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Property Management Blog

Tips for buying a duplex

System - Tuesday, June 30, 2020


Are you thinking about purchasing a duplex in the Bedford area? If so, you're making a smart choice.

Adding a duplex to your investment portfolio is a smart way to generate rental income but there are several things that you should look for before purchasing a duplex including the following:

1.) Get Educated

You are already doing step one, so congrats! It’s important you gain a solid understanding of how the process works, how to analyze deals, etc. before getting in too deep. This will help you avoid the risk of getting taken advantage of.

I’d also recommend you read through “The Ultimate Beginner’s Guide to Real Estate Investing” to help you gain a solid foundation for your future as a real estate investor.

Also, the BiggerPockets Podcast is, perhaps, the single greatest resource for real estate investors in the history of mankind. Seriously. And it’s nothing David Greene or I do to make it that way; it’s the honest, brutal truth from our guests. Incredible!

2.) Get Pre-Approved

When you are ready to start the process, it’s important to get your financing lined up first. Granted, you may want to switch around step #2 and step #3, because a good agent can refer you to a good mortgage broker. But either way, it’s important to get your financing lined up.

We’ll talk more about the different financing options you have in a little bit, but definitely get to a bank or mortgage company and open up the conversation.

3.) Get in Touch with a Real Estate Agent

If you are buying on the MLS (this is the list of all properties for sale through other agents—the most common way to find properties), you'll want to find a great real estate agent to work with. Don't worry, real estate agents are typically FREE for the buyer, as the seller pays the fee!

I’d recommend finding an agent who has the following traits:

  • Knowledgeable about working with first-time homebuyers
  • Knowledgeable about duplexes and other small multifamily properties
  • Tech-savvy
  • Quick to respond to questions
  • Patient with you
  • Hungry (They want to help you. You are not a burden—you are their paycheck!)

4.) Define What You Are Looking For

It’s important that you let your real estate agent know exactly what you are looking for. If you want a duplex, let them know!

A good agent can hook you up with automatic emails that inform you about all the new deals that come up on the MLS. So be sure you have some defined criteria set.

This criteria should include, at minimum:

  • How much do you want to (or can you) spend?
  • What towns/neighborhoods will you buy in?
  • What property type do you want? (duplex, triplex, etc.)
  • What kind of condition would you prefer? (trashed, move-in ready, etc.)

Let your agent know about your criteria and have a discussion about what that might look like. A good agent will know the local market and can help clarify what is possible.

5.) Start Looking

Next, it’s time to start looking for a good deal. There are several methods you can use to find good deals, which we’ll talk about in a moment. But most likely, your real estate agent will supply you with a list of potential properties.

It’s also a good idea to look online for properties yourself, in case your agent missed any. Websites like Zillow, Trulia, and Redfin can be great for scanning through potential deals. But keep in mind, these sites never contain all the information and may also contain faulty data. Your agent will ultimately have the best data.

6.) Do the Math

Once you find some potential deals, it’s time to get out your pen and paper and start analyzing the deals. We’ll talk more about analyzing deals in a moment, but I’d recommend that you use the BiggerPockets Rental Property Calculator to analyze potential deals.

Just the other day, I looked at a duplex deal that appeared to be awesome—but after running it through the calculator, it was clearly a terrible deal! Again, we’ll talk about the analysis side of things in just a moment.

7.) Make an Offer

Once you find a deal that pencils out, it's time to make the offer. Your agent will do the bulk of the heavy lifting with this and will fill out the paperwork for you. If you are not using an agent, you may have to find the correct forms yourself—which you can usually obtain for free from a local title company.

At this point, your offer will either be:

  • Accepted (yay!)
  • Rejected (boo!)
  • Countered (most likely)

You will need to engage in some negotiation with the seller until you either come to an agreement or part ways. Keep in mind, negotiating can force you to get emotionally involved and encourage you to pay more than you should for a property. Stick with your math and don’t pay more than you should!

8.) Do Your Due Diligence

Once you and the seller agree to all terms (known as "mutual acceptance"), it's time to do your due diligence. This is the time when you will inspect the property and make sure it has everything it is supposed to have. I'd HIGHLY recommend hiring a professional home inspector (usually under $500) to look at the property and give you a detailed report of what needs to be fixed.

After the inspection, you can either choose to accept or reject the property—or make the seller pay for all/some of the repairs. It's all up to negotiation. During this time, you will also finalize all the loan documents (which can be annoying!) and review any leases on the property.

9.) Close on the Property

Next, it’s time to make the property your own. Depending on what state you live in, you will either close at a title company or an attorney’s office. Your agent should help you walk through any difficult spots up to this point.

10.) Rent the Unit(s) Out

Finally, it’s yours! However, the fun is just beginning.

Source 

Contact Martin Property Management

For more information on how to find the right duplex for your investment portfolio, or to speak with us about our property management services, contact us today by calling (617) 957-0166 or click here to connect with us online. 


How to Rent Your House: The Definitive Step-by-Step Guide

System - Monday, June 22, 2020


Are you thinking about renting out your home but you don't quite now how to get started? If so, you've come to the right place!

In this article we will provide you with a list of things that you can to effectively get your home ready for the rental market including the following:

Many people mull over the idea of renting out their homes. They may want the benefit of extra income to save money or pay down debt, or they may see it as an option to selling during a housing slump, a way to wait things out until the economy improves.

The motives are many, but it's possible for this plan to become more trouble than it's worth when appropriate considerations aren't made. Here are five steps that will get you going in the right direction.

If you are lucky enough to live in a tourist-friendly area, like near the beach or a major city, renting out your home as a short-term or seasonal rental may be an option, too. Before you sign up with a short-term rental group, like Airbnb, find out the rules and regulations for these types of rentals in your town and city.

Understand the Responsibility Involved

First, you must determine whether being a landlord is an obligation you can even handle. The benefits of renting are numerous, such as the ability to deter the vandalism that often plagues an empty home, the ease of tax breaks and the ability to generate income that covers the bills and possibly even creates a profit.

However, being a landlord is also one more responsibility you'll need to fit into your life, and it's safe to assume that things will sometimes fail to run smoothly. You'll need to stay on top repairs and maintenance, collect rent, dole out more for your homeowner's insurance policy, and try to avoid wear and tear on your property by keeping an eye on your tenant's housekeeping skills.

Prepare Your Home for Renters

In a down market, you probably won't be able to get away with renting out the home as-is. Tenants are more attentive and choosy at such times, because of the increased availability of rental homes, and their expectations are much higher.


Prepare for the new tenant by thoroughly cleaning your home and making sure appliances are working and are in good condition. If you've decided that you are renting out a room or area within your house, make sure that you can secure that area from the rest of your home.

Marketing Your Home

Once the house has been straightened out, develop a list describing what makes it appealing so you can put it on the market. Take note of those commonly desirable features such as a washer and a dryer, air conditioning and garage. Use rental terms to help "sell" the property.

According to RentalsOnline.com, words and adjectives that'll help you get a renter include: "granite," "state-of-the-art," "stainless steel appliances," "vaulted ceilings," "maple," "gourmet," and "hardwood floors." Be sure to use any and all of the terms that apply to your home.

Next, post an advertisement for the home on reputable websites and in the local newspapers. In addition, some real estate agents will work with owners to help rent out their homes, although the agent will take a commission if he or she finds you a renter.

You can also hire a property management company to handle the legwork of renting out your house, but you will have to pay them. The cost varies by company but it is often between 8% to 10% of the monthly rent and there may be other fees involved.

Hire Professionals to Help You Navigate the Financials

Turning your home into a residential rental property may seem like a simple task, but it's important to talk with real estate attorneys and accountants to make sure you are abiding by tax laws, zoning ordinances, and local property rules.

You may qualify for tax deductions, but it's important to know which exact expenses are deductible. Plus, there are limits on how much you can deduct each year, and the amount you are able to deduct may differ with the rental activity reported on your tax return.


An attorney can also help you navigate the landlord-tenant regulations, which vary from state to state and help you understand your community's rules governing rental properties. You can also seek help drafting the lease, making sure that it follows local laws. Finally, talking with an attorney can help you determine suitable house rules and emergency contacts.

Set the cost of the rent by learning what other rental properties are going for in your neighborhood and community. Remember, potential tenants will be scouting around for deals, so set the rent at a competitive price and make sure you highlight all the most valuable aspects of your home.

KEY TAKEAWAYS

  • The responsibilities of landlords are vast and can often come with unexpected costs. It helps to have some cash reserves, if possible.
  • When screening a potential renter running a deep background check is advisable. Make sure to ask for multiple references from potential renters.
  • Know your rights and the rights of your tenants—it's a good idea to familiarize yourself with the Fair Housing Amendments (FHA) Act.
  • According to a study by Renthop.com, during peak seasons you can rent your unit for even more. July through September appear to be the best times to locate a tenant; however, this seasonality can vary from city to city.
  • If you have a home on a lake, near a beach, or close to another seasonal venue, it may be worth it to investigate short-term rental platforms.

Screen Tenants Carefully

Start looking for a tenant as soon as your property is ready to be shown. Then, choose your tenant very, very carefully. You need to be able to depend on this person not only to pay the rent on time but also to keep your home in good condition. Also, if the person is someone you may be co-habitating with, learn their habits so you won't run into any nasty surprises.

Don't forget to gather references for potential tenants and check their credit histories. You should also take safety precautions when screening a tenant⁠—after all, this person is a stranger. Once you've found the right tenant, ask for a reasonable security deposit and arrange an appropriate payment schedule.

The Bottom Line

Renting out a home can be beneficial for both owners and tennants⁠, but only if you take the time to address and prevent potential pitfalls. After, all it's still your house.

Source

Contact Martin Property Management

At Martin Property Management we know that owning rental properties can take a lot of work, especially if you are managing them yourself!

Thankfully, our property management service makes owning rental properties EASY. To learn more about the services we can offer you contact us today at (617) 957-0166 or click here.




What Does a Property Manager Do? Here’s the Job Description

System - Monday, June 15, 2020


Are you thinking about hiring a property manager to manage one or more of your investment properties? If so, you're making a smart choice!

In this article we will break down what a property manager does and how they can help you grow your portfolio of investment properties.

1. Setting the right rates

Pricing your property competitively is vital for every landlord. Too high and you won’t fill the space. Too low? Good luck making money. A property manager knows the micro market, local area, and current rental rates, enabling them to correctly value your buildings’ worth and price the units accordingly.

2. Marketing and advertising

You lose money every day your property is empty. Exposure helps you find tenants, and a property manager can help you create a coherent marketing strategy that will develop your brand, establish your reputation, and boost interest from prospective tenants.

3. Complying with housing regulations

State and federal laws around housing and evictions can be rather confusing. A professional property manager can walk you through everything, from paying taxes, discrimination laws, and needed certificates. But be warned that you are still liable if your property manager gets into legal trouble, so make sure they know what they’re talking about.

4. Finding good tenants

Property management companies find higher-quality tenants for filling vacancies because of their rigorous screening processes. These people often sign longer term leases, inflict less wear and tear, and cause fewer problems. If you work alone, you might find yourself drowning in applications—but a professional property manager can assess applicants quickly and easily using a comprehensive screening process, including background and credit checks.

5. Collecting and depositing rent payments

Strict rent collection is crucial to financial success. A property manager acts as a buffer between you and your tenants so you don’t have to chase up late payments or listen to complaints.

6. Providing customer service

If you’re not a people person, it may be best to have someone else deal directly with tenant complaints. Not everyone has A+ communication skills—and that’s okay. A positive, smiley, helpful property manager will build up a rapport with your tenants and placate any problems with practiced ease. A company also ensures there is someone tenants can contact, even when you’re on that two-month Caribbean cruise.

7. Handling maintenance and repair

Let’s be honest—no one wants to be woken at three in the morning because a pipe burst in a rental unit across town. When things inevitably go wrong, your property manager brings a set of management skills that help quickly and efficiently handle any problem. Remember, your tenants want problems solved immediately. Delays can lead to complaints. Thanks to their wealth of experience in real estate, property managers can also suggest preventative maintenance before a problem has even occurred.

8. Managing vendor relationships

When you do require maintenance or repairs, it can be a hassle to get the right tradesmen for the job. A good property manager will know reputable, reliable, licensed workers—and have good relationships with them. They should also have established policies to prevent any problems when the workers enter the property, which protects you from litigation.

9. Assisting long-distance investing

As your property empire grows, you may wish to begin looking for investments outside your immediate area. If you sign a contract with a state or nationwide property management company, you can rest easy. Your properties are all being looked after to the same high standard as you enjoy in your own town.

10. Maximizing profitability

If you intend to live off the revenue from your real estate business, you need to dedicate your time to searching for new investments. Once you’ve got a few rented properties under your belt, you’re probably ready to expand. But how can you do that if your time is spent dealing with tenants, addressing problems, and collecting rent? With daily operations handed over to your property manager, you’ll have more time to scour the market for that next investment.

Source

Contact Martin Property Management

For more information on the property management services we can offer you, contact us today by calling (617) 957-0166 or click here.


Landlord-Tenant Disputes: The No. 1 Way to Keep the Peace, Enforce the Lease

System - Monday, June 8, 2020


One of the most common problems that some landlords have is dealing with landlord - tenant disputes.

Thankfully, there are a wide variety of solutions that landlords can use to handle landlord - tenant disputes including the following:

1. Avoid disputes by knowing the law. The best way to resolve disputes is by avoiding them before they even begin. Many problems arise because one party does not know that they have broken the lease agreement, or they’re unaware of their rights under the law. Taking the time to learn the law — and staying up to date on changes to housing laws — will help you avoid disputes and make you a better landlord.

2. Keep your cool. When a situation arises, never lose your temper, even if your tenant does. Try to stay as calm as possible, and do your best to take care of the situation on your own. If you’re having difficulty, or if your tenant is not cooperating, you may need to seek assistance in court. However, by keeping your cool, you are representing yourself in the best possible light.

3. Talk it out. Many problems with tenants can be solved if the issue is discussed thoroughly on both sides. Do not let your temper flare, even if you are justifiably angry. There may be an honest answer to a problem, and both of you may be blowing it out of proportion. Working it out between the two parties is almost always cheaper and easier in the long term.

4. Meet face to face. If you have only traded angry words with your tenant over the phone or by e-mail, a face-to-face meeting may help. Hold the meeting in neutral territory, where both of you will feel safe.

5. Get a professional mediator. If you have tried without success to resolve the dispute, a professional mediator may be able to assist you. Many states now provide property-dispute mediators who are trained to deal with situations that can arise with rental properties.

6. Submit to arbitration. Arbitration is similar to mediation, but arbitration is binding. An arbitrator will hear both sides of the case and issue a binding ruling to which you must adhere. If you are worried that you’re in the wrong, you probably won’t want to take this step. Instead, own up to the problem and try to settle with your tenant.

7. Document everything. A paper trail is your best defense. If your tenant has repeatedly broken the rules of your building or lease agreement, or if they have made unreasonable demands, your documentation can help prove your case. Keep a file on each tenant, and record all that transpires. Presenting this documentation to your tenant may even dissuade him or her from taking you to court.

8. Let the lawyers decide. Many cases can be resolved before they go to court, once lawyers are involved. If you and you tenant are currently represented by lawyers, they may be able to help you settle the case out of court.

9. Small claims court. In most cases, disputes arising from rental property fall under the jurisdiction of small claims court. This option is usually cheaper than going to civil or criminal court, and may lead to a quicker resolution.

10. Take it to litigation. If you have exhausted all other avenues, you may have to take your tenant to civil or criminal court. The actions of your tenant will dictate the manner in which the case should be tried. Make sure that your lawyer is well-versed in landlord/tenant law, and capable of prosecuting the case successfully. Be prepared to supply all necessary documentation of what has transpired.

Source

Contact Martin Property Management

For more information about the property management services that we can offer you, contact us today by calling (617) 957-0166 or click here.

Tenant Screening Tips

System - Monday, June 1, 2020


Do you have one or more properties in the Bedford area that currently have vacancies? If so, with those vacancies you're going to have to screen tenants in order to find the right people to live in those properties.

Sadly, tenant screening is one of the top things that most landlords hate doing because of the simple fact that they either dislike having to take the time looking into a potential tenant’s background, or they don't have the heart to disqualify people based on specific criteria.

Thankfully, tenant screening can be easier than you think, especially if you know what criteria you should establish from the very beginning.

In this article, we will offer you several tips that you can use during the process of tenant screening which will make it easier than you ever imagined it could be.

Tip #1 - Criminal History

The first thing that you should establish during the process of tenant screening is your criteria if a prospective tenant has a criminal history.

In today's world, you cannot discriminate against the tenant based upon their criminal history but, you can specify which type of criminal history you’re willing to consider or not consider, especially if their offenses were violent, or non-violent.

Tip #2 - Rental History

During the process of screen tenants, you're also going to have to consider a tenant's rental history. 

This is also very important because the fact that you may encounter one or more prospective tenants who have rental histories which show that they stay an average of 3 to 6 months (or less) at the rental properties that they live in.

If you encounter a prospective tenant with a rental history like this, the most important thing to do is to ask them for reasons behind why they stay at the places they rent for short periods of time because, their job may require them to move frequently but, if they don't have a legitimate reason behind the rental history, you should consider continuing to look for the right tenant.

Tip #3 - Evictions

Last of all, but most important, another thing to consider when screening tenants to live in your rental property is if they have any evictions in their rental history or not.

During the process of screening tenants, you may encounter at least one person with an eviction, in this case, you should pay serious attention to when the eviction occurred and also verify if it was classified as a satisfied eviction, meaning that they paid any back rent that they owed, and all court costs associated with the eviction.

Contact Martin Property Management

For more tenant screening tips, or to speak with us about the property management services that we can offer you, contact us today by clicking here.

Tired of Property Maintenance? Why Not Hire A Property Manager Instead?

System - Wednesday, May 27, 2020


Are you tired of having to perform maintenance on your Bedford area rental properties? If so, come to the right place.


There's no doubt that property maintenance is a necessary fact of life when you own a rental property because, when things break down, or need repairs, you're always going to be the first person that your tenant calls because of the simple fact that as the owner of the property everything falls back on you.


In today's world, it's not uncommon for most Property Owners to be tasked with doing everything from changing out toilets, taking care of minor Plumbing, electrical or Landscaping work because they think that DIY Property Management save time and money.


The reality is that even though you can do the work on your rental property yourself, DIY property management is costing you more money than you know because the simple fact that for every minute that you invest working on your rental property, you could be spending that time focusing on building your portfolio of investment properties instead


What's the Solution to The Problem?


You may be wondering, okay what's the solution to the problem? The answer, or solution to the problem is to hire a property management company to professionally manage your portfolio of rental properties in the Bedford area.


When you hire Martin Property Management to manage your properties for you, you can have confidence that we're going to save you the time, money and hassle of managing your investment properties yourself so that you could focus on growing your portfolio of income properties rather than constantly having to be bogged down by performing maintenance on them.


 Some of the Property Management Services that we can offer you include tenant placement, tenant's selection, maintenance, customer service, property marketing, accounting and so much more. We truly are the Bedford areas best Property Management Company because we have the most experience and we provide excellent service as well.


Contact Martin Property Management


To learn more about the property management services that we can offer you, contact us today by clicking here.


Seven Habits of Highly Effective Real Estate Investors

System - Thursday, May 21, 2020

Are you planning on investing in your first rental property? If so, you've come to the right place!


In this article, we will share with you the top 7 more productive habits of real estate investors. 


Habit 1: Be proactive.


Covey introduces the ideas of Circle of Influence and Circle of Concern in his book. Imagine two concentric circles. The bigger circle, the Circle of Concern, is all of the things you can worry about going wrong in real estate: contractors not showing up, water heater breaks, investors backing out of a commitment. Inside that circle is a slightly smaller one, the Circle of Influence, for items that you have control over.


Life is 10% what happens to you and 90% how you react. As investors, we must be proactive, control the controllable to expand our Circle of Influence. Accept responsibility for situations and take initiative to make things better. Waiting for problems to happen or taking a woe-is-me kind of attitude will get you nowhere.


Habit 2: Begin with the end in mind.


This goes far beyond envisioning how you want your fixer-upper to look at the end of construction or the conclusion of an investor pitch meeting. You also have to have a picture in mind what you want your life to look like in the end and your relationships with the people who matter so you don’t end up working aimlessly. Lots of motivational gurus talk about your “why” or “finding your purpose” ad nauseam — and the reason they do it is because it’s important. What is your mission? Spread the gift you were put on this world to give.


Habit 3: Put first things first.


As real estate investors, you have a myriad of to-dos. Prioritizing is key. Break out everything you have to do into a two-by-two matrix, with one axis labeled important versus not important and the other axis labeled urgent versus not urgent. We don’t have any problems with quadrant one, the important and urgent tasks, and although it might take some discipline, for the most part, we know to tune out the not-important and not-urgent time wasters.


However, we often overspend our time in the not-important-but-urgent quadrant and under-invest in quadrant two, the important but not urgent items that will pay many more dividends down the road. We need to delegate or decline the busy work and focus on what will sustain our business in the long run, and that is building relationships with brokers, agents, and various tradespeople.


Habit 4: Think win-win.


Most investors are deal junkies, but we must take the long view. Win-lose situations don’t build trust over time. You might want to ask the agent or broker to reduce their commissions, but you have to realize the pie is big enough for everybody. The reason it is hard is that it takes a tremendous amount of integrity, maturity, and, most of all, empathy. When you can do that, you can bet you will get tons of repeat business in the future.


Habit 5: Seek first to understand, then to be understood.


Listen first. Ask questions. Too often are we ready to jump in to defend our position in negotiations or apply our lens to the problems that we miss out on the opportunity to peel back the onion to get at the deeper-rooted issues. Per Aaron Burr’s advice in the musical Hamilton, “Talk less. Smile more.”


Habit 6: Synergize.


What if 1 + 1 = 3 or 30? Often, complicated deals require innovative solutions. Could you perhaps work out a seller financing option or installment sale? Would an option contract make more sense for both parties? It’s not about your way or my way or even a compromise; it is about finding our way.


Habit 7: Sharpen the saw.


We must remember there’s more to life than money. Money is just a funny way of keeping score. What is the point of working yourself to the bone? Take care of your body, heart, mind, and spirit to periodically recharge and you’ll achieve your peak performance.


Source


Contact Martin Property Management


Are you interested in hiring a property manager to manage your Bedford area investment properties? If so, contact us today by clicking here.

Don’t Let Your Short-Term Rental Property Sit Vacant, Convert Into A Long-Term Rental

System - Friday, April 24, 2020


Since coronavirus, one thing that most investors who own short-term rental properties like Airbnb’s, across the United States have in common is that bookings from their short-term rentals have all but dried up.


Even though the president and most Governors are eager to reopen economies following coronavirus, the reality is that it's going to take the short-term rental market at least one year to recover. 


This is largely because since most people have been living off their emergency funds for the last 2 months and once people go back to work, they're going to be more focused on rebuilding their emergency funds rather than taking trips or booking Airbnb’s again.


How Long Should You Rent Your Property For?


If your goal is to ultimately be back in the game when it comes to renting out your short-term rental property then you should convert it into a long-term rental only for a period of six months. Renting it out to a tenant for 6 months will provide you with options and give you the ability to turn that property back into a long-term rental by early next year.


How long does it take to convert a short-term rental into a long-term rental property? The answer to this question is it could be done almost immediately, regardless if your property is furnished or not.


 At Martin Property Management, we're experts at the local rental market and can promise you that if you choose us to manage your rental property for you, we will provide you with excellent Property Management Services and help you with renting your property for the most money possible.


 Some of the Property Management Services that we can offer you include tenant placement, property marketing, rent collection, accounting, maintenance and so much more!


Contact Martin Property Management


 To get started with hiring a property manager to manage your Bedford area rental property, give us a call today at (617) 957-0166 or click here to connect with us online. 

We’re Still Open During Coronavirus!

System - Wednesday, April 1, 2020

With many businesses closing due to coronavirus, and the rental market changing, many landlords are working harder than ever before to manage their investment properties.

Thankfully, the team at Martin Property Management is still working to offer professional property management services to landlords in the Bedford, MA area.

What Services Do We Offer?

At Martin Property Management we offer a wide variety of property management services that can save owners the time, money and hassle of having to manage their investment properties themselves.

  • Property Marketing – We will market your property professionally online so that it’s found by renters who are interested in living in the Bedford area.
  • Maintenance – No more changing toilets, doing plumbing or minor jobs, our team rocks at taking care of property maintenance and will keep your rental property in great shape.
  • Rent collection – When it comes time to collecting rent, you can count on us to collect it on time and deposit the money into your account on time each month.
  • Tenant selection – You can count on us to screen and place the most qualified tenants to live in your rental properties.
  • Accounting – With our tenant portal, you can have access to all of the financials related to your property. You can rest easy in having all of the financial information that you need in one place especially when tax time comes.

Contact Martin Property Management

To learn more about the property management services we can offer you contact us today by calling (617) 957-0166 or click here to connect with us online.

The Impact of Coronavirus on Real Estate Markets

System - Friday, March 20, 2020

On March 11, 2020, the World Health Organization (WHO) officially designated the coronavirus and COVID-19 (the respiratory illness it causes) a pandemic. Cases have occurred in 114 countries and resulted in approximately 120,000 infected people and more than 4,000 deaths.

Although the statistics and the ways the illness affects individuals’ lives are rapidly changing, we’ve taken a look at how the outbreak is impacting U.S. domestic real estate markets up to this moment.

A Summary of Related Economic Events

Will Economic Volatility Caused by Coronavirus Impact Real Estate?

Despite what many people believe, there isn’t a direct connection between stock market performance and real estate values. It’s the overall health of the economy (which prior to the events of the past two weeks, was still considered relatively strong) that ultimately affects them both. As long as consumers feel confident about their jobs and income, they will continue to spend—and that includes buying real estate.

Among other things, the strength of the real estate market is impacted by treasury bond prices, which are correlated to mortgage rates. When the stock market and other asset classes start to see a lot of volatility, investors will move their cash to bonds for stability and security. As demand for treasury bonds increases, however, bond prices go up and their yields (the interest they pay investors) fall. And that pulls mortgage rates down, too.

It’s worth noting that the catalyst for today’s economic situation is very different from the 2008 financial crisis, which was directly caused by issues in the sub-prime lending market. During that recession, sub-prime mortgages were bundled up and sold for much more than they were worth. Ultimately, real estate speculators let homes financed by these mortgages go into default, and these bundles of mortgages—called credit default swaps—lost most of their value, bankrupting large investors and starting a domino effect that rippled through all aspects of the economy.

The current stock market volatility is not the result of issues in the real estate market, but is specifically the result of uncertainty about how the coronavirus may impact supply chains and corporate earnings. While it remains to be seen, real estate may be insulated to some extent because of tight residential inventory, high buyer demand, low mortgage rates, and lower prices for lumber and oil.

closeup of folded stacked newspaper with business section visible

But this is a continually evolving story. As of this writing, 10 states have ordered everything from mandatory shutdowns of all non-essential businesses to limits on restaurants, only allowing delivery and take-out options. Everything from Broadway to Disney World to Colorado ski resorts are at least temporarily closed, and discretionary travel has for the most part stopped.

While the businesses involved may (or may not) have the resources to survive these conditions, there is no doubt that employees will be immediately and directly affected. Not only are their hours and income suddenly in jeopardy, but their jobs may go away. And this will impact real estate markets.

When people start to lose their jobs and see their hours and wages cut, their disposable income drops. This results in their spending less money, one of the most important factors in maintaining the health of the economy. A reduction in spending directly (and negatively) affects U.S. GDP, unemployment, and income growth—all of which are needed to support housing prices.

In other words, if employers see long-lasting decreases in revenue, they will start laying off employees, and their laid-off workers will have less to spend—which slows growth further and creates a vicious cycle leading to more layoffs. This would affect housing markets by tipping the current balance of low supply and high demand.

Savvy investors should keep a close eye on these developments, as well as continue to track mortgage interest rate changes and any government stimulus packages enacted to help ease the impact of coronavirus on the overall economy.

What About a Recession?

By definition, two successive quarters of declining GDP officially represents a recession, and recessions always have significant impact on individuals’ incomes. Reduced income and wages results in homebuyers and renters having less to spend on their monthly housing costs, leading to lower home prices and lower market rents.

It’s worth noting that we might already be in a recessionary period (we won’t know until today’s economic data is released a couple months from now). In addition, Goldman Sachs has forecast significant declines in U.S. GDP from now through June. And UCLA Anderson School of Management’s Anderson Forecast says that the economy has stopped growing and won’t recover until the end of September.

It’s still early in this crisis, but we expect hospitality-related real estate markets to experience the most immediate impact. Hotels, for example, will probably not be able to recover lost revenue, and planned construction in this sector is likely to be put on hold for the foreseeable future. Airbnb properties will probably be hit very hard, because once customers start traveling again, they will be more wary of the cleanliness of privately owned homes compared to larger chains with professional maintenance and cleaning staffs.

dictionary entry defining the word recession which is highlighted in pink

The impact on commercial real estate remains to be seen. It’s a slower-moving, more stable market that responds much later than more volatile indicators like stock performance. Cushman & Wakefield notes that “if the virus has a sustained and material impact on the broader economy, it will have feed-through impact on (commercial) property…”

Commercial real estate is also comprised of many different asset classes—from office to retail to warehouse—and each of these asset classes may respond differently during the next economic downturn.

That doesn’t mean there’s no potential bright side to all this negative news. During three of the last five recessions, home prices actually went up—anywhere from 1.9 percent to 4.8 percent. And if the economic impact due to coronavirus follows the pattern set by past public health issues, we may be poised for a strong rebound once the virus is under control and normal activities have resumed.

Additionally, there may be other factors that may lead to more desirable outcomes. As mentioned earlier, low inventory and high demand may help prop up the real estate market through the crisis. At the end of last year, the number of homes for sale was down 9.5 percent annually and the number of entry-level homes was 16.5 percent lower than the year before. Realtor.com already predicts historic inventory lows this year.

What If Coronavirus Directly Impacts Your Investments?

Depending on how all these details and forecasts play out, you could find yourself facing unexpected investment challenges, like reliable tenants suddenly unable to pay rent. Lower income workers with little, or no, savings could feel the greatest financial impact as various venues and businesses cancel events, limit hours, or completely close their doors.

But at the same time, more and more municipalities are putting eviction moratoriums in place as the health crisis unfolds. The federal government is being pressured to enact a national moratorium. As of this writing, Los Angeles, Santa Monica, San Francisco, Miami, Philadelphia, and San Jose, California, Austin, Texas, and the state of New York have either put moratoriums in place or have temporary holds on processing evictions.

If these circumstances affect your ability to meet mortgage payments, the Federal Housing Finance Agency (FHFA) has advised mortgage servicers to offer forbearance options. These will allow borrowers impacted by COVID-19 and related safety measures (like quarantines and business closings) to take advantage of hardship forbearance.

Options include temporarily reduced or suspended mortgage payments for up to six months, although interest will accrue during the forbearance period. Arrangements often provide a reinstatement or repayment plan to make up missed payments.

Coronavirus Wuhan. US quarantine, 100 dollar banknote with medical mask. The concept of epidemic and protection against coronavrius.

Are There Any Positives in the Current Situation?

The most obvious bright spot in the current uncertainty is low mortgage rates. Since the Fed usually doesn’t move quickly to undo stimulus efforts, rates are likely to remain low for a while. If demand and consumer confidence remains high, that presents opportunities to refinance existing properties and to move forward on new purchases.

Jerry Padilla, a lender in Rochester, N.Y., says, “Investors are already looking to refinance their properties and to make purchases while rates are so low.” He adds, “Everyone seems to have a sense of urgency, but investors need to understand there will be delayed turnaround times as lenders are seeing huge influxes of business.”

Colin Smith, a Realtor in Colorado Springs, Colorado, says, “We’re seeing extreme competition among single-family homebuyers that we haven’t seen since 2017.”

Be aware that there are a couple of scenarios in which the new lower rates might not be helpful, such as if you’re underwater on the value of a property or in a fixed-rate mortgage that’s not high enough to justify the expense of refinancing.

Home equity lines of credit (HELOC) are expected to come down soon in response to the new federal funds rate. If you have already borrowed on a HELOC, this will lower your interest expenses. If you’ve been considering a line of credit, it may be time to investigate the best available rates in your area.

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