What To Do When COVID Affects Your Investment Property
For years, it seemed like the safe way to build wealth: Buy a second property in an in-demand location, fix it up (if need be) and rent it out.
Whether you bought in a college town where enrollment outpaced on-campus housing, a tourist destination or a popular area for commuters, interested renters were easy to find and rising rents made it likely that you could turn a profit.
Then, the COVID-19 pandemic completely turned the world upside down. There’s the lingering uncertainty of another lockdown remain (especially in hotspots), but also the continued disruption of routine and normalcy for the near future. Colleges are pivoting to online instruction for the next school year, travel is down and many commutes have been shortened from city-to-city to bedroom-to-living room. As a result, the rental market in formerly in-demand areas have experienced a hiccup.
While these market conditions may be short-term, if you’re an owner who depends on rental income to cover the mortgage, fund your retirement or act as safety net income, there might be far-reaching consequences for your future. Though no one has a crystal ball to predict when the “new normal” reverts back to the “old normal,” here are some things investment-minded owners can do during this uncertainty:
1. Change Your Marketing Strategy
If you’ve never had to put much effort into finding tenants, the market conditions present a new challenge, especially for property owners who are relatively new to the rental game: Creating interest when there are more vacancies than prospective tenants. Though you can make a few easy fixes to attract attention — lowering the rent, updating online photos, offering to include certain utilities, relaxing rules about pets, etc. — this might not be enough to get a tenant when supply outpaces demand.
Instead of thinking like a property owner who just wants to desperately fill a vacancy, shift your thinking to what you really are — a business owner with a product to “sell.” When a business owner faces a sudden loss of demand from their main clientele, they consider targeting and marketing to a new audience. For example, if you’re in a tourist area where travel has all but ceased, near a college associated with research hospitals or a commuter town near a major city, there might be an influx of healthcare workers who have temporarily relocated to your area to lend a hand. You’ll want to shift your strategy to a monthly rate instead of a weekly rate, and edit your listing to include the distance to local hospitals and medical facilities. (On your backend, you’ll need to plan for a slight increase in cost for more thorough cleanings after or in between short-term tenants.)
If you’re in a college town, shift your strategy away from students to faculty and staff. Even when colleges shift to online learning, campuses still might require faculty and staff to be on-site. If you’re in a commuter town, it’s a little trickier. If there isn’t a new market you can pivot to, consider how you can get the attention of a remote worker. Throw in high-speed internet, mention the proximity to restaurants that have the best takeout, or upgrade storage (all the more important for those needing to hide clutter before their next Zoom meeting).
2. Use the Time to Make Improvements
If you do have a bit of a cushion with money and can financially handle a vacant unit, it’s a great time to handle all the projects that you had been putting off. Whether it’s changing out carpeting, renovating the kitchen or replacing the hot water heater, making these improvements now will be a bonus to future renters later. Don’t forget to take new photos of the unit once all the work is complete, though.
3. Consider Selling Your Property
When the prospect of waiting out a pandemic for the rental market to recover is something that keeps you up all night (every night), it might be time to consider a sale. The short-term changes that have affected rentals aren’t always affecting buyers. Some potential buyers are looking to relocate from hotspots, or to be closer to their families, or will be making a permanent shift to remote work that gives them more latitude to choose where they live. In other words, just because you have a hard time filling a vacancy doesn’t necessarily mean you’ll end up selling your home for less than you’d like. Reach out to a realtor to discuss your options and to get a read on what they’re observing in the local market.