With the events of COVID-19 and the impending Real Estate downturn, we need to retreat and retract from further investments and protect all that we have.
It is important to get the foundations right, before embarking on any financial investment, real estate, or whatever it may be. Here is a summary of the obstacles and opportunities that need to be considered to achieve real estate investing goals.
Financing
Obstacle: Recently, the FHA has significantly tightened its credit scoring criteria for qualifying a loan. Besides, non-qualified lending has reportedly taken a hit as well. Thus, this is a significant concern for some real estate investors who need short term lending to purchase and renovate if they do not meet income standards.
Opportunity: Financing may offer a significant upside for property owners that qualify. You may be able to refinance a property at lower rates, if you meet mortgage lending guidelines. And, if planning to expand or improve the real estate portfolio, you can borrow against the equity in your existing properties at historically low rates.
Single-family Housing
Obstacle: Evictions are frozen for 120 days starting March 27, 2020, for renters who live in properties that receive federal subsidies such as section8 vouchers or for renters whose landlords have governmental guaranteed loans. Many individual states have issued similar suspensions on evictions if the rental unit is not covered by the CARES Act.
Opportunity: Homeowners with government-guaranteed loans may be able to request forbearance for up to 360 days if their income is reduced as a result of COVID. Start with the two largest entities: FannieMae and FreddieMac, to determine if your mortgage is backed by a government agency.
Multi-Family housing
Obstacle: The loan forbearance options don’t apply as anything larger than 4 housing units cannot be financed with a mortgage.
Opportunity: Work with tenants, so that they can pay you at least in part and stay in your unit long-term.
Commercial Property
Obstacle: Loan forbearance options through Freddie Mac or Fannie Mae do not apply as commercial property cannot be financed with a mortgage.
Opportunity: You may want to work with your tenant to make sure that they have applied for the Payroll Protection Program if your property is leased out to a small business. And if the tenants qualify for PPP, then they can use a portion of those funds to pay their rent, which is a huge relief to you.
Some key steps to be prepared for future uncertainty.
1. Have little or no credit card and high- interest debt.
2. Maintain a credit score of 740 or higher.
3. Have enough income to pay the rental property mortgage if there is a sustained period of vacancy.
4. Be sure to maintain enough cash to cover vacancies and maintenance on the target property for a year.
