Will corona virus cause property values to go down?

Question

So everyone seems pretty worried about this virus spreading in the US. I'm just worried because I'm about to buy my first deal triplex with an FHA loan, and it's pretty expensive at around 400k (welcome to the pacific northwest!), rents around $900 a month per unit. But I'm hearing about the corona virus stuff, how the stock market had the biggest downfall right now, and I'm just worried that in a few months, this property will be worth half of what I would pay for it. Is this likely to happen? What do you all think about how the corona virus is affecting real estate?

Yu Yang · Answer

I use to work on bacteriophage (virus targeting on bacteria, benign to human) and have some knowledge on virus. Based upon data from China, South Korea, and Japan, the death rate from corona virus is about 1-2% on people infected.  In a short term, it would impact the economy heavily. Since China, South Korea, and Japan are in critical positions on semiconductor and automotive industry, the global economy will be impacted. Some industry sector will be hit in the U.S., and it varies from one city to another city. In my shallow opinion, it will impact real estate in a short term depending on the area. In a long run, the real estate market will be fine, as vaccine and cure medicine will be developed within one or two years.

Rob Massopust · Answer

Are you buying it as owner occupied? Are you trying to flip it or live there. Fix and Refi etc

Everyone is so quick to blow this deal off and say its too much at 12.5 Gross but there is always more details to factor in.

What are you putting down 5%, if you make just a little you are way ahead on a ROI basis.

Rents are a little low but what is the location, sq footage, lot size, unit mix,upside. What is the price of a average house. Where are prices trending, etc

If this was a market steal then good luck on getting it, at $350k an investor would of bought it all cash. So what hold onto it long term, you have all the upside and rent offset if you live there. Taxes and time are in your favor, where will prices be in 5,10 years?

Lets say you live in one of the units and the other units bring in $1800 that almost covers your debt service and you live there for cheap. Its a good deal in my book.

Can you add on, with FHA rehab loans you can use those funds to add an additional unit [if you are up for it]

In my market $400k is a 2 bed condo in average area. So everything is relevant.

Jon Kalar · Answer

Ellie that's not a question I can answer for you.  If I knew when the real estate market would crash I would be in a different place.  How is your job market where you are looking to invest?  Is their a rental shortage?  What is your strategy with this triplex?  Does it need work?  Can you up the rents?  As for the virus and whats its ultimate impact will be is anyone's guess.  So far in Washington we have had one person infected and fully recovered.

Karen F. · Answer

Short term yes, long term no.  No one is going to be looking to buy during this, but there will be pent up demand after it's all over.  Also, money that's being pulled out of the stock market is looking for somewhere to go - some will seek real estate portfolios.

Scott Doyen · Answer

I would not entirely blow off the deal. 2.7k rent for 400k purchase price definitely isn't the BEST investment, but if you are owner occupying, it could make sense. I would ask you:

1) Are you renting currently? If so, what is your current rent?

2) Do you have sufficient cash reserves to pay for mortgage when you have vacancies or repairs and maintenance?

In more expensive markets, it can be challenging to cash flow & I would not recommend it for pure rental properties, but 'house hacking' a triplex could make sense as you need a place to live. Just make sure you know your numbers and plan for worst case scenario. If you can barely pay $900 in rent currently than it may not be the best investment as your other expenses will probably be out of pocket past the rental income. But if you are currently renting fine for $1500, that's a different story. Know the area and class of tenants too. Hopefully this helps!

Greg Morris · Answer

I have to agree with David Abbate. 400k for a rental of 2.7 k does not make sense. You might want think hard on this one. Be careful.

Yu Yang · Answer

I use to work on bacteriophage (virus targeting on bacteria, benign to human) and have some knowledge on virus. Based upon data from China, South Korea, and Japan, the death rate from corona virus is about 1-2% on people infected.  In a short term, it would impact the economy heavily. Since China, South Korea, and Japan are in critical positions on semiconductor and automotive industry, the global economy will be impacted. Some industry sector will be hit in the U.S., and it varies from one city to another city. In my shallow opinion, it will impact real estate in a short term depending on the area. In a long run, the real estate market will be fine, as vaccine and cure medicine will be developed within one or two years.

Ellie Narie · Answer

Should I wait it out for a few months and not buy a property?

Jon Kalar · Answer

If your real estate market is like ours in your neighboring state I don't believe your triplex will be worth half of its value.  In Washington we have a major shortage of inventory which equates to strong demand and higher prices.

Moritz Bode · Answer

Stock market and real estate market's do not always follow each other's paths. As of now, I have not noticed any effect on the real estate market and would not expect one in the near future. Personally, I think the corona virus is blown out of proportion for publicity.

Will corona virus cause property values to go down?

Most Popular Reply