Are Your Investments Pandemic Proof?

There are some days where I wake up and I still can’t believe the reality we are living in – do any of you feel this way?  We are definitely living in unprecedented times – ones that we just couldn’t have imagined being a reality.  I hope that you are staying healthy and sane – but most importantly taking this time to organize your thoughts and realign your commitment to top results in 2020. 

Things are definitely harder to get accomplished with the restrictions we have in place for social distancing and certain businesses not being fully operational.  One of the biggest challenges for our business has been the closure of hardware stores like Home Depot and Lowe’s and only allowing curbside pickup or delivery, which has been an absolute nightmare. We have 6 redevelopment projects on the go right now with 3 more on the pipeline.  We are also working on 2 brand new construction homes so this virus has slowed down a little bit our progress and momentum.  Luckily we are adapting to this new temporary norm and figuring things out.  

My wife and I have many evening discussions (after the littles ones are in bed and the house is finally silent for the day) where we vocalize how blessed and grateful  we are for our real estate business.  Although this pandemic has impacted us slightly, it is generally not that bad.  We used to own 2 retail stores in Toronto few years ago – one was a Tea Store and Café and the other was Chocolate Store and Café; if we were still in the retail space, this type of closure would have been stressful and potentially devastating for us.  We both feel horribly about businesses affected by this who will potentially lose their life’s work and savings and many others that have lost their jobs.

But there are always two sides to a coin.  I like to use the analogy of a plant where are there only two states – growing or dying – and I’d like to believe we are all striving towards growing and continuous improvement.  There are many lessons to be learned from what the world is going through right now, despite the hardships many are facing – especially as it pertains to one’s livelihood. While many are panicked, and justifiably so, this is the time to put a plan into action. The goal is to come out of this setback far ahead of where you started. The true wealthy use fear, uncertainty, and downtime to make a series of plays that boost them 3 steps ahead while others take 1 step back. 

A lesson I learned from one of my mentors is that you must have a R.I.P Proof business.  R.I.P stands for Recession Proof, Internet Proof and Pandemic Proof.  We can see from looking around us that those businesses that had an RIP model: for example those already mobilized for internet sales or classified as essential services such as grocery stores didn’t notice as much of a decline in sales (some grocery stores likely saw a massive spike in business). 

In the last several weeks, we have been working on a multifamily apartment building in a great location to add to our portfolio.  Why did we buy this building during covid-19? We think this is an R.I.P Proof business.  From our portfolio of over 50 units, we had less than 5% not pay come April 1 rent.  And as I write this, we have had a 100% collection of rent from all our tenants.  This number may potentially change in May or June, however from a longer term perspective, everyone needs a roof over their head.  

Everyone wants to know what will happen to the market in the short term, and whether or not prices will fluctuate.  That is hard to predict, but for those using real estate as a wealth creation tool and buying for the long haul, I have consistently stated that it simply does not matter.  This is not to say that you can’t loose money investing in Real Estate.  I’m sure a lot of the speculative and overleveraged investors are in a much different state of mind with the current market conditions.  Those whose properties do not cashflow (and were only purchased for appreciation) or the AirBnB  landlords who are currently sitting on vacant properties may have financial issues to deal with. 

Now, let me compare this to the stock market.  The recent nose dive in the stock market was brutal, I personally have lost about 25-30% of my portfolio’s value.  The Stock Market will recover eventually and perhaps now is a good buying opportunity for certain stocks, however, most people do not realize the time value of money.  It may take 1-2 years for the stock market to recover to February 20, 2020 levels.  You have essentially earned zero growth for 1-2 year.  As Robert Kiyosaki author of Rich Dad says “Investing in a well diversified portfolio of stocks, bonds and mutual funds for the long term is path to retirement disaster”.  He discusses a lot more in his latest book “Who Stole My Pension? How you can Stop the Looting”.

I may biased however Real Estate Investing to me is a R.I.P Proof business.  Until next time, take care and continue to spend that quality time with your family!

Jose Jafferji, REIA