Is it a good time to buy right now during COVID-19?

Question

Hey BP folks,

I hope everyone is doing well with this pandemic we’ve been facing... That said, do you think it’s a good time to buy now with all the uncertainties caused by COVID-19?  I live in California and we’ve been ordered to Shelter In Place state wide, so things have changed so much in my area as I’m sure they have around the world...

Weeks before the Shelter In Place order, it was pretty much a sellers market and competition was steep!  Houses would be on the market and off within a week or two (a lot of cash offers/HML, etc.) and prices remained high.  In the Bay Area prices are pretty high year-round and though the prices seemed to have dipped a bit, houses are still relatively expensive.

Since the mortgage rates are historically lower than they have been in years, I thought this might be a good time to buy as a lot buyers/HML have been backing out of deals and a lot of people are more hesitant to buy/sell.  I’ve been keeping an eye on areas I would like to buy for maybe a year and a half and the market here is fairly stable, but currently there is less competition, which is a good thing.

I just put in an offer on a SFH and from everything I’ve learned and studied, I decided to buy the worst house in a great neighborhood.  My strategy is to live and flip adding an ADU to offset the mortgage.  The house needs a ton of work, and if the deal goes through I’ll have to figure out the best financing options for the renovations.  I have some people that I consider mentors saying just buy the house and figure the rest out later...

What’re your thought?  Is it a good time to buy now?  Why or why not?

Thanks BP family!

Jay Maranan · Answer

@Dan Heuschele thanks for your response.  And I hope things stabilize sooner than later for you and your tenants’ sake.

The house I put in an offer for was asking 920k and just dropped down to 900k.  Because of all the issues, I put in an offer at 850k hoping they’ll accept and we can negotiate from there.  My max is 880k but would hope to get a lower number.  All the other house on both sides of the street are 1.1M and over so there is upside to the property.  Once I saw the price drop I jumped at the opportunity.  We’ll see what happens...

I would say might be a good idea/time to make an offer at a lower price especially since a lot of buyers/sellers are nervous in my opinion.  I believe everything will stabilize in a month or two hopefully less (fingers crossed).  I also look at our current situation like the 2008 crash.  People who bought at that time were crazy then, but faster forward to now they were either smart or lucky!

Thanks again and good luck to you as well!

Gary Parilis · Answer

Oops! I meant $800k or maybe $750k. My point was you should consider coming in 10-15% below asking. Again, I don't know your market or this deal... But they may be afraid of a 20-30% decline and willing to get out at a 10-15% discount. But most importantly, make sure your net will be positive if the worst decline you can anticipate occurs.

Gary Parilis · Answer

@Jay Maranan I would be cautious about a flip in the million dollar range. If things collapse, high end homes are the first to drop in value. Just make sure you consider the most you could reasonably expect it to decline to, and then make an offer accordingly. My hunch is the uncertainty is worth a lot more than the 2-5% you're talking about offering below the asking price. I don't know your market, but under the circumstances, my hunch is offering more than $900k is risky. Also, do you know what owners paid for it? If they paid less than $500k, for example, they may be willing to take $900k or even $850k if they're afraid of a decline.

I'm no expert and I don't know your situation or your market. Just food for thought.

Dan H. · Answer

I have the same question. Before the virus was a large scare, we lost out on an RE because we were too slow (we were/are busy). I was a bit disappointed because 1) the house was the cheapest in the neighborhood 2) was uniquely ready for a JADU if/when owner occupancy requirement is removed 3) we believe we could build an ADU. All 3 (primary house, ADU, JADU) would be ~$1.15m in an area where virtually every home is over $1m.

Yesterday, we were informed it fell out of escrow due to virus uncertainty. We are considering if we should make an offer? If we make an offer, should we make the same offer we would have made 40 days ago?

I am leaning towards going for it, but have fears of the uncertainty. This includes that we are down about $1.5m in our investments, our STRs are at $0 rent since March 10 through at least April 16 (down about $20k STR rent as we get ~$16k/month) and we really do not know for how long (so the $20k lost rent is the minimum, we could be out a lot more rent), we have not gotten our April LTR rents to know how much they will be down but have been contacted by two tenants who indicated they may be a little short (if it was only these two tenants then that would be good, but I fear some tenants are not contacting us due to the difficulty of the conversation and, with zero evictions possible, no pressing need).

I think no one really knows if this is a good time to purchase or not but from my perspective it is a more risky time and therefore the prices should be lower to reflect the increased risk. Therefore, I am leaning towards a lower offer than what we would have offered 40 days ago.

Good luck

Jay Maranan · Answer

Thanks @Gary Parilis! Will definitely keep this in mind. Hope that coming in at 850k will get my foot in, then hopefully negotiate down after inspections.

Jay Maranan · Answer

@Gary Parilis  thanks for sharing your perspective.  I agree... If they won’t accept my offer or any offer under 900k, I’ll walk.  I don’t know what the owners bought it for, but from my understanding the property has been in their family for a few generations, so I imagine they got the property for dirt cheap.  My strategy would be to buy and hold / live and flip, so I’d be looking to make my money back in equity in 3-5 years.  SFHs are scarcely on the market for well over 1M+ in the area, and I’ve been keeping an eye on this market.  This house is the lowest I’ve seen (in over 1.5 years) and I don’t foresee any similar homes going for any less just below 1M asking, which normally sell for well above 1M.  We’ll see how things go.  Thanks again and hope you’re well during these times!

Is it a good time to buy right now during COVID-19?

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