Coronavirus and My Attempt at Yellow Letters

It’s been a couple weeks since we talked viral stuff. I’d like to say thanks to all of you who are working hard to keep everybody else healthy. The stock market has been down, and then rebounded a little. The markets have seemed to respond to government stimulus packages but we should all be wary that these stimuli won’t continue indefinitely. Unemployment numbers are going way up, retail purchases are going down. Sioux Falls just reported that traffic is down 35%. We don’t know where that traffic would have been going, but probably to work and to any discretionary purchases at shops. Meanwhile, internet retail (Amazon and others) are raising their wages and hiring. They would only do this if they are seeing increased sales. But can online retailers alone be enough to keep the economy afloat? I doubt it.

When the government money dries up we need to have the virus under control. If we don’t we will see another downturn in the market. More retailers will first do layoffs, then close their doors. That’s what our current administration desperately wants to avoid.

Medical Update

From a medical standpoint, we want to keep people healthy. We recommend isolation at home. There is a problem with that, however: If we are too good at this, we will keep healthy people at home, only to get infected when we release them into the wild. I wonder if that is what will happen in China. Their government system allowed them to lockdown the population and slow the spread. It didn’t give the population immunity.

Epidemiologically we want at least 90% of people to gain immunity in order to stop the pandemic. There are two ways to do that. 1: Get infected and get better. 2: Get vaccinated. A vaccination is likely 12 months away and will be given to the most at-risk population first. We are not going to be able to stay in our homes that long. So option one it is. I’m not telling you to go out and get infected; if too many people do, then the hospitals will be overwhelmed and the death rate goes up to Wuhan levels. We realize that not everyone will be willing or able to self-isolate. They will go out and potentially get infected, hopefully building immunity for the population. It will happen, but we want it to happen slowly, hence the wise recommendation to stay at home.

It’s a race to get the population healthy and immune but there are a lot of indications that it will be at least a month and more like 2 or 3 months of similar conditions. Whatever pain you are going through now, realize that it may be prolonged. Hopefully you haven’t been spending all your time watching Netflix in your home isolation. What have you been doing to further your real estate investment future?

What About Real Estate?

Obviously you want to protect yourself and family first, but after that, you should be thinking about how best to prepare for your future. I’m talking about long-term financially, not hoarding toilet paper and other silly things people are doing. I noticed that there were very few multifamily apartment buildings on the MLS in the past few months. This couldn’t all be due to the coronavirus.

Rents have been going up and up for at least the last 6 years. Owners see this increase translating into equity and have little interest in selling. They will do so, for a premium. Less properties get put on the market, and those that do are for a high price. We reached the top of the market, but are we going into a fall?

We haven’t seen that yet, owners seem content to sit out for a while and ride on their current rents. For me, April was the same. Our late payments were unchanged, and apart from not collecting late fees, our income has been unscathed. I wonder if May will be different. May is the month that has many owners fearful. I think they are too afraid to get out there on the market though.

Because of this, I decided to start a letter campaign. Perhaps you have heard of Yellow Letters? These are letters sent, typically to single-family homeowners, asking to purchase their house off market. I wondered if the same thing could be done but in the multifamily space.

I decided to do an A/B test, where I would send out 50 letters very professionally, with my business logo, and 50 letters with a more neighborly tone. Each would have a hand-written envelope, to encourage them to get opened. It took a lot of work, but I think it was the best way to do it. Is there any way you wouldn’t open a hand-written envelope?

I got the first 50 sent out, then got a little busy (read lazy) and didn’t do the other 50, which screws up my test significantly. I got 5 (10%) responses, an amazing 3 (6%) were interested in selling. The other 2 said they didn’t own the property.

I put in an LOI on 1 yesterday and am waiting to hear back. I’ll wait until that to do the other 50 letters. If we reach an agreement, I think I’ll hold at this time. Let me know if you agree with this strategy in the comments.

You don’t have to buy anything right now, but you do need to do something. I challenge you to do the same thing I did. My next post I will show you exactly how I found to whom to send the letters.