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To say that real estate has experienced a series of black swan events over the last two-plus years is an understatement. This includes not only the pandemic but the latest conflict in Europe. But no matter the disruption, it is always wise to review whatever holdings you have in order to better position yourself.
There have been investment groups and individuals storing up cash in order to acquire what is, in their opinion, imminent distressed assets. Is this the “Great Reset”? The pandemic disrupted normal commerce and the nature of work, crippling the supply chain. The economy is also in the tortious act of trying to decarbonize and finding out that it is much more complicated and fraught with self-interest than planned.
I don’t share the gloom of the day to vent, only to propose that this moment could be an opportunity for some.
Demographically speaking, a great deal of commercial property is set to go through a generational transfer. The next recipients of these properties are very different than their parents and thus view owning property in a different light — millennials overall prefer cleaner and more progressive values.
At the same time, many properties throughout the nation are soon to be due for refinancing and will be doing so at a higher rate during a time of inflation. I see this bringing forth much more scrutiny in the underwriting process and a possible inability to accomplish certain financial conditions to sell. Not to mention, if you are an operator of residential income property in many parts of the country, eviction moratoriums could also chill opportunities to refinance or sell.
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If this ends up being the case, is it better to sit on the sidelines for a while and redeploy capital later? If your situation doesn’t require you economically to perform a 1031 exchange, also known as a like-kind exchange, then perhaps the answer is yes. But all locations and situations are not equal, so make sure to research your position and seek out advice from a broker or other expert who is versed in your property type.
If you can put together enough cash, I predict you will be able to purchase many types of properties at bargain prices. But the competition will be steep from corporations and Hedge funds seeking to create yield from the same situation; getting the deal won’t rest on just having cash. As a smaller investor, you won’t have the level of cash deployment. Time and market research will be your friend, and you may consider engaging a few brokers to assist in the search.
There will also be competitors who have in some cases been building reserves to purchase properties that have deferred maintenance and tenant issues, either directly or through select government and non-profits programs. 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 due to rent moratoriums or other matters such as deferred maintenance hurting the property value? Will you have to evict tenants or refurbish the property? Make sure to factor these kinds of things into your pricing.
States are currently considering how to increase their housing stock, and rent stabilization is of the utmost concern for many areas. But for now and into the near future, cash is king when buying real estate. Of course, you have to have some, to begin with.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.