What the Coronavirus Could Mean for Your Rental Real Estate Portfolio
For several years now, certain people active in the real estate space have been warning that the “end is near” for the currently ongoing record-breaking U.S. economic expansion.
Conventional wisdom states that economic cycles last approximately a decade prior to changing direction or correcting, and this expansion, which officially dates from June 2009 and became the longest on record in July of 2019, has exceeded the 10-year benchmark at this point.
Not surprisingly, the chorus of economists warning the good times cannot last forever is growing louder.
However, until recently, that chorus always came with an interesting caveat: the analysts making the predictions would say they did not necessarily see the end clearly in sight (although, they insisted, it was coming) but “a global economic shock” could catalyze the correction. The nature of that external economic shock remained a mystery because, as an outside force, it was far less predictable than, say, the inherent weaknesses in the lending structures of the United States prior to 2006.
It appears that economic shock is a mystery no more.
China’s emerging health emergency, “Wuhan flu” or the novel (new) coronavirus now named COVID-19, is hitting the global economy and will likely send aftershocks rippling into the U.S. markets as well. While the world health community waits with bated breath to find out just how bad things really are in China in light of the country’s decision to hide much of the data about the infection, the world’s markets are in limbo. As you probably know, limbo is not good for the markets. Investors like predictability, not uncertainty, so it is no surprise that Wall Street has taken a serious tumble and safe-haven investments, like gold and real estate, are suddenly hot topics for investors fearing the worst.
“The body’s immune response to infection is often more painful than the infection itself. The same is true of epidemic sand the economy,” observed Wall Street Journal contributor Greg Ip in late February. Ip continued, pointing out that “based on health impacts alone, the coronavirus shouldn’t be that big a deal for the global economy” but that “draconian” measures designed to prevent its spread could amplify the negative global impact on financial markets in every first-world country.
For U.S. real estate investors, that is not necessarily bad news – at least not if you have a real estate portfolio full of rental properties. As fear of the new virus spreads globally and unsettles more traditional investors with capital in stocks and bonds, your rental properties are going to become more and more valuable both as assets and for their cash flow, since troubled markets create situations where individuals near retirement start looking for options.
If you have the means to acquire more rentals before investor sentiment really plummets, then now could be a great time to do so even though we are likely looking at the peak of the market at this present time. Just focus in mid-level neighborhoods (also called B+, B, or C class) and avoid buying highly custom, extremely expensive speculator projects that look beautiful but will neither rent nor sell for top dollar.
