COVID-19 on Real Estate, How Co-Buying is the New Way Investors are Making Smart Moves!


25 Jun
25Jun

Author: Betty White

betty@movingofficessandiego.com

June 25, 2020


Consider the times

To understand the current situation in the real estate industry, first we must delve into the recent past. After a decade of slow decline between 2005 and 2016, the home ownership rate was finally on the rise until the pandemic hit. According to the National Association of Realtors, sales of existing homes dropped 26% in May of 2020. And, both potential buyers and sellers have been exercising financial restraint.

Yet the Chief Economist from Zillow has predicted that “there will be a rebound in 2021, and only a slight 2-3% drop in pricing” during the 2020 timeline, so if you have the right information this could be your window of opportunity.

However, the forecast says home sales will fall as much as 60% this spring and take through the end of next year to recover, so buying during the slight drop in prices is smart but must be matched with the right market, and process, which is going to be critical.

So, with the country facing one of its greatest challenges, we see the impacts of COVID-19 have indeed impacted the real estate industry, and the support and service axillary providers as well.

All the above uncertainty, and change has promoted, innovation, and created advances in use of technology, due to the increasing need for virtual tours, and distance engagement.  Every step of the process, once done in person, can now be conducted in somewhat of a virtual or limited environment. There are even new emerging services providing support for buyers to extend resources including startups like Go Home Buyers Unite, a co-buyer platform established to help co-buyers extend their resources, connect with agents, lenders and real estate attorneys to co-buy property, and  LegalWiz.com a startup designed to help real estate investors protect their assets and grow their investments.

Consider the market

Spring is traditionally a home buying and moving season, now severely interrupted by the COVID-19 outbreak. It doesn't mean, however, that home purchases, or relocation has ceased completely in 2020. Individuals and families are still buying, moving and persisting in their livelihoods, but they are doing it with precaution, and making sure the process is safe along every step of the way.

For real estate investors, the once bastion of market options has now become more focused on selection by way of data and leaning. Experts who can assess the best markets to invest in are the new winners of the COVID-19 real estate influencer group. On a recent show discussing how to navigate the real estate market during the pandemic a set of criteria for evaluating promising markets was discussed, here is the link to watch the replay, things you need to know if you're investing in a COVID economy.

So, what is next for home buyers? Slightly lower prices in the short-term, higher down payments, continued market inventory challenges, and stricter lending requirements. Checking in with a mortgage producer in Colorado, Affordable Interest Mortgage (AIM), we learn that there has seen an upswing in refinance, but there has also been, as predicted, a stricter approval process and larger down payment requirements for many processed loans. Securing financing has become more complex as lenders are introducing stringent credit score requirements and assessing risk.

Additionally, many sellers have chosen to postpone putting their properties on the market or withdrawing from it entirely for the time being.

The falling number of new listings is a result of two great concerns sellers have been facing for the last few months. First, they are refraining from conventional home viewings and open houses due to the corona virus threat. Second, those who are not under pressure to sell prefer not to reduce their prices, but rather wait for the crisis to pass.

Not only are sellers withdrawing their listings in this vicious circle, but buyers are also pulling back from the real estate market under liquidity pressures. COVID-19 is making buyers re-evaluate their personal and financial goals in the face of the possible second occurrence of the outbreak later this year.

Consider buyer challenges 

The impacts of COVID-19 on the real estate industry make home buyer experience much more complicated than a few short months ago.

People facing, what for many can be, the most expensive endeavor of their lives, also need to navigate inevitable delays and backlogs. Every link in the home buying chain requires an adjustment due to the pandemic, most evidently in terms of procedures complying with COVID-19 . The experiences of home buying are forever changed, property showings are now mostly virtual or limited, home evaluations, inspections, mortgage processing, open houses, and closings are all now undergoing significant shifts in process and delivery.

Even the support services such as relocation companies have had to rethink how they do business. Is all this precaution making things better or worse? For many, it is a combination of both, because safety is critical, and convenience, while preferred, is taking a backseat to the process for many frustrated yet understanding buyers.

As mentioned, even associated service providers are experiencing significant change. Relocating for a job, changing your living situation due to any number of life events, including marriage, divorce, career change and more, may require the once straight forward path for moving from one location to another to become a longer, drawn out process of appointments, masks and even buying or renting without ever personally seeing the property. Companies like homegrownmoving.com, a relocation services company, have had to adjust their process to keep in line with safety requirements, and make significant changes to protect customers. Across all service providers, including inspections, title companies and more, there has been a significant COVID-19 imposed shifts, and it does not appear to be changing any time soon.

Consider co-buying 

With every passing month, our knowledge of COVID-19 is improving, as well as our mitigation strategies. Hence, it doesn't come as a surprise that many choose to become homeowners by way of a co-buying partnership, due to its numerous benefits. These advantages are proving to be a new way to extend resources in an economically uncertain time.

Co-buying allows potential homebuyers to qualify for and repay a loan more easily. Having in mind lenders' strict standards considering debt, income, and credit scores, two (or three) people together have a higher chance of getting their mortgage application approved. It means that lenders take into account collective income, and the average credit score. Not only has financing become less complicated, but the down payment required, and other expenses can now be divided between buying parties.

Co-buying and buying in general, as opposed to renting, result in equity growth. As homeowners who regularly repay their loans, co-buyers build equity over time. This leads to a higher revenue once the time comes to sell the property and move on. Also, building equity is necessary for those interested in real estate investing.

Co-buying positively affects individual finances as it implies the sharing of monthly expenses. Volatility in the employment sector has most buyers on the edge; paying monthly bills is becoming a big stressor for many. Co-buying, however, reduces the pressure on savings or salaries, allowing co-buyers to pay a half (or a third) of the monthly costs each.

Conclusions

Every responsible potential home buyer needs to carefully assess his or her position before engaging in this process, and while you can find your dream home on realtor.com within minutes, it is vital to consider your longer term financial goals including savings plans, income, debt and credit score. These elements, as well as flexibility in regards, to the location, will essentially develop a strong home buying strategy. The decision of whether to buy now or wait for a more favorable period should only be made after taking all the above-mentioned considerations into account and making sure you are doing what is right for you.

The best strategy for engaging with the real estate market, and with affiliate services companies is to determine your goals first, select the property, location and opportunity for appreciation of the asset, then consider if buying on your own is a good idea, or if you want to extend your resources through co-buying.

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