Is it a good time to buy during COVID 19 in Los Angeles?

Introduction

When stocks drop and a recession seems imminent, it causes a lot of people to assume the same thing is happening in the housing market. When in fact, home prices actually increased during three of the last five recessions. Sometimes, investing in a recession can actually be the best time to buy real estate because it’s less volatile than the stock market. Plus, there isn’t as much competition from other buyers. The smartest real estate investing strategy during these times is finding properties that cash flow today but also have a great chance for appreciation over the long term.

In 2008, thousands of homeowners lost their shirts due to the housing bubble bursting. However, it’s important to note that single-family rentals actually performed positively as a whole. That’s because people are always going to need a place to live, even during times of recession. Yet another reason so many investors consider real estate to be a safe haven. 

The trick (not really a trick at all) is to look for key indicators of a strong real estate market and invest there. The question is, which housing market indicators should we be paying attention to during the COVID-19 pandemic? 


5 Steps: How To Choose a Strong Real Estate Market During COVID-19

Is buying investment property during a worldwide pandemic, with seemingly no-end-in-sight, a smart decision? Interest rates are so low right now, it makes cash flow on affordable rental properties even stronger in most markets. BUT have we hit bottom yet? It would be pretty safe to say that we just don’t know. Some metro areas are seeing strong sales activity today while others have slowed down quite a bit. This is why it’s so important to look carefully for areas that have strong population growth mixed with affordable housing – especially during these volatile times.

Step 1: Look for Historically Strong Markets

To determine a good real estate market, we almost always look at the following indicators: job growth, population growth and affordability. The question is, should we still be looking at these three trends or should we be paying attention to others? 

When looking for a strong market, it’s important to identify areas that have jobs “of the future.” This would include technology, health care, bio-tech, military, and higher education. Look at the job growth prior to changes from COVID-19. Will the industries that are hurting right now come back? Look for markets with affordable housing and stable, resilient economies.

Step 2: Avoid Areas That Have Dipped Really Hard 

States and cities with already weak economic foundations are expected to fall the hardest from the effects of COVID-19, and may have an even harder time recovering. An example would be North Dakota, an area already struggling from the oil collapse of 2015. The area is even more challenged today, along with other towns in Okalahoma, Pennsylvania and Texas that have an oil-based economy.

Big cities like New York, Los Angeles and Chicago are getting hit hard, but these areas generally have very strong economies. Unfortunately, they are still very expensive – even today, so it’s difficult for most people to buy real estate in these areas – especially real estate that cash flows. 
Growing metros that are both affordable, and have diverse economies may experience a small dip, but will likely be quick to recover.  Avoid those areas that were already struggling pre-COVID19 and look for opportunities in resilient markets where home values are stable.

Step 3: Go Where the Jobs Were & Will Likely Return To

Certain job sectors are growing, even today. It’s helpful to look into past trends to see if a market showed steady job growth before the COVID-19 crisis. It’s likely this trend will continue when the dust settles. Amazon warehouses, for example, were already a growth trend, but are even more so today. The same is true for the health care and tech industries.

Look for places with big industries that employ a lot of people but are now on hold, due to “stay-at-home” orders. For instance, Disney has been forced to furlough tens of thousands of employees in both Orlando and California. Or Chicago, where workers in service industries have been highly affected, but their job growth has historically been steady and their rental demand remains high. These areas have very diverse employment and tend to overcome recessions quickly.

Businesses will start up again and the economy will recover. And many businesses haven’t stopped at all, as they have been deemed “essential,” like hospitals, military, and distribution centers.  In the meantime, real estate investors may not see lower housing prices due to the fact that there has been a shortage of housing up until now, but they may have access to more desirable inventory that was difficult to obtain over the past years due to strong competition of buyers nationwide

Step 4: Are People Still Moving There/Will They Be?

Just like job growth, population growth prior to the pandemic should be considered when choosing a strong real estate market. Spring is usually the time when real estate deals pick up and people begin making moves as summer approaches. But in 2020, fewer people are choosing to relocate. 

Population growth may certainly slow down in many U.S. markets, but there may be people who have lost their jobs and are simply looking for work in less impacted areas and stronger economies.  At RealWealth, we are continuing to see strong migration trends to Texas, Georgia, Alabama and Florida.

Step 5: Invest for Potential Appreciation, Not Cash Flow

The stock market has been declining since the spread of the Coronavirus has intensified.  Some investors pulled their money as soon as they could, while others looked for ways to lower risk by looking for investments to diversify their portfolio. 

Real estate has proven to be a great way to protect assets, particularly when the economy is suffering like it is now. Buying investment property for cash flow could be better than ever today due to low interest rates and increasing rental demand as fewer people are able to afford to buy a home. The pay off will be both long term appreciation and cash flow.

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