Commercial Real Estate Investing During Crisis

Commercial Real Estate Investing During Crisis

Discover how to invest in commercial real estate while in the midst of a crisis (such as the current CoronaVirus COVID-19 pandemic). In this video, you'll learn 4 ways to safely and profitably navigate through the uncertainty and fear that paralyzes most commercial real estate investors. And when you do, you'll be rewarded for your bravery. After having been through two previous economic crisis, the first in 2001 and the second starting in 2008, by not following the crowd, we were able to purchase great properties at great prices and prosper during a time when most struggled. Learn what we did and how we did it in this very timely training on investing in commercial real estate during crisis.


 

"Be fearful when others are greedy and greedy when others are fearful."

These are the wise words that Warren Buffett lives by. There’s no mistaking that there’s a lot of fear in the market today, which means it's time to be greedy. This doesn’t mean taking advantage of people in times of distress. When Warren says be greedy when others are fearful, he’s talking about a mindset. Among all this mass hysteria, the mindset is to remain calm, cool and collected and focused on buying real estate.

Let's look at another quote from Baron Rothschild in the 1700s. He says,

"Buy when there's blood in the streets, even if the blood is your own."

Some of you have taken a major hit on your finances because of the coronavirus. Despite this, it's still time to buy. The question remains; what do I buy and how do I invest in commercial real estate during a crisis?

 

Commercial Real Estate Investing During Crisis

In my commercial real estate investing career I have been through two major economic crises:

Crisis #1: The Dot-Com Bubble

This economic downturn was quickly followed by the 911 terrorist attacks. During that time though, I saw opportunity. There was an IBM plant that was shutting down and moving to a different state. Immediately, hundreds of homes went up for sale. People were getting out, so I started making aggressive offers on apartment buildings there. People thought I was crazy, but some of my offers were accepted.

Again, my mindset was to be greedy when others are fearful. I wasn't taking advantage of people. However, I was making knowledge-based decisions. The reason I bought those properties is because I saw that the tenants were not the employees of the plant. The apartments I bought were occupied by blue-collar people, so when the plant shut down, my apartments were still 100% occupied.

I ended up holding those properties for about 13 years. They were instrumental in me leaving my job as an engineer. In my video How to Buy Your First Multifamily Apartment Building, I discuss that deal and the mindset you need to have to be successful in the apartment business.

Crisis #2: The Great Recession

Most of us remember this economic downturn because it wasn't that long ago. Again, during that time I also saw opportunity. I continued to buy apartments. In fact, from 2008 to 2010, we raised our rents three times by 15%. How did we do that? Well, we saw that people were not buying homes and instead moving into our apartments. With limited supply and increased demand, we were able to raise our rates. As a result, coming up the other side of that 2008 recession our property values doubled. Contrary to a lot of people, the great recession period was the most prosperous time in my real estate investing career.

 

4 Tips to Commercial Real Estate Investing During Crisis

 

Tip #1: Remove Emotion

Focus on the facts, not the fear. As you know the more fear you have, the more you feed your fear watching the news, the more emotional you're going to get. When emotions go up, intelligence goes down. Am I concerned about being able to collect the rents? Yes, I am concerned, but I’m not afraid because I have facts. Here are the facts:

  • Expect a reduction in rents: Everyone is not going to be able to pay their rent at the beginning of the month and we're preparing for it.
  • We have reserves: When some people can't pay their rents, we have savings for each property to help us fill the gaps.
  • Our government is helping: If we can't collect their rents and we use up all our reserves, our government is helping with mortgage payments. For example, Fannie Mae or Freddie Mac have agreed that if we can show that we're impacted by COVID-19, and we can't pay our rents, they're allowing us a 90-day forbearance period of not paying the mortgage. That helps tremendously. I've also heard some utility companies may be following suit.
  • Small business loans and grants are available for commercial property owners: To help make payroll, buy equipment and stay afloat.
  • Homeland Security has deemed commercial real estate an essential business: Meaning that we can stay open. We don't have to shut down.

Tip #2: Increase Your Marketing for Deals

I know that sounds a little crazy, but this is not the time to follow the herd. The herd is retreating. We're teaching our students to move forward and even be more aggressive marketing and looking for deals. One of the biggest complaints has been that all the good deals are taken and people are paying way too much for property. Well, now because of the coronavirus, those same people are fearful and sitting on the sidelines. That means there's less competition for us, so we can be more aggressive.

Tip #3: Make Lots of Intelligent Offers

When I made all those aggressive offers in 2001, 80% of my offers were rejected. However, the 20% that were accepted allowed me to leave my job. Market aggressively and make a lot of intelligent offers. Don't hold back.

Tip #4: Raise Your Management Game

This tip is for those of you who have already closed on deals or those of you that already own commercial property. It's time to raise your management game because your rents may be postponed. Meaning you need to watch expenses and pay more attention to your operations. Think about the long-term because commercial real estate is a long game.

Focus on:

  • Cashflow
  • Being a good operator
  • Your expenses
  • Collecting whatever rent you can

Final Recommendations:

Be careful who you get your advice from during this crisis. I advise that you learn from someone who has gray hair. Someone who has navigated through economic crises already and prospered. This is contrarian investing. We're going against the grain. Although it can be very profitable, you can also lose your shirt. It's very important that you learn from the best because for those of us who are older, an opportunity like this may not come again in our lifetime. Also, if you make a mistake you may not have enough time to recover, so be very careful.

Lastly, if your 401k or your stocks are affected by the coronavirus, you may find my video How to Maximize Your Retirement Investments helpful.

 

Comments

  1. Peter I’m interested in the Protege course can you fill me in on how to get started.

  2. John Sheehan says:

    all good stuff !

  3. Calistro says:

    Love your beautiful direct and warm response to questions.
    Stay blessed and safe.

  4. Hi, Peter Looks to me that it isn’t e regular crisis. Even the economy is going to change, and probably forever. People are encouraged to work from home. The entire process will be telematic in most of the industry. Many large commercial, (office) buildings will remain empty. The demand will decrease considerably. Might be possible to change the destination of the building at least the ones situated more central? What do you think?

    • Peter Harris says:

      Absolutely. Office is going to have a whole lot of vacancy that may never again be filled. And shopping centers are taking a huge hit too as their anchors are now delivering and the real money from the other tenants is going to dry up. My shopping center contacts are having a brutal time right now.

  5. Srinivasa chintalapati says:

    Peter, We are currently going through your training. If we become a Protege, will you be personally mentoring us?

  6. Peter,
    Thanks for the current take on the market, and I’m interested in the Phoenix area.
    I’ve lived there, owned and flipped single family and multi since the 90’s.
    The last apartment was 8 unit @ $23 a door and sold for $45 for a C property.
    Now the prices are $80+ a door, but know that will change as owners are squeezed and may not know the gov. assistance opportunities available.
    How would you recommend I identify the distressed properties that are out there?
    Thanks, Joe

    • Peter Harris says:

      The skill of locating distressed properties is something I hold close to the vest and only share with my Proteges

  7. Dear Peter: Thank you very much for sharing this information with me. I am new to Real Estate and I did complete my Real Estate course in New York City. I am ready to start thanks to you.
    God Bless.

  8. What Peter said here is 100% correct. Retail has taken such a beating that malls are now converting empty store space to “Ghost Kitchens” which has created a space for Uber Eats and other food delivery apps. Pretty much everything has gone online, and now with this virus it will change the way we do business for good. Once this is over people will continue to purchase groceries, fast food, supplies and just about everything else they used to get in a store. Amazon has made it so you can order just about anything including groceries and have it delivered to your house in one day and in some states the same day. I have no idea how people that own retail centers are going off load this type of asset a year or two down the road. I guess the land it sits on will be worth more than the actual retail space.

    Personally, if I owned retail space I would combine the space by tearing down a few walls and turn them into teleworking centers or rent them out to small home/eCommerce business owners that want a more professional setting and address. If the rent was low, I would definitely rent my own space. That way I wouldn’t have any distractions from the family at home.

  9. Harold Wallace Sr says:

    Hello Peter my name isHarold I’ve been following you video teaching for some time. I’m very interested in your program. I’m in my 60’s and it’s overdue for me to set up my retirement. Because I haven’t gotten my first multi appointment deal. I’ve come across numerous deals. But they fell through. That means I’m in desperate need of coaching.

  10. Shawn Lee Perry says:

    Hello, Peter

    I am on the move to save up cash for commercial investments in the next 3-6 months. I will be in touch with you or your staff on how we can partner up.

    Be Safe

    Warms Regards
    Shawn Perry

  11. A.A.Ron Haste says:

    This is the RIGHT ADVICE and is coming from your Head, Heart and you Guts and it takes guts to give good time relevant advice!

  12. Bridget Deas says:

    Hi Mr. Harris, I am a stay at home mom with no savings and a 7oo+ score. I’m finding small 4-6 multifamily unit deals in south GA but finding that the down payment has been my road block. Could I use cash from my credit cards to use as my Down Payment?

  13. First of all, thank you for sharing this invaluable knowledge. I’m in car sales and want to get into real estate business, how do I start?

  14. I have a few questions on how to become one of your students I have been in the business for 10+ years but I think I’m sorry I know it’s time to move to a different section in my life and the business so if you could call or e-mail to see what we can work out Thanks

  15. Alex Stenyakin says:

    Peter,
    What do you think about investing into office space up to 2500 sq.ft. during this COVID19 time? I assuming bigger offices/companies will downsize and move to smaller space?

    • Peter Harris says:

      My prediction is that commercial office space vacancies are going to grow exponentially in the coming months. Companies have been forced to function with their staff working from home and as those hundreds of thousands of employees have drank the Kool-Aid of working from home. My theory is that it is going to be hard to get them to return to an office. As America discovered after World War II, once the young men had seen Paris, it was difficult to get them to return to the farms and in the fields.

  16. THERESA HOA NGUYEN says:

    HI PETER,

    THANK YOU FOR YOUR HEART EXPERIENCE. DO YOU THINK WE SHOULD WAIT COUPLE WEEKS TO SEE THE TRUE MARKET? I’M IN DENVER, CO AND VALUE OF HOMES STILL NOT DEPRECIATE YET. HOW MUCH SHOULD I NEGOTIATE THE PRICE DOWN TO IN THIS TIME? OR WHAT IS THE BEST NEGOTIATION AT THIS MOMENT? THANK YOU!

    • Peter Harris says:

      My residential real estate expert contacts are reporting to me that values of residential real estate (in affordable price ranges) are NOT dropping and they don’t expect that to happen due to massive shortages in affordable housing inventory, nationwide, and especially in the Denver area.

  17. Ryan McCready says:

    Hey Peter how about fix and flip with residential properties once this economy slowly gets on the path back to normal. I wanted to wait to start my first flip your thoughts?

    • Peter Harris says:

      Why not immediately start in commercial real estate? You can flip commercial real estate too; bigger numbers, bigger profits, less competition and it’s the same amount of work as residential (if not less).

  18. Hi Peter,

    You are great, one question, what do you have or suggest for property management company structure? It seems S-Corp is best option to me, however I hear some say LLC is better.

  19. Angel Dejesus says:

    Thanks peter.
    Read your book.

    Commercial real estate for dummies

    Great read that I’m putting into practice. As I speak out a stb into cotract

  20. Joyce Bush says:

    Hello Peter I am so enthusiastic about venturing into real estate investment from watching your videos. I am selling my home and downsizing to allocate funds to invest in real estate. I have a contract pendng with Big State Homebuyers an investment company. Doing my research I discovered they have not paid their franchise taxes. Should that impact me in any way should I pursue the deal with them.

    • Peter Harris says:

      You could contact the Department of Revenue for your state to inquire as to that taxpayer’s record of payment.

  21. Hello Mr Harris I have more than 10 properties in California and now it is a little harder to get loans I had two 4 unit apartments in escrow that fell out because of this covid 19 they were NQM loans so now I’m going to close with a hard money lender but I will find I believe its called a portfolio lender to do the refi,s for me do you know any good lenders?

    • Peter Harris says:

      Why didn’t you go Fannie Mae since it was a residential multi-family? They haven’t changed their underwriting guidelines.

  22. Hey peter, I’m currently doing some wholesaling retail stand alone vacant buildings. Should I continue wholesaling retail commercial property or hold off or transition to apartment buildings?

    • Peter Harris says:

      There is about to be a whole lot more of those! Retail commercial real estate is taking a beating right now. And meanwhile, the general population is getting used to delivery and drive thru. You’re about to have plenty of more inventory. The question will be if you have any new buyers in the coming months.

  23. Brian Carter says:

    Mr. Harris I think the time is now, for market penetration. I forecast a bull market in real estate; because everyone is facing liquidity issues. I mean you can see opportunities arising based on foreseen market trends. The economy pandemic, high unemployment, low natural gas; because lack of demand, nobody riding around looking for new properties etc…

    Thanks for the insightful video!

  24. Hi Peter,

    Thank you for the great videos you always put out. I am a broker and investor living in the Albuquerque, New Mexico area. A great tier 3 market for more attractive cap rates and affordable projects. Would be great to see a video on various multi-family market changes for different markets. It is clear that this pandemic is changing our economy. Thanks again!!!!

  25. Jennie lai says:

    Hi. Thank you for your wonderful video. I’m on my 1st 1031x with a condo. What is the best way to exchange during this crisis and if I’m in CA. Is buying other state is a good option since everything is too bigh in CA.

  26. Ready to go all in

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