David Kaup – How to Invest in Real Estate in Times of COVID

The global pandemic of corona virus has led down all the industries in the real estate sector affected. Real estate sector is going through too much down. We can use this time as an opportunity to get a better return on investment. 

Successful real estate investment is the search for the right asset and pricing and grabbing the right opportunity to make the deal closed.

This list is provided to us by David Kaup, a real estate investor and mentor. You may use his service if you want to invest your money in real estate.

Here is the list of real estate assets seeing a downfall in the pandemic:-

 

  • Hotel chains:-

The hotel industry is the most affected asset sector of the real estate industry for obvious reasons. The stock price of global conglomerate of hotel chains has been seeing significant downfall due to lower occupancies.

 

  • Retail mall:-

second in line is the retail mall centres. Malls have been shut down right from the beginning as to avoid group gathering. Malls are busy places and there is a greater chance of spreading the virus. Retailers are in great trouble and are negotiating for the rent with landlords. Once, everything is normal the rent would be original rates.

 

  • Godowns and warehouses:-

As the industrial activities have been paused during the lockdown, this has led to less demand for the godowns and assets. Companies have even decided to deliver goods to the customer right from the manufacturing points. E-commerce companies are the only sector who are creating the demand in this sector.

 

  • Office spaces:-

The last on the list is office spaces which have vacated from the beginning of the lockdown as there are possibilities of contact between infected and non-infected people. The concept of work from home is quite in demand and people are opting to return to office right after the removal of these lockdowns, they are preferring to stay home and work. This has decreased the demand of the office spaces.

There are however two types of tenant available. These are short term tenants and long term tenants. The short term tenants are freelancers, small businesses, startups who have minimum time and investment to stay tuned by paying rent of office without any business taking place.

 While long term tenants are those multinational companies which have enormous capital to keep themselves sustainable for long term their rent is a very small part of their operational cost. They make lease and agreement with landlords to pay rent for fixed times. These MNCs are paying the rent in this lockdown.

 

  • Leveraged property:-

The leveraged property is last in the list who are suffering from the pandemic the most. Leveraged property like malls, hotels, warehouses or offices are facing great difficulty in paying back their bank loans. Though the income or revenue generated is low, the bank installments, interest and principal are a great burden for the organisation.

 

  • Cap rates and its positive impacts:-

 

Cap rate is the rate at which real estate is available in the market. Usually, cap rates are similar to the interest rate of the financial institutions. When the interest rate is lower, the cap rate is down and vice versa. Currently, the interest rates are down all around the world and so are the cap rates. The governments of several nations are giving freedom to boost the industry. This can be beneficial to real estate investors while selling the assets.

The sector where real estate investor should invest amidst COVID:-

 

  1. Investors should buy assets at replacement cost( cost of buying the land plus cost of building the property from the ground up). This will help you earn the same rents from the property and escape from all problems of developing a property.


  2. Look for property which has a long period of leases and the tenants have invested in the furniture and outfits in lots as this would help you get tenants from your initial time.

  3. Sign leases with tenants with escalation at a fixed rate each year instead of escalation at long terms like 3 or 5 years. So that the tenants find it easy to pay at gradual rates.

  4. Hesitate to purchase property which has shorter lock-ins as you may find hard to pay interest and principals as the tenants vacate your property.

  5. Try to find such tenants who are multinational clients for whom rental cost is a minimum part of their operational costs so they don’t look at the property as an investment burner.

  6. Buy certain property which has completed lease and development risks to stay away from all complexities. The last thing is to find new tenants and to deal with scoundrel developers.

 

These were some of the strategies provided by David Richard Kaup to invest in real estate which can earn you greater dividends. These investments are the highest paying profits during the lockdown. the profit in real estate is made while purchasing or selling the properties. You should continuously research the market and take responsive decisions to earn profit in this sector.