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To say that real estate is a series of black Swan events of the past two years is an understatement. This includes not only the pandemic, but also the most recent conflict in Europe. But whatever the disruption, it’s always wise to revise your positions to better position yourself.
There have been investment groups and individuals who have been stockpiling cash to acquire what they believe are imminent distressed assets. Is this the “big reset”? The pandemic disrupted normal trade and the nature of work, paralyzing the supply chain. The economy is also in the midst of an illegitimate attempt at decarbonisation, finding it much more complicated and self-serving than planned.
I don’t share the gloom of the day to vent, just to imagine that this moment could be an opportunity for some.
Demographically, a large part of commercial real estate will undergo a generational transfer. The following recipients of these properties are very different from their parents and thus see property ownership in a different light – millennials generally prefer cleaner and more progressive values†
At the same time, many properties across the country will soon be due for refinancing at a higher rate at a time of inflation. I see this involves a lot more control in the underwriting process and a potential inability to meet certain financial terms of sale. Not to mention that if you’re a residential real estate operator in many parts of the country, eviction moratoriums can also put the brakes on opportunities to refinance or sell.
If this is the case in the end, is it better to sit on the sidelines for a while and rearrange capital later? If your situation does not economically require you to conduct a 1031 exchange, also known as a peer exchange, then the answer may be yes. But not all locations and situations are created equal, so be sure to research your position and seek advice from a broker or other expert familiar with your property type.
If you can get enough money together, I predict that you can buy many types of properties at bargain prices. But competition will be fierce from companies and hedge funds trying to get a return from the same situation; getting the deal doesn’t depend on having cash. As a smaller investor, you do not have the level of cash commitment. Time and market research will be your friend, and you may want to consider hiring a few brokers to help with the search.
There will also be competitors who, in some cases, have built up reserves to buy properties with deferred maintenance and tenant problems, either directly or through select programs of government and nonprofit organizations. This is another factor to consider when finding a commercial property in our current climate.
Ultimately, it is wise for you to find out why the seller is selling; could it be because of rent moratoriums or other things like deferred maintenance that hurt the value of the property? Do you need to evict tenants or refurbish the property? Make sure to factor this sort of thing into your pricing.
States are currently considering how to increase their housing stock, and rent stabilization is key for many areas. But for now and for the foreseeable future, cash is king when buying real estate. Of course you have to have some to start with.
The information provided here is not investment, tax or financial advice. You should consult a licensed professional for advice on your specific situation.