Hello, everybody. It's Sam from Financial Samurai. And in this episode, I want to talk about buying real estate in this COVID-19 global pandemic era. Real estate is my favorite asset class to build wealth because it's simple to understand. It's a tangible asset. And it provides income. Unlike stocks, the value of real estate doesn't just go poof overnight.

Just think about it. When the stock market was declining by 10% a day, and when the S&P 500 was down about 32% at one point, did the value of real estate drop by 10% a day and 32%? Were you seeing sales down 32% the very next week, or that day, or the next month?

No. Instead, what you've seen is that real estate has held its value during the pandemic so far. And some places actually ticked up in value because money rushed out of stocks and into real estate. So in this episode, I think it's very important to highlight the opportunity that real estate investors have right now.

I don't think that opportunity is going to last very long, maybe one month or two months. Your mission, if you choose to accept, is to find that real estate seller who is the equivalent of the stock seller when the Dow was below 19,000 and when the S&P 500 was below 2,300.

Now, it's going to be a little bit hard to find because inventory is down. And when a lot of people talk about, OK, well, real estate is the next shoe to drop because look what happened in 2008 and 2009 when the stock market fell 55%, but real estate prices also fell 20%, 30%, 40%, 50%.

It's a different situation here, folks. Back then in 2008, 2009, we had over leverage in the financial industry. We had over leverage in the housing market. People were buying homes with 0% down, and people were just borrowing as much as they could because banks were lending as much as they could.

It was a crap show back then, and it took a long time to unwind that leverage. When people go bankrupt, it takes seven years to recover. But they do recover. Here in this example, everything is self-imposed, this lockdown to fight the virus. And so as you are seeing in the news and you are listening from the governors and the mayors around the countries, these lockdowns will be ending partially in May and hopefully continuously in June, July, and beyond.

The Redfin CEO did say recently that demand is down about 20% in terms of traffic to the Redfin website. And I like Redfin a lot because I think their algorithm is the best for valuing property and finding properties. Well, despite demand being down 20%, the listings, the inventory on its platform, is down about 60%.

And this is nationwide. So demand is down 20%, but listings or inventory is down 60%. Therefore, one can conclude that pricing is going to stay steady, if not actually tick up. You can see from one of my recent posts with highlighted examples of real estate outperformance in San Francisco and in Honolulu.

And they just keep on coming, folks. So for those of us who are trying to be opportunistic in building wealth and buying real estate during this pandemic, it's going to be tough to find the panic sellers. But they are out there because we did see the stock market collapse by 32%.

And we did see many, many people and institutions sell at those levels. So based on the law of large numbers, even if just 5% of the people are still freaked out and think that we're going to retest the lows, which we very well may, or go much lower, which we very well may, 5% out of, let's say, a million folks-- that's a lot of folks.

That's 50,000 people. Those people are out there, and they are listing their homes. And they are listing their homes rationally based on what they think. They're listing it now, during lockdowns, during the pandemic, because they believe prices will head lower. And it's up to you to find these people and offer them lower prices, because you believe things aren't as bad as they seem.

As you've listened in previous podcast episodes, I'm taking a more optimistic approach. And just to be forewarned, I'm generally an optimistic person. And I try to look at the positives in everything. For example, when I sprained my ankle, I immediately think to myself, oh, thank god I didn't break my ankle.

So my attitude is very positive. And if you had bought the S&P 500 below 2,400, as I discussed in the Stock Market Bottom Analysis post and podcast, you would be up 15% to 30% plus right now, depending on what you bought. I mean, if you just look at the NASDAQ right now as of early May, we're only down about 1.5% from its all-time high.

So the NASDAQ tech stocks have tremendously outperformed. And it's back to bull markets. And technically, we are back to bull markets in the S&P 500 and the Dow, because we rebounded way more than 20% from the bottom. We're up 30-plus percent from the bottom now. And so what you need to think about is what is going on between the stock market, the economy, and the real estate market.

So obviously, there's a disconnect between the stock market rebound and what the economy is doing, because the economy-- the ISM manufacturing numbers plummeted. Unemployment is at all-time highs. We're probably going to be at 40 million by the end of May. It's ugly out there in the economy, in the real world.

But the stock market, not so ugly, because the rebound, because it's discounting 3, 6, 9, 12 months into the future. And the future is saying lockdowns are going to end. There's probably going to be a second wave. Hopefully, there's going to be a vaccine. And things are going to get better.

It's all incremental. But the real estate market is very interesting, because it lags the stock market. It does not transact as efficiently. So what we're trying to do is capture that timing mismatch, where we find the seller who still thinks we're at the S&P 500, down 32%, and who still thinks we're going to head lower.

Those sellers are out there. Those sellers believe the worst has yet to come, because the Federal Reserve and the federal government are ineffective. They believe the stimulus checks, the enhanced unemployment benefits, and the PPB loans won't get paid and forgiven. They believe the coronavirus numbers will be equal to or greater than all the government model predictions.

They believe there won't be any efficiency or productivity gains after going through months of working from home. They also confuse a slowdown in the real estate brokerage business with real estate prices. You see a lot of headlines out there that say, real estate is getting crushed. But what's really getting crushed is the brokerage business, because the volume is down 60%.

But pricing of property is something completely different. But when you and I read these headlines, the automatic assumption is that pricing is collapsing. But no, the journalists are talking about the real estate business. So please be aware. The other thing is there's fear that lockdowns will last well beyond the third quarter of 2020.

Next, what do they believe? People are going to actually start saving aggressively post-lockdown or post-pandemic instead of reverting back to their old ways of spending more than they can make? You can never, ever, ever count out the US consumer to take on debt, to max out their credit card, and to live well beyond their means.

We are a proud nation full of independent people who, doesn't matter how little we work at something or how little risk we take, we always believe we deserve better. So how do we find these sellers? Well, the easiest way to find these sellers-- and frankly, the only way if you're locked down-- is to search for them online.

Be vigilant in looking at areas that you want to buy on the real estate platforms out there. Redfin and Zillow are the two most common ones. And if you find something that is either mispriced or is just an interesting opportunity, go ahead and reach out to the selling agent.

I did so the other week. And I was able to get in there and have private showings. And when you do a private showing, that is when you can talk to the agent and feel him or her out about what's going on in the seller's point of view, what's going on regarding demand and so forth.

Nothing good comes easy, folks. So go online. Take a look at what's out there. Make the effort to contact the agent. Do a private showing. And talk and ask and question what is going on. Because again, any seller listing during a lockdown period and a pandemic has to be a motivated seller.

Otherwise, you would just wait one or two months once the lockdown ends to sell your property. It's just irrational to think you're going to get a higher price or your asking price when you're listing during a lockdown. We can just wait. So it's up to you to take advantage.

And to take advantage, you have to do several things. One, you've got to focus on making a connection with the seller. Making a connection with anybody is the key to a better relationship. It's the key to getting a better price. Because the seller wants to feel comfortable, feel good about selling to someone.

The selling process is very nerve wracking. It is way more stressful to be a seller than a buyer. Because so many things can fall through during the selling process. So one, you make a connection. Either you write a real estate love letter and you tell the listing agent how much you love the property and how focused and interested you are.

Two, let's be frank here. You should become the doomer bear that they are right now for listing their property. The seller is nervous. Otherwise, he or she wouldn't list right now. The seller knows that if they don't sell within a certain period of time, the property goes, quote, "stale fish." And when properties go stale fish, price cuts are an inevitability.

It's also embarrassing when you put yourself out there and get rejected or get no offers. As a result of so much worry and stress, using the end of the world strategy can motivate your seller to sell. And luckily for you, it's currently much easier to imagine the end of the world, given the 24/7 news cycle is all about the coronavirus deaths and economic destruction.

The news knows that negativity sells. That's why they continuously pump out negative content out there to fear people into reading their stuff. I take the different angle, but if I was strategically smart, I would also pump out lots of negative stuff. But it's just not me. It's just not my personality.

I want to look through the noise and try to get things better for the rest of us. So look, the second strategy is really to become the doomer bear that the seller is right now. Otherwise, they wouldn't list it. You could talk about the big picture scenario, such as discussing 40 million people unemployed and what's going to happen to the real estate market if this continues.

You can talk about how the stock market corrected by 50% in 2008 and 2009, and the real estate market followed suit. You can talk about COVID-19 mutating and thereby risking maybe billions of more people. It just never ends how much negativity you can talk about if you choose to be negative.

And the interesting thing is it's really not too much hyperbole to talk about all these negative things, because if you look at the government models, they are so bearish. They are so doomsday scenario. But thankfully, we know that these models haven't come close to being true. So in case you feel that you're talking nonsense or the seller thinks you're talking nonsense, all you've got to do is show the government models at various stages without showing the reality of what happened.

Because hey, you've got to believe the government, right? They've got the smartest people, supposedly, and the smartest scientists on the job. So if you can't believe the government, are you going to believe a buyer who's trying to get a better deal? Well, it's tough to say. Your goal is really to paint a picture of the house being a tremendous burden and you being the savior of that burden.

Obviously, you don't want to come across as crazy or just unrealistic. Instead, you want to come across as financially stable. You want to be a realist. Because after all, any one of these things about doom and all that could happen. Nobody has a crystal ball. Nobody knows anything for certain.

It's about thinking in bets and percentages. Like Inception, that movie, one of my favorite movies, if you could implant just one of these doomsday items into their minds as they are mulling over your offer, there's a better chance you could turn them into the panic stock seller when the Dow was at 18,500 or when the S&P 500 was at 2,250.

For the moment, buying at those levels was a great idea for stock investors. You just want to rewind time and be that real estate buyer at those levels as well. A couple more strategies you should think about as a buyer of real estate. You should focus on the benefits of a simpler life.

A large reason why many real estate sellers want to sell is because real estate requires maintenance. And if you're a landlord, well, it requires a lot of people interaction, which is not something we want really right now. So your goal is to allow the seller to think, oh, if they could just have a simpler life and sell to you, everything will be OK.

I sold one of my main rental properties in 2017 because I just couldn't take dealing with the tenants anymore and the maintenance issues. The property wasn't that far away, but it was still a 25-minute drive away. And it just wasn't my time. And everybody has a different time or is at a different stage in their lives where they have different priorities.

So focus on the benefits of a simpler life for the seller. And then finally, you want the seller to make them fear losing you. After investing so much in getting to know you, writing the love letter, telling the agent what you plan to do with the property, and so forth, you have to make him or her fear losing you.

That is human nature as well. You don't really fully appreciate something until they're gone. So I make sellers fear losing me by writing a real estate breakup letter. And you can learn how to write one. And you can see an example in one of my posts if you Google real estate breakup letter, Financial Samurai.

Also, I discuss about the rise in inventory. Inventory is ticking up right now in May. And I think it's going to continue to tick up. Basically, what we're seeing is a shift from spring inventory. It's going to go into summer and so forth. It's kind of like, well, if we've been locked down for two months in March and April, maybe May as well, right?

Let's just shift the summer vacation up. And then we start school in the summer and so forth. That's an obviously easy solution. And we are seeing inventory tick up a little bit. And so from the seller's point of view, the more inventory that is out there, the more competition he or she has.

So that is something to be aware of as well. So let's move on to what is the right offer price during a pandemic. Given the S&P 500 corrected by 32% from its high, you could offer 32% below comparable sales prices right before the coronavirus hits. So that's February 2020.

Your real estate agent can easily pull up all the most recent coms. And so can you. Unfortunately, I think offering 32% lower than the most recent coms will likely get you shut out. And it will likely seriously offend the seller. So I don't think that's the right strategy. I think a better offer starting price is somewhere around 10% to 20% below recent coms.

Probably 20%. I think you're still going to get shut out. And you're still going to offend a lot of sellers. But 20% is where you can start. And hopefully, you can get a price between 10% to 20% below February 2020 levels. It's going to be very hard because inventory is down again.

And sellers aren't stupid. And the real estate agent isn't stupid. But there are obviously real estate agents out there who are hungry for a transaction because their business is on volume. It's not on whether the seller gets the highest price or whether the buyer gets the lowest price. It's on transaction volume.

That's how they're going to get their commissions. And volume has been way down for the past two months. And a little bit more thoughts on your offer. The best type of offer is an all cash offer. Now, if you don't have all cash, you need to get pre-approved for a mortgage so you can offer a no financing contingency offer, which is basically like all cash, but it's from the bank.

It's not as good. It's not as good because there's a second party involved that the seller has to worry about not going through, even though the bank has already said and committed to offering you x amount of mortgage because they've already underwritten all your information. And they've already decided, based on the data you've provided, that you're good to go.

Getting pre-approved is not as good as an all cash offer, but it's better than getting pre-qualified, which really doesn't count, folks. It's just figuring out-- pre-qualified is just figuring out how much you can potentially borrow. And there's no commitment from the bank. So just be aware of that. In conclusion, again, I think there's only a one to two month window where you can find these sellers out there who don't realize that things have improved in the economy and in the stock market.

And let's say we do retest the lows and go lower. Well, that is certainly a possibility. I think retesting the lows is probably a 25% to 30% maybe probability. And going lower, well, much lower than the lows is probably a 10% probability at this point. So if you did end up buying real estate at 10% to 20% below, let's say, the February 2020 levels, well, at least you are buying at a more appropriate level if we do head lower or go lower in the stock market and the economy and so forth.

I really wish everyone good luck out there. There's no certainty out there. There's no certainty from me or from the sellers or from the buyers. We just have to do the best we can with the information we have available at the time. I've moved on from the stock market.

I've sold 100% of what I bought in March at the end of April and into early May when the S&P 500 rebounded to 28.50 and higher. It got up to, what, 29.50. And it's just amazing how much we've come, how far we've come. And I decided to de-risk again.

De-risk, de-risk, de-risk is my mantra for the summer. And I'm back down to my 20% of net worth in equities allocation from 25%. But I'm not done. I'm not done because I believe there's opportunity in real estate. And so if you are a savvy real estate and stock market investor, you can use the information to play off each other.

Because again, real estate is a laggard to the stock market. And we know this from previous cycles. And I know this from my history investing in the stock market and the real estate market during the previous financial crisis and the one before that. So if you missed out on buying stocks when everything was falling apart in March, I think you have an opportunity to buy real estate at depressed levels from highly motivated sellers.

Thanks so much, everyone. The game is never over. So keep playing, keep understanding, keep listening, keep reading. The opportunities are out there if you pay attention and you take action. If you enjoyed this podcast, I appreciate a positive review. And share it with your friends. It's on, I think, iTunes, Spotify, and Google Play.

And it's on Libsyn as well. Take care, everyone.