One of the biggest lessons learned during the course of the global pandemic is that we can’t predict the future. Even the most educated guesses about the future of the economy and the real estate market can’t account for an unprecedented and unpredictable event of this magnitude. Now that some time has passed and there is a bit more economic stability, we can look at how the pandemic has affected commercial real estate values and loan defaults and learn from what has happened.
For real estate investors, there is always an opportunity hidden in this type of shake-up. The key is identifying it and capitalizing on it. Let’s take a look at how the pandemic has impacted commercial real estate and how you might benefit with smart investments.
The Evolving Commercial Real Estate Landscape
It’s no secret that the hospitality industry suffered greatly in 2020. Restaurants closed, and hotels shuttered their doors. Many of these businesses won’t be reopening, leaving vacancies that building owners might not be able to fill quickly even as we return to prepandemic activity levels.
The real estate market for offices also took a major hit with some businesses closing and others transitioning to a completely remote work environment or dramatically downsizing and having different space needs.
What does this mean for real estate investors? There are empty spaces ripe with opportunities for redevelopment or adaptive reuse. Although business at restaurants, hotels, and offices might take some time to ramp up again, adaptive reuse of these empty spaces could be a gold mine for the right project. For example, converting suitable spaces to affordable housing or rental units in neighborhoods where housing is in high demand would be a smart investment—assuming it’s allowable with local zoning regulations.
The Effect on Residential Loan Defaults
The sad reality is that the global pandemic has had devastating effects on individual households, and we are just starting to see the aftermath. For homeowners who have barely been hanging on through the crisis, foreclosures loom large in the near future. Although many people will be able to keep their properties by negotiating with banks or with additional foreclosure moratoriums, there will still be an opportunity for investing in foreclosures and purchasing nonperforming notes.
Whether you plan to fix and flip or build up your portfolio of rental properties, you need access to cash, especially in a hot seller’s market with fierce competition. If you can come to the table with a cash offer and the ability to close faster than other potential buyers, you’ll have an edge that could put you at the top of the buyer list.
The Hot Rental Property Market
Landlords have been impacted by the pandemic, either from tenants who can’t keep up with the rent or those who are moving to less populated areas. When challenging rental conditions exceed their tolerance for risk, expect these properties to hit the market in abundance.
If you have existing rental properties or have been planning to start real estate investing, now is the time to scoop up these units when landlords are forced to sell. One of the benefits of this particular market scenario is that many of the properties that will become available don’t necessarily need a lot of improvement, so you can either keep the existing tenants or fill vacancies quickly to start generating rental income.
The Time for Fix and Flips
With super-low mortgage rates, a lot of people are looking to buy, but aren’t necessarily willing to invest in a home that needs work. This is where real estate investors come in. This is the perfect time to invest because it feels good to have market appreciation while you do your rehab, and it makes it much easier to sell the property once the improvements are made.
However, this hot market is making it difficult for flippers to scoop up properties when they are listed, so it’s a good time to try other strategies for finding investment opportunities. Identify potential investments by researching homes that are owned without debt, posting flyers, and knocking on doors to make purchase offers.
If you can identify distressed properties and buy them at a discount (a cash offer that closes quickly helps), you can fix them up and sell at a profit. Don’t delay on this strategy because it’s no secret to established investors; the time to do it is now.
Secure Hard Money with Socotra Capital
If you’re interested in securing a loan for adaptive reuse or another commercial purpose, look to Socotra Capital as your lending partner. We offer several benefits for both established investors and people looking to get into real estate investing: fast closing time, equity-based lending, and creative solutions, to name a few. Complete your online application today to get started.
