Property Investing Amidst The Covid-19 Pandemic
COVID-19 represents both a possible risk and the potential of a major investment gain. No-one knows for sure exactly how long this will last. It may lead some who have owned income property for some time to decide that it is time to divest themselves of their property. This could present an opportunity for potential investors.
It is unclear what, if anything, the Ontario government may do to address their responsibility to provide shelter for those who have been suddenly unemployed through no fault of their own.
To date, other than appeals to the morality of tenants to pay rent IF THEY CAN, there are no provisions to supplement the payment of rent for those who can’t pay.
At this point, all evictions have been banned. If the landlords and tenants are unable to reach suitably agreeable alternate arrangements then the landlords may serve N4 notices to errant tenants which would take effect AFTER the pandemic, when the ban on evictions has been lifted.
Depending on how long this lasts, the accumulated unpaid rent may have risen to a level that the tenants simply can’t pay. This makes the immediate future predictability of the income property uncertain.
The long term future of income property remains positive as this present ambiguity will eventually become history. For those with vision and courage, this could represent an opportunity to acquire income property at an advantageous price.
Prior to the pandemic, property was considered by many to be comparable to the new gold. In the rush to obtain property, some less knowledgeable buyers have bid up the price to a point where it is difficult to find properties that provide a worthwhile return. It is unclear what the economic setbacks may be from the pandemic. When considering the purchase of income property today it would be prudent to assume a slightly higher vacancy and bad debt allowance than has been considered usual.
Total Potential Yearly Income: $336,000.00
Estimated Vacancy & Bad Debt 10%: $33,600.00
Actual Current Property Taxes: $41,250.00
Actual Yearly Property Management: $22,344.00
Actual Yearly Repairs & Maintenance: $25,536.00
Actual Utilities Costs: $63,840.00
Actual Insurance Costs: $4,500.00
Actual Snow Removal/Landscaping: $1,800.00
Actual Garbage Removal Costs: $2,400.00
Total Expenses: $195,270.00
Net Operating Income: $336,000.00 – $195,270.00 = $140,730.00
Value Based on 5% Cap Rate $140,730.00 / .05 = $2,815,000.00
Note: There is more to an evaluation than a capitalization rate. The condition of the property, potential increases in rent over a period of years, the desirability of the location, the present and continued employment level and stability of the location, and a complete list of all present and near future repairs and maintenance all enter into the evaluation.
Motivation
Without the motivation to make a commitment to taking action, everything you read and learn here on this website, under the Real Estate Investing category, is purely academic. The question you need to answer is why you would want to become an investment property owner. Most investors need reasons and goals to undertake a long term investment property acquisition. Each person is an individual and their motives are as distinct and personal as they are.
Some are motivated by what they can do for their family. Others want to be able to help mankind. Contributions to religion have inspired still more. A desire for riches and comfort have encouraged others.
You will need to find your own reasons to want to acquire long term investment properties.
Please feel free to contact me for more information and a personal no-obligation discussion about property ownership.
