Due to the pandemic, it's good to think about real estate investing by coronavirus positivity rates. The higher the coronavirus positivity rate, the more fearful capital will be. Economic recovery will likely be slower and outside capital will likely stay away.
As a whole, American real estate is some of the cheapest developed country real estate in the world. When you add on how much money you can make in America thanks to the proliferation of world-class companies, American real estate becomes an even better bargain.
Below is The Economist's real house price index. Notice how cheap the United States is versus New Zealand, Australia, Britain, France, Ireland, Canada, and Spain.
The realization of how cheap American real estate is on a global scale should make you want to buy as much real estate as possible if you are an American. After all, before the pandemic began, international investors were gobbling up American real estate for this reason.
The last thing you want is foreigners profiting off your land and pricing you out. Instead, you want to buy property first and then get rich as foreigners bid up property prices. The pandemic has helped keep foreigners at bay, for now.
Real Estate In The Heartland
What international real estate investors interested in America don't really know about is heartland real estate. Instead, international investors focus on coastal cities such as San Francisco, Los Angeles, Seattle, New York, Boston, and Miami.
As a result, Americans have a competitive advantage and a big head start when it comes to investing in heartland real estate.
In late-2016, I made the case that investing in heartland real estate was a shrewd move. Thanks to the internet, demographic trends, Donald Trump supporting his supporters, and the rise of real estate crowdfunding platforms, more capital would naturally shift towards the middle of America.
The pandemic then supercharged my thesis by 3-5 years as the work from home trend becomes more permanent for potentially millions of workers.
However, what I failed to predict was how much residents in the heartland cherished their freedom and their economies over keeping everyone safe from the coronavirus. This is the classic take the pain now or take the pain later situation.
As an investor, it is our responsibility to forecast the future and bet accordingly. And the future of investing in heartland real estate is now looking murky due to soaring coronavirus positivity rates and a potential Joe Biden victory.
The sad reality is that COVID-19 positivity rates are soaring in the South and Midwest. As a result, there is a risk these states will falter, economically. I've shared my latest delta variant investment thesis for you to review.
Real Estate Investing Based On Coronavirus Positivity Rates
When the pandemic began, I discussed in detail the difficult situation all Americans faced between choosing the economy or maybe their lives.
If we keep economies shut for too long, we could see more depression, suicides, domestic violence, and child abuse. There comes a point where the cure may be worse than the virus itself. As a result, it's hard to fault anybody for wanting to open up the economy with safety protocols in place.
Here are a couple of maps that show the intensity of the coronavirus in America. The first map shows the daily cases per million in rural areas. The darker the color, the more average daily coronavirus cases.
The below map is also from the New York Times database that more clearly shows higher coronavirus positivity rates in heartland states compared to coastal states. The exceptions are Florida, South Carolina, North Carolina, and Rhode Island.
States With The Highest Positivity Rates
Below are the 7-day rolling average positivity rates by state from Johns Hopkins University Coronavirus Resource Center. It looks like the second waved has peaked, but heartland states still have the highest positivity rates.
- Iowa – 50.58%
- Nevada – 37.16%
- S. Dakota – 36.37
- Idaho – 29.63%
- Wisconsin – 24.30%
- Wyoming – 20.22%
- Nebraska – 18.03%
- Kansas – 17.41%
- Mississippi – 16.93%
- Alabama – 16.6%
- Utah – 15.44%
- Florida – 11.95%
- Indiana – 10.10%
- Montana – 10.08%
- North Dakota – 9.95%
- Pennsylvania – 9.17%
- Arkansas – 9.00%
- Arizona – 8.59%
- Tennessee – 8.33%
- Oklahoma – 8.33%
- Texas – 7.12% – First state to report over 1 million coronavirus cases.
- North Carolina – 6.36%
- New Mexico – 6.34%
- Georgia 6.21%
- Minnesota 5.95%
- Missouri – 5.95%
- Deleware 5.76%
- Virginia 5.71%
- South Carolina 5.65%
- Illinois 5.43%
- Colorado 5.30%
- Kentucky 5.28%
- Oregon 5.17%
- Ohio – 4.70%
- Alaska – 4.48%
- Louisiana 4.13%
States With The Lowest Positivity Rates
- Maine 0.51%
- Massachusetts 1.13%
- New York 1.16%
- Vermont 1.22%
- District of Columbia 1.26%
- New Hampshire 1.32%
- Connecticut 1.63%
- Maryland 2.3%
- Rhode Island 2.4% (contrary to the map above)
- California 2.45%
- New Jersey 2.85%
- Hawaii 3.04%
- Washington 3.37%
- Michigan 3.71%
- West Virginia – 4.16%
I'm seeing an uptick in people who want to migrate to California and Hawaii, given lower COVID-19 positivity rates. And here's another map from Johns Hopkins that helps illustrate how each state is doing at handling the coronavirus.
If you combine all this data together, it is pretty clear that many Midwestern and Southern states, for whatever reason, are underperforming when it comes to controlling the coronavirus.
Why Are Positivity Rates So Different Among States?
It would be one thing if we were still in the first three months of the pandemic and saw this data. However, after over eight months of lockdowns and with clear instructions on safety protocols, it is interesting to see how divergent some states are in handling the virus.
We all get the same instructions about wearing a mask, social distancing, staying home when sick, not participating in large gatherings, and so forth to protect everyone from the spread.
Therefore, the only logical answer is that the states with higher coronavirus positivity rates must not be following the safety protocols as strictly as the states with lower positivity rates.
In other words, the culture in states with higher coronavirus positivity rates must be more focused on personal freedoms versus following health protocols to crush the virus. This is understandable since the overall coronavirus survival rate is over 99%.
Given more states in the heartland are Republican, let's look at a few Pew Research surveys that ask how Republicans and Democrats view the coronavirus differently.
As you can see from the survey responses, it is clear that Republicans are less concerned about how the coronavirus will impact their health than Democrats. Democrats also look to be much more worried about everything in general.
That said, both parties seem to be almost equally concerned about the U.S. economy. Below is another chart that shows Democrats are almost twice as concerned as Republicans regarding the health of the U.S. population as a whole.
Everything Is Rational
As an investor, we must also try and be as objective as possible when it comes to putting money to work. You can't let your emotions control your decision making. One of the key things an investor should tell him or herself is that everything is rational.
It is rational that many heartland states are seeing a surge in coronavirus positivity rates and deaths because more residents chose personal freedom and their economies over health safety.
It is rational that many coastal states have seen their economies get crushed because residents chose health safety over personal freedom and their economies.
I live in San Francisco, where we've been shut down since mid-March 2020. Our mayor, who kept earning her $342,974 salary and $109,447 in benefits during the pandemic, squashed our city's economy by keeping things strictly closed for seven months.
Even outdoor playgrounds weren't allowed to be open. Due to the lockdowns, the budget deficit has skyrocketed and the poor have gotten even poorer.
However, due to our mayor's draconian measures and residents' more strict adherence to health measures, of the 20 most populous cities in the U.S., San Francisco has the lowest death rate per capita from COVID-19. One UCSF doctor estimated that if the rest of the country followed San Francisco's strict guidelines, 50,000 would be dead from the pandemic so far instead of 220,000+.
Our mayor focused on saving lives over saving the economy. Now, San Francisco is opening up pretty much everything in November at limited capacities. Let's see if the good times last and if the economy can continue to recover.
Capital Hesitation At The Margin
One of the problems with high coronavirus positivity rates in heartland states is that it makes capital pause. And incremental capital investing in heartland real estate is one of the biggest catalysts for higher property prices.
It is too early to estimate how much capital will end up not going to heartland real estate due to high coronavirus positivity rates. But I know from speaking to several people that they are no longer considering leaving California to places like Wyoming, Wisconsin, Utah, and Texas.
I've had friends in New York give me similar feedback about relocating to Florida. Even though there is no state tax in Florida, there is more hesitation now because they don't think they'll feel safe. As a result, these New York City residents have hedged their bets by keeping their NYC properties while testing out Florida living.
We already understand that relocating to a different state just to save money is already hard enough. You either have to be really struggling in your current environment or have family and friends in a new state to not consider first saving money by relocating within your city.
It doesn't make sense to leave your entire network versus just moving 15 minutes further away from downtown to save 20% – 40% on living costs and keep your salary. If there is a vaccine, people will flock back but the opportunities will first be given to those who never left.
To relocate to a different state with fundamentally different political and health safety views may be too much.
Adult Obesity Rates By State
After more than seven months, we also know that obesity and comorbidities are big factors with regard to surviving COVID-19. If you have a respiratory illness, being obese makes the fight more difficult.
I spoke to one woman who runs 20 miles a week who planned to relocate to the Midwest. They could work remotely and wanted to buy a big house to raise their daughters. After several months of mulling the decision over, she and her husband decided against it due to differences in food and health culture.
They feared they would be ridiculed as “coastal elite weirdos” for eating mostly vegetarian, shunning BBQ, and working out all the time. She told me a story of one of her earliest childhood memories of being made fun of by this much bigger girl. She was a bully who would often steal her lunch and call her “twiggy” and “Skeletor.”
Despite being white, she and her husband just didn't feel like they would assimilate in a state with such different philosophies on diet, exercise, politics, and health protocols.
To her, wearing a mask is no big deal because it helps protect her and others. She already gets irked every so often by a mask-less jogger. Moving to a state where there's less mask-wearing during a pandemic would make her feel constantly agitated.
People Just Want To Feel Safe
At the end of the day, people just want to feel safe, which is one of the reasons why the demand for nicer, larger homes is soaring. Some people who were considering leaving coastal states for heartland states are now reconsidering given the positivity rates have completed turned.
Meanwhile, perhaps more liquid capital that could have been invested in heartland states is now being redirected towards coastal real estate again. With the U.S. median home price increasing strongly, partly thanks to higher demand in the heartland, coastal real estate is becoming relatively more attractive.
It may be normal to see hundreds of Ohio State football fans tailgating without masks. It may be accepted that places like Alabama and Texas have fully opened up a couple months before everyone can get a vaccine. However, to some coastal state residents, just seeing fans back in a college football stadium is an anathema for safety protocols.
But again, everything is rational. In a free country, the foundation is to let people choose how they want to live. As investors, we are given the same freedom to choose how we allocate our capital for financial freedom. We have people migrating to California for different philosophical reasons towards the re-opening.
Real Estate Performance Going Forward
I still have over $500,000 invested in a real estate crowdfunding fund with properties throughout America's heartland. Overall, the IRR is about 12%, which has outperformed my San Francisco real estate holdings since I started investing in late-2016. However, I wonder whether such outperformance will continue as coronavirus positivity rates increase.
My feeling is that the outperformance will narrow. Perhaps the overall tide of increased real estate demand due to low mortgage rates and more work from home will trump any slowdown in outside capital looking to invest in heartland real estate.
Whatever the case may be, it’s worth paying more attention to coronavirus positivity rates by state before investing in a particular property. Compare the positivity rate trend to local economic indicators such as the employment rate trend. Once you’ve made a more informed top-down decision, you can then focus on bottoms-up analysis.
There's one last thing to consider. Now that Joe Biden has won the presidential election, I'm assuming he'll try to take care of his supporters as well. Therefore, I expect the SALT tax to be repealed. If so, this should provide a boost to coastal city real estate prices as more deductions can be made.
Overall, I believe American real estate will continue to perform well in 2021 and beyond. The intrinsic value of property has permanently increased due to the desire for safety, shelter, stability, and work flexibility. However, beware of investing in Florida and other Southern states due to the rampant surge in the delta variant.
Only time can tell which regions and states perform the best. In the meantime, I'm happy to be long and diversified in my favorite asset class to build wealth.
Real Estate Investing Platforms
If you are and accredited investor looking to invest in real estate, take a look at CrowdStreet. CrowdStreet focuses on individual properties in 18-hour cities where valuations are lower and rental yields are higher. Due to technology and demographic trends, 18-hour cities are forecast to have faster long-term growth rates.
The other solution for non-accredited investors is investing in Fundrise through one of their diversified eFunds or eREITs. Your returns are more stable as you gain broader exposure to an asset class that is greatly benefitting from low rates and the desire for real assets in this volatile environment. Fundrise was founded in 2012 and is one of the best platforms today.
Both platforms are free to sign up and explore. Real estate crowdfunding accounts for roughly $70,000 of my estimated $300,000 in annual passive income.
Readers, do you think coronavirus positivity rates will affect the way capital is deployed? Or do you think none of this really matters?