Today I am talking to you from Salt Lake City. I’m in a hotel room. The acoustics are not that great. So hopefully that won’t show up in this particular episode, but I’m here to do a video interview for a new series on money that’s coming out soon. So that’s tomorrow and I figured I would tackle one of the Ask Marco questions here in my inbox.
So, today’s questions are from Brock and he says, thank you, Marco, for all the great information you provide with every podcast episode.
You’re welcome.
I am working towards being able to do my first deal, working with Norada Real Estate. And I can’t wait! My question, it may be a bit long, but feel free to cut it up as you see fit. What are the effects you have seen in the cashflow real estate markets from COVID-19 for example, does there seem to be less, more, or the same demand for cashflow homes, and what effects have been seen in home supply? Are there certain possible changes you are keeping an extra eye on or is it too soon to see concrete effects? I guess in short, do you see now as a better worse or the same as before time to start getting involved in turnkey investing because of the effects of COVID-19 on the country? Thanks again, Brock.
Okay. Brock. Well, great question. So I can kind of boil the answer down to this. There is just as good of a time to be acquiring rental property. Now, as there was a month ago, as there was six months ago, as there was 12 months ago, the fundamentals have not changed.
The underlying demand for housing is strong across the country. Even in some of the overpriced bubble markets, there is still a lack of supply keeping prices up or pushing prices up to levels of appreciation that are above 5 to 7%. Now we’ve seen a lot of that slow down this year and that’s okay. We need some breathers, but that is predicted and expected to continue. So we are still going to see strong growth. And the bottom line is, is that we all need food, shelter, water, and clothing, and housing is just a fundamental necessity. We need a place to live. And a lot of the markets, especially the markets that we’re in, have strong demand for housing. There’s a lack of supply. And this whole thing with COVID-19 has actually perpetuated the problem because people who would normally move and sell their house, haven’t, there’s a lot of people who are still out there and more coming out of the woodwork that actually wants buy housing and rentals that are now out there looking for a property that can’t find it because supply was low to start with and now it’s even tighter.
So there’s not as much inventory. In fact, in a lot of markets inventory is below two months’ worth of supply, meaning that if there were no new inventory coming on the market, the existing demand for the housing in that particular market is going to dry up in two months or less. So fundamentals are strong and we are just not keeping up with putting new housing units on the market and to perpetuate that problem with COVID. So many contractors and builders had to basically put the brakes on for a prolonged period of time that they weren’t actually out building a new product or renovating existing products to put new housing units out on the market. Now, from a tenant perspective, when I say tenant, I mean from a rental perspective, this is maybe not what you’re asking, but maybe it is a, so I’m going to throw that in there, here, the country, as we are seeing is slowly beginning to reopen, you know, a lot of States and markets are now in, you know what, they’re calling phase two and phase three of this reopening with COVID-19 pandemic, but there’s still a lot of industries that are affected and experiencing economic effects.
And, you know, we still see shutdowns and slowdowns. The rental industry has remained active throughout this pandemic, a very active actually. And I’m going to give you a couple of stats here, but you know, we’re still not out of this upset if you will. There’s still a lot of massive layoffs. And so there are still people out there who are struggling to make ends meet and be able to pay their bills, including their rent. And that’s been problematic. So all around the country, we have seen not. We, but people in the industry have seen a problem with people being up to date on their rents. A lot of people are working out payment plans. Some people are just paying late. Other people have missed payments. That $1,200 subsidy has certainly helped in the first month when it came out. But a recent study by Rentec Direct polled data from their property management software platform that represents 620,000 rental properties across the country.
Now you have to keep in mind, this is going to include some low-end areas and some bubble markets. So it’s really widespread. It’s not what we here at Norada typically focus on in terms of the sweet spot, your bread, and butter working-class type of community, your B’s, and lower a class neighborhoods. I call it class, but, uh, you know, I just am giving it a grade if you will. So these are your middle of the road, middle-income working-class communities, mostly blue-collar, upper blue-collar in some professional white-collar type of communities, rent payments from March 2020 compared to June this month, 2020 dropped about 24%. As far as payments received. Now that’s a significant drop. That’s almost 25% of rent payments that should have come in. Did not come in. Now. It keeps something else in mind. In this study, they were looking at rents coming in only within the first seven days of the month.
This is not including late rent payments that have come in after that because they were able to pay, but just not during the first five days of the month when rents are normally due this might be a little bit skewed from that perspective. But what this does tell us is that people have been late in sending in payments or absent in sending in their rent payments. Now this is bad and it looks bad, but in the grand scheme of things, it’s not horrible. Let’s look at some other data here. And I actually find this a pretty interesting statistic because they found that renters were more likely to pay rent online than by cash or check. And those that did pay online were set up with autopay those online rent payments in June this month compared to the rest of the year. Well, actually since January, but looking at it from March only drop 1.4% was only a 1.4% change in payments that were not collected compared to previous months.
So I’m just looking at the chart here and I’m extrapolating the data for you, but essentially the peak month was March 20, 20, and June was only 1.4% lower. So of tenants who pay rent electronically nationwide rent payments in June of 2020, we’re only 1.4% lower than online payments received for the same period in the previous month. And that also matches March. That’s a pretty interesting statistic actually. Now having said all that, just to kind of paint the picture here, rent payments that were received by landlords and property managers at this point are at their lowest point since the onset of COVID-19 and according to nationwide rent payments data that was collected by Rentec Direct, they found that rent received had steadily decreased since the onset in February month over month. So the trend has been steadily declining, and that would really make sense because rent is often the most expensive cost of living expenses. It makes up roughly 30% of household income. That’s obviously going to be affected when you have situations like this with very high unemployment.
And really the main thing that we have to get through is to get people back to work. I say we as a collective, but we really need to have businesses open up the economy open up because we need to get people back into the economy working. So they have an income and that will happen. And hopefully, that’ll happen sooner than later. Now with my own personal experience and talking to property managers that we work within the different markets around the country, they were asking me what I was seeing from a sales perspective. I was asking them what they’re seeing from a lease-up and payment perspective. The feedback I’ve been getting is that there seems to be about three to 5% of existing tenants under management that has been late or missed payments.
So that’s surprisingly small, but it’s good news. It’s a great number because if 95% of tenants are actually keeping up making up and paying their rent, that to me is actually surprisingly good. Personally, my own experience with my own properties. I think I’ve only had a grand total of two people who were laid off or furloughed couldn’t make payment. And we kind of just let them ride for a month because they felt that they would be able to catch up and pay, but that wasn’t the case. And so we had to evict them and I knew that was going to happen. There was going to be a percentage of my own portfolio that had to be turned over. And that was okay because it gave me an opportunity to go in and renovate those units. And they were just going to move in with someone else where they could afford temporarily to live and then move on to get another place.
But in terms of what real estate agents are saying across the country, agents say that the rental market has remained relatively active along this whole up and down pandemic. And an assertion that apartment search website, Rent Cafe backs up with their own rental surveys. Now, according to a report that they put out from 9,000 renters that responded to the survey, there were about 62% of those people who responded to that survey said that they were willing and wanting to move. Once there was available inventory for rental units, most of those being apartments. Now, why would that be? Why would there be such a high percentage of people who want to just make the leap and move? Well, I can’t explain that, but what’s interesting is that they couldn’t move because there’s a lack of inventory. So many people are staying put, I have been staying put over the last four months that it has provided a lack of inventory, which is kind of a good problem if you’re a landlord because if you have available units to rent, they rent up pretty quick.
And that has also been my observation and talking to my property managers and other real estate investors. They find that when they have a vacancy, they have showings very quickly and people are moving in or at least submitting applications pretty quick. And another thing to note from Rent Cafe’s survey is that, and I quote other rental market indicators show that inventory has decreased in some cities while rent prices have held up across the country. So again, strong demand, lack of supply it’s that whole supply and demand equation that is keeping rent rates, where they are. So, Brock, that may be more than what you asked and that’s really some extra information, but I’m talking up your question to be the possible COVID-19 effects on cash flow investing. And at the end of the day, there are three things you got to consider, and this kind of answer your question just ties it all together.
Number one, strong market fundamentals. We have population growth. We have a lot of markets that are still growing in terms of population. Maybe job prospects are down and there is high unemployment. But remember that is a temporary thing. And I can’t say whether that’s going to last for two months or 12 months or six months, but it will fade away. And so employment will come back. Those fundamentals are still there. So the strong fundamentals with future job prospects, job growth, but more importantly, population growth, which is really the bottom line here is going to keep the markets that are healthy, that you should be looking at places to be investing. Second. There’s still a lot of cashflow markets around the country. And when I say cash flow markets, I mean that you can invest and generate positive cash flow with 20 or 25% down. And things just make sense financially.
And these are also markets that will show continued growth because of population growth and other fundamentals that are tied to those markets last but not least low-interest financing. We still are at low, historically low-interest rates, which makes it very attractive, not just for homeowners, but as real estate investors. It’s cheap money that allows you to control a hundred percent of a property with as little as 20% down. So the strong market fundamentals, the cashflow low interest, and strong demand across the country for housing units is a very healthy, fertile environment to be investing in. So, yes, I think you should still just be focused on intelligent investing work with your team, work with your investment counselor, work with whoever you’re working with, but make sure you’re working with the right people. So you can identify the right markets, neighborhoods, properties, and property managers to help you succeed.
Okay. Brock that’s it. I was a little long-winded. I apologize, but I’m just giving you a little more than what you asked. All right.
If you have a question about real estate investing or finance, just click the Ask Marco button at the top of the website, or you can just go to Askmarco.com. It’ll take you right there. If you haven’t already subscribed. Remember to subscribe. We’re coming out with two of these Ask Marco episodes a week right now, help us share the show with other likeminded people. Remember too, leave us a rating and review greatly appreciate it. And I do read them all. That’s it for today. So thanks for listening. I’ll see you on our next episode.
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