Making an offer during COVID-19. Good idea or wait it out?

Question

Hi everyone, this is my first post here and brand new investor. We have been looking for about a year for a 2 or 3 family in our strong market in Mass. We have finally found a great 2 family option but now in the midst of COVID-19 and not sure if making an offer is wise. We would owner occupy one of the units and the other has a section 8 tenant currently paying about $200 below market value. The property would not cashflow with us living in one unit but our cost of living would be very affordable.

There seems to be a lot of interest in the property and is in a KILLER location, we don't want to miss out on this opportunity but want to make sure we aren't in a bad position 6 months or 1 year from now.

Any thoughts or advice? Is anyone else still looking or buying during this time?

There seems to be a lot of interest in the property and is in a KILLER location, we don't want to miss out on this opportunity but want to make sure we aren't in a bad position 6 months or 1 year from now.

Any thoughts or advice? Is anyone else still looking or buying during this time?

Erik W. · Answer

@Kati Finneran, hi and welcome to BP!

What you want to do is commonly referred to on this site as "house hacking".  I would not spend too much time worrying about the disease itself.  It will pass.  Another one might come back in the Fall or next year, or the year after, or 10 years from now.  In the meantime, we might have earthquakes, tsunamis, hurricanes, or hyperinflation.  The thing I'm getting at here is there will always be unanticipated catastrophe's that could make your investment turn out poorly.  You cannot plan around or effectively counter those things, because again they are unknown.  Who knew 6 months ago we'd be here today?  The same was true when I started investing in 2005.  Who knew a global financial crisis would hit in 2008-2009?

What you should spend your time looking at are market fundamentals such as supply and demand, the strength and diversity of your local economy, and the laws and political trends that are impacting being a land lord.  For example, while no one could have predicted a disaster like Covid-19, we now have a fairly accurate picture of how politicians will respond to a disaster of any kind in the future.  They will slam the door on the economy and forbid you from evicting anyone.  Can you withstand that, if it should happen, because it probably will happen again when the next disaster comes....whenever if comes.

Also, how have laws in MA been changing: in favor of land lords or tenants?  Are you following political trends?  Is statewide rent-control on the horizon?  How about laws limiting the security deposit you can collect?  Anything about what criteria you can and cannot use to screen for a tenant?  How does this unit being owner occupied make it different from a strict rental where the land lord lives elsewhere?

Focus on factors you can know (laws, economic trends), insure against those you can't control (i.e. floods, fires, earthquakes, etc), and have large reserves and a good exit strategy if things change, making the investment no longer desirable.  Combining these will give you the best probability to succeed!

James Morrison · Answer

@Kati Finneran great points by the folks above. Like you I live in MA so I hope to give you a more local view.

COVID has caused a supply issue for our MA market. When the stay at home orders were issued in March it caused quite a few folks who were planning to sell (all types of RE) to hold off and wait it out. Resulting in fewer listings than 2019 which has made it even more competitive for buyers. The rise in unemployment nationally has affected our market minimally here in the Greater Boston market.

What town is your multi-fam in? That will really determine its outlook heading into a likely recession. If it's within the 128 Belt your 6-month to 1 year outlook will be fine. 495 belt will be ok as well. Once you get into the Worcesters, Lowells, Lawrences, Fitchburgs, New Bedford, Fall Rivers and Springfields that story changes. Those towns will have foreclosures and short sales that will mostly like cause downward pressure on housing values in those areas. Just like in 2008, they will need to be absorb by the market before prices begin to rise again.

Finally a benefit for Mult-Fam owners in the Greater Boston Area. Rents rise during a recession around here. 2008 - 2010 saw an influx in renewals for leases. Your rental income should increase in the coming years if you maintain the apartments.

So... go for it and get an offer in before it becomes a multiple bidding situation.

Jonathan Bombaci · Answer

Hi @Kati Finneran rely on your math and your long term goals to guide you through the decision. If you buy and plan to hold long-term it really doesn't matter if the market drops 10% or 20% next year you're still saving money compared to the rent you're paying now and over the long term the market will come back.   If Covid wasn't going on would you put in an offer? If the answer is yes then I say go for it but add a "COVID Addendum" to the offer contract. Not because I think you need it but because it would be stupid not to.

We've been putting Covid Addendum's into our own and our clients offers since March 12th and it gives everyone great piece of mind. If something happens that changes the deal over the the next 35-45 days (depending on closing schedule) it gives you a good excuse to back out and get your deposit back. If in mid-June you're still comfortable with the deal then you can move forward if not you get your deposits back, makes it simple.

That being said we entered into a P&S agreement on a 23 units in March with the COVID Addendum in place and it made us feel good even with all that uncertainty out there. We watched the market very carefully over the last month, we have been sharing the data at our weekly virtual zoom meetups, and decided to move forward and closed on it April 14th.

So far the Multi-family data in MA has been pretty telling.  Overall the market has stayed pretty strong and while I don't have a crystal ball, I don't see that weakening over the summer. If you're curious to see some of the data feel free to attend one of our weekly virtual meetups. We were doing 3 in person meetups each month (Woburn, Salem, Lowell) however when Covid started we moved them to weekly virtual meetups on Thursdays from 630-8pm. We had about 50 people last week and we try to bring in some interesting guest speakers so it's not just me talking the whole time. This week we're going to do a deep dive on a client who just closed on a 4 family in Waltham last week, and we have a Broker from NC joining who specializes in helping Veterans invest in real estate. It should be interesting. Here is the link if you're interested:https://www.biggerpockets.com/forums/521/topics/824374-pints-and-properties-virtual-meetup?highlight_post=4856530&page=1#p4856530Hope to see you on the call but feel free to reachout if you have any questions.

Best,Jon

Evan Polaski · Answer

@Kati Finneran when looking at a house hack, I like to step back and look at the investment first.  If both units were rented, would it be cashflow positive?  More than likely you will be selling it to an investor when it comes time to sell, so look at it like one and make sure the numbers work.

Then take away the rent from your unit and as long as your net output is less than it is if you are renting elsewhere, you are still ahead.

Joseph Cacciapaglia · Answer

It sounds like it's taken a while to find a good opportunity, so I think I would jump on it. One question I ask myself when house hacking, is can I afford the full payment if it's vacant, and if so, for how long. You don't want to be in a situation where a couple of months of vacancy leaves you homeless. Overall, I think house hacking is one of the lowest risk ways to get into investing, but the downside of it going badly affects you personally. I started off with an owner occupied duplex myself, and to this day it's one of my best deals ever.

Account Closed · Answer

@Kati Finneran Hey Kati...first, good for you...by using BP, and seeking advice, you are practicing risk management...this is an excellent characteristic and one that should be expanded upon going forward...second (and the following advice/statements are very general in nature as I have no knowledge of your deal's specifics or your personal situation), I would move forward if you are willing to educate yourself on the nuances of being a Section 8 landlord...there are some important government-related strings that come attached with subsidized housing...third, I would move forward if you can secure financing that is acceptable to your situation...fourth, I love the HH strategy and were I you, I would make a small investment in Craig Curelop's book "The House Hacking Strategy" so as to learn as much as possible about the approach...finally, in response to your last question, we are always looking to acquire the right investment - always!

Best of Luck!

Kati Finneran · Answer

Thank you all for your thoughtful responses! We are taking everything into consideration before moving forward and Bigger Pockets so far has been EXTREMELY helpful.

Jesse S. · Answer

@Kati Finneran a quick calculation someone told me about was to ensure three units can cover the mortgage. That is just scratching the surfice, but a good place to start.

Lien Vuong · Answer

Ive had clients making offer for the past 8 weeks. If you feel that the property will reduce your expenses, help you build equity, and fits the criteria of what you want in a home I would go with the offer. For this time you have some leverage over sellers. When everyone is back out after COVID restrictions, it is unlikely that the marketplace will be as quiet.

Making an offer during COVID-19. Good idea or wait it out?

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