With an economic downturn looming as a result of the COVID-19 pandemic, many property buyers are feeling confused as to whether or not now is the time to start looking at or even completing a purchase.
Both first time buyers and second home searchers are being inundated with mixed messages. We spoke to Alistair Brown, CEO of Alistair Brown International Real Estate (ABIRE), an international real estate sales and marketing company, to clear up some of the confusion.
“Having watched the industry enter into a period of huge uncertainty, there will no doubt be a lot of noise and clutter filling newspapers, social media channels and websites. I want to set a few things straight and guide people through the things they need to be looking out for, if real estate investment or a purchase is in their plans.”
Drawing on his years of experience in the real estate market, Alistair busts some of the most common myths about purchasing a property in a buyers’ market.
Myth number one: “I’ll get a better deal if I wait”
During this time, many people who had begun the search for a new house may be thinking that they will get a better deal or save money, if they wait a few months before proceeding.
There is some truth in this statement as no downturn is ever the same so the actual impact is still unknown. However, if we do look to previous situations for insight, for example, the 2008 financial crisis which shocked the industry, many builders were caught off-guard as they were developing in every area across Florida. This, of course, meant that property was plentiful.
Currently, the number of new build homes lying empty is considerably lower, due in part to the cyclical demand and subsequent completion of developments. We have even witnessed a shortage of new build startup projects in one area.
Whilst these two situations are different, so is the timing at which this event has come in relation to everyone’s own personal circumstances, which will also impact people’s abilities and beliefs around buying in the current market.
Those that have access to cash and are dealing with a seller who is willing to negotiate are in a great position. If, however, you need a loan, the current cost of borrowing could possibly outweigh the discount on the remaining homes you are left to filter through.
Almost everyone who has a home to sell or one that is on the market at the moment has a “mortgage holiday” for a short period of time. Once that period is up, and it will come quickly, they are left in the same or an even worse position, meaning they will want or need to sell soon. This will be a great time to buy for those with the courage and desire to strike while there is a supply of resale homes on the market as prices are predicted to remain stable.
Historically, following a disruption, many people have waited too long for that right moment that may, in fact, never come. That said, others have claimed that they were glad they did wait even though the cost of borrowing was higher, as it meant that they were able to find the right home.
To conclude, if the timing is right for you and you are still in a position to buy now, satisfy your original plans and proceed. If not, we recommend finding an agent who will work with you towards meeting your desired timeline.
Myth number two: “I don’t need a real estate agent”
Before the crash of 2008, less than 25% of homes were purchased using a licensed real estate agent in the state of Florida. Post crash, that number bounced to 70% as buyers and sellers recognised the need to enlist someone with knowledge of the current market.
Using the resources of a local licensed real estate agent became the norm and, as a result, buyers gained valuable insight into opportunities that ended up serving them well. In hindsight, if buyers had this same mindset before the crash, many would have been saved from despair and financial disaster.
Once you’ve understood your motivations to buy, the internet offers a vast number of ways to look at property for sale, which is generally a good place to start. For example, some companies, such as ResiVue, offer virtual viewings, which can give you an idea of the types of properties available on the market and their features while complying with the current rules on social distancing.
This is also the time to seek the assistance of a local or regional real estate agent in the area you are looking to buy in. They will have an in-depth understanding of the market and provide effective solutions to your individual situation.
There is no need to work with multiple agents as the one you choose can show you any available homes, whether they are new builds or resale properties. However, before committing to an agent, we would recommend that you interview them first by asking them all the questions you want answers to.
In conclusion, make the most of the knowledge available to you. Find someone who you trust and can engage with in order to work collaboratively towards achieving your goal.
Myth number three: “New destinations are better value for money”
When choosing a destination to buy or invest in, price should not be the sole motivation.
Over the past ten years, there has been a rise in the development of houses and resorts in new destinations. Often, these new locations offer what appears to be amazing value and the promise of great things to come. With low entry prices and incentives being advertised, the opportunities hit a chord with those emotionally driven by a desire to be the first to a new “hotspot”.
However, when deciding, you should compare these properties to those in established and popular destinations, which have built their reputation for a reason. In normal circumstances, these typically have a constant flow of tourists and visitors, so although supply might be more scarce and prices higher, there is a consistent demand from people looking to holiday there and, therefore, a greater ROI.
In conclusion, sticking to established destinations is a safer bet. They will prevail in the long run, especially if they are close to cities and places which people can get to via car as we are likely to see a shift in tourism habits after the pandemic.
Myth number four: “I’ll save money by going with a smaller property management company”
In high occupancy times, the prospect of choosing a smaller company to manage your property and drive rental income may seem attractive. Typically, this is due to their lower costs, however, these small privately owned businesses only tend to be capable of delivering what you need in stronger market conditions.
Opting for a hospitality management company is the longer term answer. As we know, markets peak and trough regularly and it is during the downturns that you will see the benefits of having a larger company managing your investment.
Our advice will always be to choose wisely. The first question you should ask is “who will be looking after my asset and where is their marketing plan?” You need an idea of what the company’s long term plans are and how they will cope in difficult market conditions, as this will show you how equipped they are to safeguard your investment and generate a return.
When researching, you should find out how connected the company is as, without this knowledge, you run the risk of partnering with one that is unable to outreach to the global travel market.
Additionally, these larger hospitality management companies will only charge a commission fee when the home or condo is being rented out, whereas smaller companies charge regardless of occupancy, which adds to your costs.
In conclusion, if you are renting the home out, generating income is the goal. In order to maximise your chances of doing so, you need to be able to leverage as much market share as possible. Therefore, start the search for a property management company with that in mind, rather than being price-driven.
Myth number five: “I’ll make immediate income which will offset my costs”
The vast majority of people who buy second or investment homes are short term thinkers with sights set on the immediate income they can generate to offset any costs or mortgage repayments.
While this isn’t entirely false, going into the investment with personal use in mind will increase the amount of options and opportunities you have available to offset costs in longer term ways. For example, by structuring the purchase in the most tax efficient way offered in the region you’re buying in, you can accomplish much more over a longer period, in addition to revenue generation.
Enlisting the right realtor or estate agent from the very beginning is key here. They will have the knowledge, market insight, and the best access to tax advisors, mortgage lenders and legal professionals who can steer you in the right direction, even before applying for a loan or closing a sale.
This will give you a very clear picture of the entire process, which could show you that spending a little more on the house you really want might actually be a better financial decision.
In conclusion, try to spend as much time as possible with your agent and their professional networks before making any decision. They can help you build a smart strategy for your investment, considering both short and long term income opportunities.
Myth number six: “Remote homes are risky and unattainable”
By now, most of us are ready to get out of our homes and travel. Even if it is just a short trip, we are yearning for a break from the confinement and restrictions we are experiencing due to the current situation.
And, with all the extra time spent in our homes, it’s likely that we have been thinking about changes we would like to make and even moves we desire. Whether it be thoughts of a dream home or a move abroad to a quieter, more remote location, many will conclude that it is simply impractical and unattainable.
With so much uncertainty surrounding the future, the one thing we can be sure of is that there will be a change in the way we live. But, unlike many other decisions we are having to make, we can take control of this choice.
How rural or remote the new home we are searching for is, is up to us. Some may simply want a house out of the city with more outdoor space, as a recent survey in the UK has found, whilst others might want something even further away, in a different country and climate entirely.
During this period, we have realised that life today can be lived even in the most remote locations. Many of us have found we can work from home, family and friends are just a video call away and leisure does not require fancy shopping centres, restaurants or bars.
Therefore, the list of boxes our new homes need to tick has changed. For example, if you’re searching for an overseas house, the list may include healthcare, good quality internet and communications networks, reliable utilities and shopping amenities.
In some cases, remote living could offer great value, allowing you to live authentically and even rustically in some regions. Of course, the list of facilities and amenities may be more restricted, but, for some, that will no longer matter.
Another option involves super exclusive remote living on an island, which lets you step into a different world, completely. For instance, living remotely in the Caribbean offers this and also comes with residency and citizenships benefits, which for some, may be a great opportunity.
In conclusion, the recent events have only widened our options. Therefore, it is important that you do your research before making a decision and by enlisting a real estate company who are truly global, you will benefit from better advice from professionals who really understand your needs and desires.
While this certainly isn’t the first disruption we’ve experienced to the property market, and it definitely won’t be the last, with each trough new lessons are learned. So, whether you’ve found yourself believing any of these misconceptions or would just like to be better informed before you proceed with a purchase, doing your research and speaking to a professional are certainly the best way forward.