Multifamily Property Outlook | Real Estate Investing

by Christopher Levarek

"One of the greatest discoveries a man makes, one of his great surprises, is to find he can do what he was afraid he couldn't do."

- Henry Ford

Happy Halloween!

With all the past events of 2020, many real estate investors are on the sidelines and holding out to invest when the smoke clears. Election year policy changes, recession outlooks, business lock-downs and eviction suspension mandates are all reasons people are waiting to get into real estate.

Let’s jump into some key topics that have many spooked and hopefully show why now is the best time to jump in with both feet!

The Eviction Moratorium

Here is one of the hottest topics for multifamily property owners, landlords or investors. With the passing of the CARES act in April/May 2020, landlords were basically unable to file evictions on non-paying tenants or renters. The aim was to help those who couldn’t pay rent due to Covid-19. This was later reinforced by President Trump and the CDC until the end of 2020.

With good reason, this had many investors and landlords spooked! If no income is coming in, how can one pay the bank or other expenses. The fear was real. Multifamily property owners or investors braced for a rough 2020. filled with non-paying tenants and vacancy filled properties.

Why Investors Shouldn’t be Scared: For those who continued to buy and for those who worked past the fear, the outcome has been vastly different. In fact, the overall rental growth and occupancy numbers as of August 2020 from Yardi Matrix were not that different from the previous year. Numbers continue to vary by city and state, however many states are even allowing evictions despite the Federal mandates and many landlords are filing evictions regardless. In addition, tenants are required to have proof that the non-payment was Covid related which has lessened the “abuse” of this bill by renters.

Still, it is common consensus under multifamily investors that the numbers were very much not as scary as predicted for 2020. Working and screening the right tenants has been most important, so again asset management or good property management was and is essential. In Multifamily, people need a place to call home and with good management, these properties have performed well through 2020 even with a few late or non payers.

Investing During a Recession

The United States economy went through a recession in the early part of the year of 2020. A recession typically is classified as when the economy declines for an extended period of time visible in the GDP, employment and real income. Now although, we rebounded in one of the quickest recoveries in our Nation’s history, the continued up/down of the stock market and uncertainty of the future has many spooked!

Investing during recessionary periods can be scary as employment is in question, credit begins to be doubted by the banks and demand is uncertain for many industries or products.

Why Investors Shouldn’t be Scared: Economies rise and fall. Ours is no different. Whether induced or organically initiated, a recession is part of the economic cycle. By preparing and investing when others are not, an investor can find better opportunity, prices and lucrative positions. Warren Buffet, well aware of the impending crisis in 2008, invested $5 billion dollars into the failing Goldman Sachs with a highly lucrative return and position for Berkshire Hathaway long term.

Real estate is cyclic as well. Home prices will fall and rise partially in response to economic cycles. Investing in the downturns is where many have found great opportunity. Simply by browsing Amazon real estate investing books or BiggerPockets for successful investor names, one can easily see that the majority of such individuals, who benefited most, invested or got started during the periods of 2009-2012. Now is not the time to be scared. Now is the time to be prepared.

Lock-down, Unemployment & Industry Change

With many of the United States still under lock-down or business shutdown restrictions, many businesses have been forced to close their doors. Gyms, restaurants, theaters, hotels and others have felt the impact of such action leading to unemployment in such areas and bankruptcy. When these tenants can’t pay rent to landlord due to failing business, the landlords then can’t pay the banks and the economy suffers even more.

However, although this is a unfortunate period for those caught in the middle, transitions or shifts in industry are inevitable with every cycle. Those who lost jobs will look for them in rising industries and those businesses that shut will re-emerge elsewhere or shift to other industries.

Why Investors Shouldn’t be Scared: For the real estate investor, amazing opportunities are becoming available. Predicting where demand and employment will shift to will make for good real estate investments. Knowing that many retail and commercial office spaces are closing down might offer opportunity to purchase such properties at discount and convert to highly demanded spaces such as multifamily, delivery centers or warehouses.

For multifamily owners or investors, knowing gyms are shutdown or restaurants closed, opportunity lies in offering these same on-property services to increase renter demand. On property gym locations or food delivery services/capabilities and remote work-at-home spaces, would be highly attractive in any apartment complex at present. It is all about seeing the shift and moving into that location before the mainstream.

In Final

Real estate is cyclical. Understanding the cycle and taking proactive action in times of uncertainty holds much opportunity for investors. To quote Warren Buffet again, “Be greedy when others are fearful, be fearful when others are greedy”.

We wish everyone a safe and Happy Halloween! Invest Smart!