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.
- Being a good operator
- Your expenses
- Collecting whatever rent you can
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.