come up with different ideas. I think we’d be able to bring a lot of jobs and manufacturing back here where it belongs. It’d be like the 1980s growing up when we had everything made in the United States and it was all good quality products. That went away once we outsourced everything to China in the ‘90s. It was a big mistake, unfortunately. It is what it is. It’s water under the bridge, but we can only look at what’s coming.

We’re going to have great new technologies coming out. We’re going to have many great things industry-wise. Where does it pay for people to go in? Information and technology field. You’re going to have new apps come about. You’re going to have all kinds of new products come about that are computer-based. That’s going to be your big part of your job field. We still need health field people or workers such as doctors, nurses and all those kinds of things. Especially now, we need them with what’s going on with the Coronavirus. I think that will end up being stable and/or grow. You’re going to have less home-building, but you’re going to have more home renovation type of projects going on.

There will be less new construction by a lot because the cost compared to what you’ve been getting is not going to make sense for new construction for a while. There’s been so much build over the years that we’re in a good spot anyway with it. If not, we’ll be seeing a change where people go to smaller houses than more McMansions. Maybe people are doing more 2 or 3 bedrooms, one-bath, 800 to 1,500 square feet homes, instead of going to the small condos that are super energy-efficient. People will be looking to do more things like that. That’s going to be something that’s in our future here as investors as to what we potentially build. If we can put out a low-cost product like that and turn a profit, that’s going to be a big part of our future.

As far as rentals, what I’ve been doing with my rentals, and I picked up quite a few, is I’m updating them with technology. I’m putting all these new electronic locks where you’re typing in your code to get in. You have a key, too, as a backup there, but Millennials and younger generations love these products where you’re typing it in. I have the same thing going down to the basement with the shared washer dryer and another electronic codes get in there. It makes it easy when you’re showing properties. You could do temporary codes to get people into a property and set it up for realtors or potential tenants coming in. It makes everything more convenient and easy. You can pick these things up pretty cheap. I’m getting them a Defiant lock for $47.99 over at the Home Depot. You can get these inexpensively, great products.

Do little things that make a difference. The new outlets that you put in, make it so you can put a cord in there for charging your phone, some USB ports in there. The USB ports are great for a lot of different things until that technology changes. For now, that is good and they’re not that expensive to put them in. Put them in a hotspot. Put them into bedrooms where people would plug them in near their bed. Put them in the living room and a couple of areas. Put them in the kitchen and a couple of areas where you would think people commonly plug-in to those types of items. Those are nice upgrades. They’re so going to separate yourself from everybody else. People love that. Everybody’s about convenience. I’m all about convenience. I’m willing to pay for convenience, even a premium to get that convenience. Most people are that way.

FO 14 | Coronavirus Market Disruption

Coronavirus Market Disruption: With people locked down, the creativity in their minds will help create new products and technologies that you can’t even imagine.

 

Consider it, especially for the Millennials and Generation Z or Y, whatever they’re known as, they want everything to be convenient. The next one, my kids here, they’re going to want everything to be convenient and everything has to be quick and easy. We’re in an age where these devices, they’ve made everything convenient and easy. Everything’s an app. With one app, like with the right light bulbs and right outlets, I can control every light in my house from my cell phone and it makes everything easy. “Did I leave the downstairs light on? I did.” Turn it off right there while you’re in bed so you don’t have to go downstairs and do it. The convenience of this is tremendous. This is our future. We’re going to go into smart homes into much smarter homes. When you’re redoing your rentals, do them smart. Think about how you can do things to save money, more energy efficiently. That’s a big part of our future too. These are some important things to think about as we go into a changing environment.

Episode Recap

I want to recap and I want to go back over what I said. If you have properties that you can get rid of, if you’re a rehabber and you’re near the end and you can move it as is, do the cheapest finishes possible to finish it. Get rid of it and sell it quickly. If you’re a wholesaler, sell everything you can. Get rid of it as quickly as possible. For me, I’m buying bank-owned stuff, so I don’t know if I’m going to close on this property. I need to be able to have potential buyers. If I don’t, I’ll walk away from the deposit and not close on the property. Be smart and when it gets stuck with something, it’s going to cost. You better write off a couple thousand dollars and deposit, then it will worth $3,000 than it is to write off a $10,000 or $15,000 loss and all the time and energy spent trying to sell that property. Be smart about where you’re getting. We’re picking up things cheap that we feel, even if there’s a 20% to 30% decline immediately, we’re still in good shape and we can still sell these properties.

The properties we’re targeting are in that $50,000 to $100,000, for the most part. A lot of them are cheaper. I’m not picking up one for $7,500. I know I’m going to be able to sell that thing probably in the upper teens or lower twenties for worst case scenario. It was a single list of property that I was able to get. It was listed as a single, but it’s a duplex. It’s a 2 or 3-bedroom, 1.5-bathroom unit. It was listed as 1 or 3-bedroom, 1.5 baths. I’ve got a steal and I might even be able to get the upper twenties for here. There are opportunities out there. You’re going to want to be able to pick up these deals as cheaply as possible and then try to move as quickly as possible.

I was always afraid that in the 2008, 2009, if I didn’t have buyers, people are interested in the property, I’ll eat the deposit and move on and be smart. We need to go back to that mentality. If you were one of the investors who has survived through that crash, go with that mindset and it will lead you in the right direction. Be smart, conservative, and diligent in everything. Be safe. For any questions, feel free to reach out to us. We appreciate you reading. I’d love it if you could reach out to me and let me know if there are any topics you want me to hit on. We’ve done a range of topics and I want to hit another virtual wholesaling. I’m solocasting here to show the changing markets, what’s working and what markets are doing well, what markets are affected by the Coronavirus, which ones aren’t as affected. I will look to do that. Please write and email me. Let me know what topics you’d like to know. Thanks again for reading.

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