Shifting in a Dicey Real Estate Market for COVID-19: The Inspiring Investment
It will go down in history that nothing quite rocked the world the way COVID-19 did in the year 2020, that so indiscriminately initiated cycles of uncertainty, fear and even panic like only a world-wide pandemic could. Given the trickling economic effect expected from such an event, it’s safe to say the real estate market has potential to be dicey in the following months, even after COVID-19 is no longer an eminent threat. For now, The Inspiring Investment will need to begin shifting.
But… YES we will still buy houses!
In this post we’ll share:
- Ways we plan to shift our business model to fit the current events surrounding COVID-19.
- Initial steps our company has taken to stop the spread.
A Bit Too Soon
It’s a bit too soon to project an exact strategy, as it seems things change on a daily basis. Even during the span of writing this post, from beginning to end, regulations and restrictions changed. We’ve sought wise counsel, prayed a lot, analyzed multiple scenarios and realize what we post today, but not be applicable tomorrow, next week or even a few months from now. But, we hope sharing our thought processes will help you avoid living in a spirit of fear and help you come up with a plan based on your specific situation and comfort level in the coming months.
Ideas for Shifting in a Dicey Real Estate Market
Shifting Buying Parameters to a Rental Model
To us, shifting to a rental model means each house we buy will need to be analyzed for cash-flowing potential as a rental. This doesn’t necessarily mean we won’t flip houses any more, but it does mean our buying parameters change to ensure a plan B is possible. In our market, this means placing a cap on purchase prices – no more luxury house flipping – buying and renovating based on an ARV of 500+, until the market supports it again. If conservative rental comps don’t support cashflow and cover all-in costs, initial purchase price will be adjusted to accomplish this.
*Note :There may be other scenarios and purchase structures we haven’t considered in the past but would now. Time will tell and we’ll continue to re-analyze.
Tightening Internal and External Labor Costs
Allocating specific hours per deliverable based on data from the last few years is going to be a focal point. For example, a standard window install of X amount of windows, takes an average of X amount of hours. We are tightening the reins a bit and raising the expectation for our internal crew.
In addition, we’re beginning to re-negotiate prices with subcontractors to account for the current climate. This is an external labor cost that can be adjusted in a time like this.
Ordering Ahead of Time
We plan to begin material orders 3+ weeks out and want to give our crew the best chance to continue to work and provide for themselves as long as we are allowed – even if suppliers shut down for a few weeks. Hopefully real estate and residential construction is deemed an essential business in our area (Wake County). Update: it is!!
Adjusting Scopes of Work
The shift to a rental model also means slightly adjusting scopes of work. Normally when we scope out a new project, during the walk through, we’re look at it with the vision of what a buyer might want, now we’ll be doing this with different eyes. Meaning, we’ll use more renter friendly materials (LVP and LVT), be looking for ways to reduce costs without cutting corners, and planning ahead.
Planning for the Future: Broadening Job Types
Our past business model has not included client work, but over the next year we will consider supplementing our current job types with client work and preparing in advance for that to happen. Here’s why: we project, as many do, that there will be an economic ripple effect from businesses being forced to close their doors that will cause a slight mental shift away from people moving when a home no longer “works” and towards a mindset of investing in their current home to “make it work”. When the time is right, we’ll be ready.
Initial Steps to Stop the Spread
At The Inspiring Investment we are taking COVID-19 seriously and have taken steps to slow the spread. The management team will continue to work from home when possible, but construction, a necessary part of business operations, will continue on a modified basis.
What does this look like in the face of COVID-19?
We’ve spent extra time educating our team on symptoms of the virus, preventative measures, and best practices for cleaning equipment and tools based on what the CDC has released. Thankfully, our houses are vacant and well ventilated during work days.
We are not scheduling subcontractors to work in the same space and, if possible on different days, as our employees on particular job sites. For example, our team built the exterior deck at the Mid Mod Flip, while the painters began work on the interior.
We are doing our best to provide the cleanest working environment possible for our guys, so we implemented some work modifications. Cleaning supplies and hand sanitizer will be provided, although they are in short supply. We are requiring our guys to work a minimum of 6 feet away from each other and they are not allowed to share tools unless wiped down with disinfectant. Any workers are not permitted to work if they feel bad or show symptoms of the virus.
In Conclusion, Looking for Positives
During this time, when we are forced to work less, differently or not at all, let’s not let the time be wasted. Some of the best ideas, inventions, or plans develop from times such as this – I mean, look at Isaac Newton! Let’s work on our businesses, relationships and what matters most. This season will pass and it will get better.
(This post about making the most of your time at home by Construction2Style and this video called “Leadership through the COVID-19 Crisis”, we found to be valuable. )
To be completely transparent, the COVID-19 crisis showed us many areas that need improvement in our business. It is teaching us how to better track and analyze labor and keep budgets in check. Working from home caused us to invest more time in creating structure and training materials, and planning ahead is something we should be doing anyways. We’re looking for positives, choosing to see good amidst all the sadness and sickness around us. We have to cling to hope and encourage you to do the same.
Wish you all the best today, friends. Make it a good one.
Uriah, Katie, and the entire TII team!