How the COVID-19 Crisis Continues to Impact Real Estate Investors
The economy is open, but that doesn’t mean we’re “back to normal.”
Things have changed dramatically for real estate investors since the start of 2020.
In January, real estate investors were still shaking hands with everyone at seminars, slapping each other’s backs at networking events and doing everything they could to “get out there” in competitive housing markets around the country. Now, just six months later, investors are bumping elbows or simply nodding a greeting from six feet (or more) away from each other. The seminars and masterminds have come to a screeching halt, for the most part, although the economy is beginning to reopen.
The term “reopened economy” is pervasive these days. But what does it really mean? As with so many things in both real estate and the world right now, the nomenclature changes wildly from state to state, market to market and speaker to speaker.
For real estate investors, the reopened economy means some major shifts in historical norms are heading our way. For investors who are watching for these changes, accept there is a “new normal” headed our way and are prepared to act, the second half of 2020 could be one of unprecedented opportunity.
Contrarian Movements Aren’t Just Political Anymore
We all know “that guy” on social media who says the opposite of what everyone else says just for the likes, comments and outrage it creates. These contrarians are particularly prevalent in the political arena, and objective investors tend to ignore them because they are usually almost all bark with very little bite.
In the wake of the COVID-19 shutdowns, a physical contrarian movement is gaining steam. These days, you need to watch the actual movement that accompanies surprising consumer preferences to see whether people are simply “talking the talk” about making major life changes that will affect housing in their markets, or whether they are listing their houses and “walking the walk,” so to speak.
For example, for the past 10 years, the general population has had a distinct preference for urban housing markets. We have seen strong demand for walkable neighborhoods, multiuse developments and more affordable urban living options. Young professionals have been overwhelmingly willing to delay homeownership, marriage and children in favor of renting with roommates in centralized locations with access to jobs, entertainment and public transportation.
Now, however, those preferences have reversed. Entrenched populations in New York City, San Francisco and many other coastal cities are moving toward the outer edges of city suburbs or toward the Midwest and Southeast.
This movement is a result of many factors. Among the biggest are:
- Remote working
- Health concerns
- Safety concerns
- Housing affordability
When the coronavirus sent all of us into remote-working mode, it did more than give parents a new appreciation of their children’ teachers. It helped employees and companies realize that remote working on a large scale is truly an option.
Although many homeowners and renters might not be willing to commute 90 minutes to work each day, the idea of making that drive once a week or a couple of times a month is not nearly so terrible. Further, since housing prices have not slumped in the way many analysts predicted they would this spring, housing affordability in the Southeast, Midwest and more rural areas of the country creates a compelling case to move for individuals no longer interested in the amenities and advantages of living in the city center.
Rental Preferences Are Shifting
One of the biggest short-term results many investors are seeing from this movement away from big cities is that rental preferences are shifting. Single-family rental owners are finding their product, always a strong asset as a long-term cash-flowing strategy, are in higher demand than they have been in about a decade. The outflow of residents in metropolitan multifamily units looking for suburban or even rural single-family options is driving the demand.
Multifamily investors at the extreme high and low ends of the spectrum, on the other hand, are struggling, as luxury tenants literally move to greener pastures, and vulnerable renters find themselves unable to pay rent and unlikely to be evicted, at least at the present time.
This shift in renter preferences is creating strong opportunities for real estate investors in both single- and multifamily residential real estate.
If you have been wishing you could get involved on the multifamily fix-and-hold side via a syndication or other group project, now is likely a great time to do so at lower entry levels. On the other hand, if you already hold single-family rentals in your portfolio or want to add more of them, then now is the time to acquire properties in those trending areas where residents have started looking.
Pay Attention and Optimize Everything
With residential preferences changing so quickly, it’s important for real estate investors to remain actively engaged in tracking these trends and, furthermore, in optimizing their portfolios. Investors must watch market rent rates because they are not, as the “talking heads” might have you believe, falling. In fact, in most B Class and C Class neighborhoods, home values and market rents are rising. It is important not to let the COVID-19 pandemic convince you that nothing is going on and you should just be happy if you are collecting anything. The reality is that this is a time of growth in many areas and sectors of the country. Do not let that growth leave you and your real estate portfolio behind.
