As we all go through this COVID-19 pandemic together, I thought it would be essential to look over some items that are really coming into play for real estate investors. I came up with some habits that I really feel are now been put into play by investors.

• 3 Month Reserve Fund: My friends in finance might argue about this, but I really feel that you should always have a three month reserve fund on any property you buy. In essence if you have expenses of $1500 per month, keep $4500 as contingency. Renting out properties is a risk, and by having at least three months, you can at least sustain one quarter of no or a reduction in rent. From a finance perspective, yes you are not doing anything with capital which makes no sense, but in instances such as the one we are going through now, cash flow without borrowing has become essential. Many investors who do not have at least some short term capital will most likely have to borrow against collateral or provide personal guarantees, depending on how the purchase is structured.
• “Never spend what’s in your wallet”: In real estate you generally in most cases take on debt, you finance the project through debt, and then flip, rent, sell after your expenses. I have always said in my previous posts, debt is not bad, it’s strategic, you do however need to be prepared in the short term. Most investors will have a worst case scenario planned out, and though not ideal, will ideally not take on more than they can carry, but you would be surprised how many do not. My point is, to put it in a finance analogy- when the margin call comes, make sure you can stomach the risk and crush the market when it rebounds, or the market will crush you.
• Time Horizon: Real Estate has become increasing popular as an investment, you hear it all the time, buy a rental property you will never lose and always make money. Rentals and real estate is a long term play, it is not for the short term, I always say plan to have the rental property for 5-7 years minimum; people forget, it is a real asset, not something tangible. If you want to invest in Real Estate short term purchase REITS on the commercial side, (You can refer to my post on REITS for that)

I hope I have provided you with some insight, into a way of thinking that could make sense for you. Now, I do have to say, these are my takeaways from the current situation, but all investments are different, and will require a case by case basis.

From what I have learned, nobody can predict the market, I can take talk to 10 different experts, and get 10 different answers, I hope however that this post, at least gets people thinking.

– Stay safe everyone!