Market Update

March 30, 2020

Hi All –

Now things are slightly less busy due to plague and government shutdowns, this seems as good a time as any to share my thoughts on the market.

I think the best place to start is to consider the reason we have this kind of asset in the first place – we’re fortunate enough to be in a defensive asset here, where the main concern right now should be the maintenance of strong cashflow.

There are still a number of unknowns and contradictory opinions, but what we do know is – 
1. Long term, Coronavirus isn’t going to be the issue – but the economic fallout from the resulting lockdown will be.
2. Evictions will be harder for a period but the government is bailing everyone out so there really isn’t any reason for tenants not to pay.

What we don’t yet know is how all this will affect house prices. I was amazed to hear from more than a few guys at the structured finance conference in February how attractive a 7-8% net yield was for them, and its likely to stay attractive as other options become less so.

My view is that the higher end may be hit simply due to the fact that banks are already de-risking and lending less, so houses that attract mortgages (i.e.$120k+ level) will be harder to get lending on (with lower LTV’s) but the lower end which is mainly cash deals will not be affected so much.

In short – 
1. Houses at the ‘cash’ level are at less risk of falling in value. Cash buyers are still buying. Although I haven’t seen it yet, there may be a few people looking for quick sales, so some good deals may come available.
2. Bailouts should ensure rents get paid. The spike in unemployment is made up mainly of people who will be back in a job when things normalize. Section 8 And Rental Assistance will be paid as normal (which make up a fair number of your rents)
3. If you do have a mortgage, you can contact the lender and its likely you’ll get 90+ days grace period if required (email or call me if you want to know more) – this also will mean we’re likely to see less in the way of panic selling further up the value level. 

I think as investors in affordable, cashflow oriented housing, our bases are covered right now. We’re better equipped than most other assets classes in a recession to retain income and hold value.  If prices crash then yields jump so it’ll become an opportunity, but I’m not quite seeing that yet.

The overall economic situation when things calm down is a bigger issue to deal with but hopefully that can be an opportunity too. In coming weeks we’ll see the lay of the land much better, but for now I’m cautiously optimistic.

Until then stay safe,
Alan Findlay

+1 716 436 1296

Photo credit: Aubrey Rose Odom

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