Is anyone else worried about investing in the "corona-market?"

I can still remember ALL the way back in February when we heard of a virus spreading rapidly throughout China called the coronavirus. I would read about it in the paper sitting INSIDE my local coffee shop, no masks, chatting with and shaking the hands of people I knew as they passed by me. How innocent and privileged I was back then!

It was also around that time I bought my first home in San Diego, California. I really thought at the time I was getting a “Goldilocks deal”, not too good but not too bad either. It was just right for me. How wrong I was! But not in the bad sense. When the Fed chose to lower the rates to an all-time low after the US faced the coronavirus, demand heightened and the housing market in California erupted. As a result, my house has appreciated over $100,000 in just six months. I began looking for my next investment property deal.

Sounds pretty great, right? While I was overjoyed at the rapid growth my house was providing, I was and still am, very skeptical. My search for an investment property only fed the skepticism within me more. The first offer I made on a potential property ended up selling for $20,000 over asking price (I offered asking). No big deal I thought, it was a great, low priced property with plenty of upside potential.

But as the months and offers went on, I noticed a trend. Suddenly properties I made offers on were selling for $40,000 over asking, then 50. There was no way I was going to break even, let alone cash flow, on a property $50,000 over asking price! Then one day I got a phone call from my agent, and I knew my skepticism was valid. She told me that her other clients put an offer down on a turn-key multifamily, and they lost out to someone who got it for $80,000 over the asking price.

How do you make money that way? California landlords are already facing a real debacle right now with laws that have allowed renters to live rent and eviction free for months. Technically they are supposed to pay back the lump sum due to their landlord 90 days after the governor lifts the state of emergency tag on California. But who is to say that it will be fully paid back?

There were not any breaks for mortgage payments, but that doesn’t mean people could afford them. As of August 31, 4 million homeowners were in mortgage forbearance programs. For investment property owners, rent in California decreased over 10% compared to this time last year. Again, and forgive me if I am repeating myself, but how are we supposed to make money under these conditions? Anything under $1.2 million here might as well be called an auction. Fix and flippers have margins so tight it isn’t even worth pursuing most properties for them. And the sellers know it too.

Almost every seller whose property I put an offer on demanded that we accept the property “as-is” with no wiggle room or credit coming our way. That even included a property that needed a $50,000 foundation repair. That property not only sold for over $20,000 asking price, but the buyer picked up the entire repair costs as well.

I guess the argument can be made that California has historic appreciation that is only becoming more historic (much like my current residence), but how long will that last? We are one of the last states to begin reopening after we took the top spot for states with the most reported cases. In cities who saw inflated prices for property before the coronavirus, like San Francisco and Los Angeles, they have seen many people and businesses pack up and leave the state completely. Pinterest just announced that they are leaving their offices in San Francisco even though they have to pay $89.5 million to terminate their lease agreement.

If there is one thing that the coronavirus has taught everyone, no matter who you are, it’s that we really have not a single clue as to what the future will bring. For me, the coronavirus changed my life overnight. I had a job one day and when I woke up the next morning I didn’t. I had never heard of pivoting or anything like that. Thankfully, I now know, but is everyone conscious to that? If the market were to correct itself tomorrow and people are already paying nearly $100,000 over asking with the hopes that the appreciation hero will come save the day, what would happen?

Would there be mass exodus? We can assume that with all this emotional buying, a total real estate collapse will result in emotional selling, no? Again, I can’t say because I really can’t speak for what tomorrow will bring. I can only hope that the powers that be can continue to mend the seams until we can gain some sort of grounding.

For now, us California investors have our work cut out for us. Finding creative ways to mature and expand our criteria is a must. I have begun looking in areas of San Diego I never thought I would look just because the deals are still there.

And you could say, “Andy be patient, the prices of homes will go down,” or the phrase I hear a lot on Bigger Pockets, “We’re headed for one of the greatest real estate opportunities maybe ever.” How can you trust that though? When I was sitting in that coffee shop in February, I, much like the rest of the world, never thought that our current reality would’ve ever been a reality at all! The Fed has already said that the rates will remain this low for the next three to five years. With people now working at home more, having a good property to live at is more crucial than paying a reasonable price.

And maybe that is the upside to all of this. Typically, appreciation and rent has always gone up even after some of the scarier economic downfalls. Homes are now more than a home for people too. They are offices, gyms, barber shops, and schools. People are going to need a good place to live, and a responsible and considerate investor can provide that all under one roof! Sounds like a potential for a more expensive rent down the road if you ask me. But again, who is to say!

So, I am curious if and when our market will recover and balance itself out after the real estate “corona-frenzy”. I consider myself a newbie investor and I have to admit I picked an interesting time to get into the business.

But if you are like me, a newbie trying to create passive wealth in real estate, I encourage you to stay tough. If the thought of doing deals under these conditions sounds too scary, learn. Read books and forum posts, learn from the triumphs and downfalls other investors are going through, and take this extended time to really find your perfect niche and narrow down your plan of attack.

We got this.