REI INK

Lessons Learned From Restaurants, Retail and Renovation

I was raised in Tampa, Florida, where my parents ran an Italian butcher and deli shop. So, my work ethic started at a young age. I swept the floors and helped out where I could. Sometimes, it meant staying up late to get the job done. I got my first paying job at age 12 at the local mall, managing a kiosk where I sold software. This is the job that taught me about sales and customer service. I had to ask customers what they were looking for and try to identify their problems and needs. I then had to try to match them with the right software solution for their need. As I took on different roles in my career, I did hold close that asking questions is the first step to offering good customer service. I worked at that kiosk until my brother recruited me to join him at a Checkers Drive-In Restaurant when I was 15. There I learned the world of fast food management. By the time I was 18, I had worked my way up from the grill to managing the restaurant. I was one of the youngest managers in the company. But, I learned how to manage a team with many different backgrounds and experience. As I moved into my college years, I wanted to try my hand at retail. I got a job managing a mall-based toy store. That was a hard business. Two key things made it hard. First, you turned 75% of your inventory in one day (Black Friday) and you had to replenish it overnight to be ready for the next day. Second, the whole staff was seasonal, so you had to hire and train more than 40 people in less than a month, only to let them go a little more than a month later. My Home Depot adventure began in October 1999. Initially a manager-in-training candidate, I spent my first two years learning the company culture and our store environment in the garden and hardware departments. As college graduation neared, I chose to pursue a career at the Store Support Center. I went on to spend six years in finance supporting the Home Services Division of Home Depot. In 2006, consumers had access to large credit limits and home improvement loans. These financing vehicles allowed them to complete large “do-it-for-me projects.” Home Depot began expanding its services offerings into many new product lines, and I left the finance group to focus on Outdoor Living Installation Services. There, I led an initiative to convert parking lot space into an Outdoor Living vignette with sheds, decks, pavers, outdoor kitchens and water features. In addition to setting up the space and creating a selling center, I convinced the leadership team to invest in an associate to staff the area and generate sales. Just like building a small business, but with access to investment, I had to convince the leadership team to give me a little startup capital. Besides selling the internal Home Depot team, I also needed to get vendors to participate. Vendors were on board with supplying product, but I had to figure out the labor side to create the selling space. So, I led by example and laid pavers for the first three selling centers. But, just as the program was ramping up, the bottom fell out of the market and people’s access to credit dried up. Due to reduced demand, Home Depot exited the Outdoor Living Installation Services business. At about the same time, Wells Fargo mortgage consultants started sending people into our stores to get support for a 203K Renovation Loan product. Although Home Depot Home Services offered more than 25 unique programs through our stores, none were designed to be a flexible general contracting program. Recognizing an emerging market segment, Home Depot invested in a small team to put together a network of contractors that could focus on completing a full range of repairs. We started with a list of our best Pro customers. Within four months, we went from a pilot program to a nationwide 203K Renovation Loan rollout. Alongside our growing 203K Renovation Program, a foreclosure crisis was emerging across the country. As the crisis deepened, Wells Fargo began accumulating more and more of their own properties, many of them in severely distressed conditions. Properties that weren’t repaired would not sell, so a huge backlog of distressed assets formed. Premiere Asset Services (PAS), a division of Wells Fargo that maintains and manages assets for Wells Fargo and other clients, was introduced to Home Depot, and we became a direct repair vendor. As economic conditions continued to decline, foreclosures plagued the country. We expanded our business by taking on additional clients, which allowed us to build out our team and expand our service provider network. As a recession-combating line of business for the Home Depot, we became a landing place for associates who would have been displaced from other lines of business. In addition, we were able to provide opportunities for our best Pro customers and keep them working. By creating value for our clients and stabilizing neighborhoods, we helped create future Home Depot customers. We made it our team goal to create more business for Home Depot and its customers, so we could save more Home Depot employees who would otherwise be displaced. Another key initiative for The Home Depot is supporting our veterans. The capabilities we developed during the foreclosure crisis provided a unique opportunity to partner with several banks and military donation funds to provide housing for wounded veterans and their families. To date, Home Depot has rehabbed more than 600 military donation homes and has pledged to donate $500 million to veterans by 2025. Although I didn’t serve, both my uncles served in the Army and my father served in the National Guard. As we grew our Renovation Services Team, I looked for folks with military experience to support us in leadership roles.  As the market continued to evolve, investors

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COVID-19 Forbearance Plans and Residential Defaults

What will happen when the plans end, and what opportunities does the situation provide for investors? Not wanting to repeat the number of foreclosures during the previous financial crisis, both federal and state governments placed moratoriums on residential foreclosures across the country. To keep borrowers in their homes, foreclosures were stopped and new forbearance plans were created. How the Plans Work Under the Federal Cares Act, a borrower wanting a forbearance plan can contact their mortgage servicer affirming a financial hardship, and the servicer must put the borrower in a forbearance plan. This relief is available to any borrower who has a federally backed mortgage, regardless of delinquency status. No documentation is required to prove the financial hardship beyond the borrower asserting they are suffering from a financial hardship. The original term of the forbearance is usually 3-6 months and can be extended up to 12 months. The forbearance agreement allows borrowers experiencing a temporary hardship to make a reduced mortgage payment or no mortgage payment at all during the plan’s term. During the forbearance period, the mortgage servicer will not place the borrower in foreclosure and will not collect any late payment penalties. The borrower must pay back missed payments after the forbearance period ends. Mortgage servicers then will evaluate borrowers for repayment options, if qualified, or the loans will be referred to foreclosure. Impact on Foreclosures Once the Covid-19 forbearance plans began in mid-March, borrowers called their mortgage servicers in record numbers to reduce or eliminate their monthly mortgage payments. In March, this caused the national delinquency rate to double to the largest single monthly increase ever recorded. Approximately 3.6 million homeowners were past due on their mortgages (including those already in foreclosure), which is the highest number since January 2015. As of the end of May, approximately 4.2 million homeowners had entered a COVID-19 forbearance plan. About 26,000 loans entered forbearance plans per day, with the daily number decreasing in May and June. It is expected by the end of June or early July, the number will increase to over 5 million borrowers in Covid-19 forbearance plans. In addition to the forbearance plans, the moratorium on foreclosures was extended through June 30, 2020. Once the foreclosures restart, what will happen? Delinquency and foreclosure rates were at a generational low in February 2020 as the U.S. unemployment rate matched a 50-year low. Due to COVID-19, the foreclosure rate will significantly increase, most likely not to the level of 2008-2014, but to a level consistent with the unemployment rate of borrowers. The results will be highly dependent on the number of borrowers who are able to return to the workplace at approximately the same wage, allowing them to enter a repayment option or to take advantage of any additional government intervention assisting homeowners that may be offered. In CoreLogic’s Loan Performance Insights report released in May 2020, Dr. Frank Nothaft, the chief economist for CoreLogic said, “The pandemic-induced closure of nonessential businesses caused the April unemployment rate to spike to its highest level in 80 years and will lead to a rise in delinquency and foreclosure. By the second half of 2021, we estimate a fourfold increase in the serious delinquency rate, barring additional policy efforts to assist borrowers in financial distress.” In that same CoreLogic report, Frank Martell, president and CEO of CoreLogic, said: “After a long period of decline, we are likely to see steady waves of delinquencies throughout the rest of 2020 and into 2021. The pandemic and its impact on national employment is unfolding on a scale and at a speed never before experienced and without historical precedent. The next six months will provide important clues on whether public and private sector countermeasures—current and future—will soften the blow and help us avoid the protracted, widespread foreclosures and delinquencies experienced in the Great Recession.” Foreclosure may be inevitable for borrowers who remain in forbearance plans for 12 months and remain unemployed. Loans that were already over 31 days past due at the time of the COVID-19 forbearance plans may not be able to take advantage of the same repayment options as those who were current before COVID-19, causing more foreclosures. The economic restart of the country that allows the borrowers to enter the workforce will be the determining factor. Investor Opportunity With defaults increasing and the potential for foreclosures to increase at the termination of the forbearance plans, a significant increase of foreclosures is expected by March 2021—a year after the first borrowers were placed in forbearance. Borrowers will be looking for viable options for the sale of their homes to keep them out of foreclosure. This will lead to investors having many opportunities to buy residential properties directly from the borrowers. If investors are unable to buy directly from borrowers, another avenue for the purchase of the distressed properties is through the foreclosure sale process. Both judicial and nonjudicial states allow investors to purchase at the foreclosure sales. Each state and county may have their own process for purchasing properties. Check with the specific state or county in which the property is located for their processes. Some may hold inperson foreclosure sales; many have moved to online auctions. The websites of the online auction vendors provide very good information; for example, some include the step-by-step process for bidding at a foreclosure sale. The websites list the properties set for auction along with the date and time of the auction. Companies with online auctions include Auction.com, Foreclosure Action Servicer-Altisource, Hudson & Marshall, Xome, Hubzu and Williams & Williams. With the forbearance plans ending in the first quarter of 2021, there will be a dramatic increase in defaulted loans moving to foreclosure. Investors interested in residential properties will be able to add to their portfolio by being ready with helpful solutions for distressed homeowners and by having the cash liquidity to purchase properties at foreclosure sales.

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MFS Creates Opportunities in the Midst of COVID-19 Pandemic

National distributor pivots quickly to stave off financial impact of coronavirus shutdowns. I’ve always been a very optimistic person. Optimistic people are also risk takers. We just see opportunities where others see issues. Upset customer? Let’s prove ourselves beyond belief. Slow moving product? Try a new market and see what we discover. There’s not much that will slow me down. I have to say, COVID-19 almost did. A national health pandemic was not something I’d ever considered, let alone prepared for. There isn’t a single business leader out there who entered this pandemic truly confident or left unscathed. I credit both my team and our prior experiences launching new products in new markets for how we’ve been able to weather the COVID storm and create opportunities where others saw issues. Restarting in ‘Startup Mode’ At MFS Supply, we were facing a 30% decline in sales in March. I knew I needed to make moves to survive as a company and save jobs. MFS Supply is a national distributor of renovation and preservation supplies. We work with contractors, investors and property managers in both the single-family and multifamily space. Because we provide appliances, cabinetry and other construction materials deemed essential, MFS Supply was able to stay open and operating during stay-at-home orders. But just because we were open, that didn’t mean our customers were. Real estate agents were pretty much shut down; HUD postponed foreclosures, leaving our preservation contractors in a lurch; new construction projects couldn’t find workers even if they were still operating; and multifamily renovation projects had to be deferred indefinitely. This pushed us into what I call “startup mode”—MFS Supply had to trim down, run lean and pivot into new areas that could support our company during this time. Our approach for survival boils down to three steps. First, we had to accept reality. I had a beautiful and ambitious budget for 2020 to hit—and I had to accept that it wasn’t going to happen. If I clung to what we had planned for, we would fail. Second, I needed to redefine winning for MFS Supply. We weren’t going to hit that budget, so what were we going to work toward instead? And finally, I had to execute the plan. I knew it would take speed and discipline to align the business to our new goals and game plan. Accepting Reality: A Pivot MFS Supply had run a “Jan San” unit years ago that provided custodial supplies to businesses and cleaning crews across the nation. We had always stocked masks, gloves and disinfectants although they were never a hot product for us. We sold out of everything we had by the end of March. As an essential business with employees returning to work each day, we knew firsthand how important it was to get these products into our offices and warehouses as soon as possible. So, we pivoted to personal protective equipment (PPE) and cleaning supplies—and we did it fast. Our purchasing team started searching for new vendors, any vendors that were selling PPE domestically or overseas. This was the most difficult part. Our existing vendor network was sold out of PPE almost immediately. We had to start from scratch. This new market for PPE was fast-paced and harsh. If we didn’t commit to 10,000 Lysol wipes in 15 minutes, we lost the deal. It was definitely a risk for the business. Big deposits were due upfront. We were working with new vendors who charged hefty prices that would lead to high costs to our customers. We had to jump in with both feet, win or lose, to take on this opportunity. We jumped in. Our marketing team whipped up emails, e-commerce messaging and flyers on these new products as fast as possible and rolled them to the sales team. Our sales team hit the phones armed with the basics, and we told to run with it. We transformed our fulfillment department in the warehouse to support this new program. We built out our shipping tables to include mini-bins for picking and packing to improve speed and efficiency. We quickly pushed lean practices into fulfillment, including new practices to reset inventory levels quickly and correctly. Keep in mind, we did all this with minimized staff and many employees working from home. We also had the additional challenge of implementing COVID safety practices into both fulfillment and a warehouse. Building out six-foot distances, hand-washing stations, limiting contact between employees, wearing masks and gloves—all while launching this new initiative. Here’s my optimism again: A silver lining to COVID-19 is we proved as a company that we can launch a new product program and get it out the door in record time. We definitely made mistakes—we were moving too fast not to. For example, we thought we could get products out faster and more efficiently by stocking some PPE products in our New Jersey location and others in our Ohio location. Split the load. That quickly proved to be a logistical nightmare. We had to short ship orders; New Jersey had limited staffing, so their products took longer to get out; back orders piled up. But we learned, and it strengthened our program. It also put all hands on deck. I was back in fulfillment packing boxes on Saturdays and approving orders on Sundays. From my directors to support staff, we had employees from all departments getting trained on our fulfillment process so we could keep up with our customers. Battle Scars We still have our scars from COVID-19. This PPE program wasn’t a cure-all, but it certainly helped us triage. It saved jobs, and even created new ones. The risk paid off for us, and we’re doubling down for the future. We’re continuing to build this program out to make it permanent at MFS Supply. States are opening up, and employees are returning to work. All businesses need masks, shields, wipes and more to keep their employees and customers safe. We’ve begun working with municipalities, schools and local businesses—all

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Regional Spotlight: Denver, Colorado

A strong summer could balance the Mile High City’s soft spring. It surprised no one that Denver, Colorado’s, housing market took a hit in spring 2020. After all, no market has been unaffected by the economic downturn the coronavirus pandemic brought on. However, real-estate-related behavioral trends that emerged at the end of April when some “stay-at-home” restrictions were lifted in Colorado indicate a strong summer for residential real estate could help balance out this year’s difficult spring. The Denver market’s combination of attractive qualities and resilient employers will, in conjunction with state and municipal policies regarding economic reopening, determine the future of this real estate market. “The metro’s highly skilled workforce and business-friendly environment have prompted many company relocations and expansions,” wrote Yardi Matrix associate editor Anca Gagiuc in the company’s spring 2020 report on the Denver area. She warned that although rents were up by 0.3% to more than $1,500 at the end of the first quarter of 2020, rental demand would likely record a dip and rent growth would “flatten” in the coming months. “The shock of falling oil prices and the novel coronavirus pandemic have put intense pressure on Denver, especially on its energy industry. Although tech firms brought an influx of high-paying jobs in 2019…some one-third of Denver’s employment opportunities are in at-risk sectors,” Gagiuc said. At first glance, that outlook sounds bleak. For real estate investors, however, this dip could represent a relatively short-lived opportunity to engage in a highly competitive market with two-thirds of its employment sector considered relatively less “at risk” from the unknowns associated with COVID-19. “This market is still extremely strong,” said Stephanie Walter, a local real estate investor, founder of Erbe Investment Group and a syndicator who owns and manages both single- and multifamily residential properties and projects in the area. “The suburbs around Denver are still holding firm, thanks to huge population growth over the past decade,” she said. “For example, Fort Collins, Colorado, which is about an hour north of Denver, has tripled in population in the past 40 years and is still expected to double again by 2050.” One of Walter’s properties “leased up” in mid-April of this year for $500 monthly rent more than the year prior, with built-in rent increases of $400 annually for the next two years. “That was in the very middle of dealing with COVID-19, and they still felt like the terms were to their advantage,” she said. Marco Santarelli, founder and CEO of Norada Real Estate Investments, agreed. “Of greatest importance to real estate investors in Denver is that growing population,” he said. “Jobs are increasing, and so are the number of renters. In just one year, the population of the metro area rose by 1.33% to about 2.7 million people. Greater Denver is home to about 3.5 million. The question, of course, is whether it will remain a sizzling real estate market amid the ongoing crisis in the nation.” On the residential front, it appears likely the market will rebound quickly. Even in April 2020, median home prices rose year-over-year. Because inventory has been such an issue in this market for years, the shift in supply and demand is actually creating “the opportunity to balance out,” as Matthew Leprino, a representative for the Colorado Association of Realtors (CAR), described it. Leprino noted that unlike some other states, Colorado classified construction as an essential business, which will likely help the real estate market recover from coronavirus-related softening. Changing Residential Preferences and Municipal Policies One of the most important things to watch in the Denver market is how buyer and renter preferences are changing in response to shelter-in-place mandates and business shutdowns. Responses fall into two distinct categories: (1) a change in the desire for space in the home and (2) a shift in how employers view municipal and state shutdown policies. Before March 2020, American homeowner and renter preferences had been trending smaller and sleeker, with more focus on community gathering areas and public amenities over large areas of personal space. In 2017 alone, the number of “compact townhouses” rose 13%. More than a third of homeowners were consistently expressing the desire for a smaller home rather than a large one in Trulia’s annual research surveys on homebuyer and renter preferences. In the wake of COVID-19, those preferences have shifted dramatically. Kelly Moye, another CAR representative, reported her buyers have different priorities today. “We have actually, for the last couple of years, spent a lot of time talking about downsizing—reducing your carbon footprint, getting smaller, leaner, more efficient. Whereas in the last couple of weeks, I’ve noticed people actually wanting more space,” she said. Although Moye emphasized more studies are needed to establish the emergence of a new trend, she said her buyers are expressing desires to live closer to family, have ample room to work in the home and have more space in general. Interestingly, fewer buyers are as concerned with school districts and moving before school starts, Leprino said. “Back-to-school isn’t really what it was before, so folks aren’t as worried about getting into the school district of their choice because there might not be a school to attend,” he told local news channel CBS4. The other factor that will affect the Colorado market in the coming months will be how the state implemented initial shutdown orders and how the state legislature and municipal government handled the “reopening” of the economy. Central to that is the classification of which businesses were essential and what types of services were permitted with social distancing. Denver has benefited from decades of population growth in large part because the city itself and the greater metro area is extremely attractive to employers. An effectively reopened and safe business environment is crucial to retaining existing businesses and attracting new ones. According to the 2019 CBRE Tech-30 Report, Denver is the country’s 10th largest tech market and ranks eighth in the nation for tech talent. The area is rife with tech companies looking to scale.

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Staying Ahead of the Game—No Matter the Odds

HomeVestors investors back local investments with national resources. Between 2010 and 2012, Wall Street poured billions of dollars into real estate. In the wake of the housing crash and the Great Recession, institutional firms bought more than 200,000 homes. People reacted as if the concept of single-family homes as an asset was something revolutionary, but a Texas-based real estate investing firm and franchisor had been engaged in the practice for more than 15 years by that point. HomeVestors of America, with their nationally recognized We Buy Ugly Houses billboards, was far, far ahead of the game. “You could probably say the HomeVestors franchise network was the first to popularize the single-family residential investment industry,” said CEO David Hicks. “We were buying ugly houses long before they were known as an asset class.” While most people will recognize the HomeVestors “mascot” UG Lee, the caveman who was featured prominently in much of the company’s advertising to distressed homeowners, few realize the We Buy Ugly Houses company is a national company made up of local, independently owned and operated franchises supported by some of the most powerful (and proprietary) marketing and data machines available to real estate investors. “Our franchises have the support, technology, training and experience of a nationwide company, but they live, work and invest in their local communities. Institutional investors, Wall Street, simply cannot compete at that level,” said Hicks. “Our franchisees live in the communities in which they invest. They know the real estate community. They have local contractors they know and trust. Best of all, they have an entire team of other local franchises supporting them strategically and logistically throughout their entire rehab or wholesale process.” Building a National Company One House at a Time Ken D’Angelo founded HomeVestors in 1996. D’Angelo, a Realtor at the time, was inspired during a listing appointment when the homeowner told him in desperation, “You don’t understand. I need to sell my house today.” D’Angelo bought the house, fixed it up and sold it. After repeating this same “home seller in distress” service many times, he founded the HomeVestors of America franchise. By 2009, the company had 165 franchises. Today, it has more than six times that number. “We remain the #1 homebuyer in America to this day,” Hicks said. “We have purchased more than 100,000 homes, which is why we say we have been leading the industry since the day we began.” One of the company’s foundational principles is its commitment to help sellers out of what HomeVestors describes as “ugly situations.” Typically, this means helping a seller who needs to sell fast, whether due to mortgage delinquency, a divorce or any of the other “usual suspects” that may lead a seller to place a premium value on a high-speed purchase. Sometimes an ugly situation is more broad-based. In those cases, Hicks explained, the company honors its commitment to keep buying and shoring up the foundations of communities in the process. “HomeVestors is the only national company that has continuously bought since 1996,” he said. “Even the iBuyers ceased buying during the recent COVID-19 crisis, but we have a commitment to help home sellers no matter what.” The HomeVestors infrastructure is designed to foster growth in difficult situations that might drive individual investors and solo operations under. For example, since the Great Recession, HomeVestors franchises have grown from 165 to more than 1,100 in 170 markets around the country. Hicks credited the intense teamwork of local franchises with each other and the national corporation for this growth. “Our people are very entrepreneurial and want to own their own businesses, but they are also very community-oriented. They want the support and training we provide, and they want to provide that same support and insight to others when possible. We place a premium on the camaraderie among our franchises because that is what enables us to generate such qualified leads for those investors and helps them make the best use of them,” Hicks said. “A big part of our system is the training that we do, which is all conducted by successful franchisees who are eager to train other HomeVestors franchises on what they are doing and how they have adapted to difficult situations.” A Premium on Community The HomeVestors mentorship model involves bringing new franchisees “into the fold” by providing them with a powerful source of qualified leads and personal guidanceon how to utilize those leads effectively. John Holman, one of the leaders of this part of the franchise program, described his role as a development agent (DA): “The whole idea behind this mentorship is that new franchisees need support both from the national company, which provides the power behind the leads for deals, and from local franchisees in their own market who have more in-field experience. Our role as DAs is to help a franchise candidate learn what they need to know in order to make a decision about getting into the system and, if they buy a franchise, to serve in a support role for that new franchisee.” This model enabled HomeVestors franchisees to weather Hurricane Harvey in Houston, Texas, for example, and enabled franchisees around the country to do the same when other weather-related disasters hit their markets. The same type of sharing and support is occurring among franchisees as the nation struggles with COVID-19 and physical distancing. “We immediately leapt into action when it became clear virtual showings and even virtual inspections were going to be the new trend,” Holman said. “We had a guy who already does virtual trainings for us put together a process on all the aspects of doing a virtual deal over the phone and how to help people get comfortable with it. We had franchisees constantly letting us know what their challenges were and how they were resolving them. We also leveraged our connections with seven hard money lenders to make sure our investors have the financial wherewithal to buy when the deals are good ones.” Hicks noted that although individual

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Multifamily Investments in the Age of the Coronavirus

Despite our current tumultuous economy, opportunities in certain sectors of real estate are still promising. Recession-resilient real estate, including multifamily housing, is a proven asset to any portfolio. Historically, you can see evidence of the strengths in multifamily housing by looking at recent market crashes, including the 2008-2009 Great Recession. As more people lost their homes during that time, the need for apartment rentals dramatically increased. Consumer confidence is another indicator that points to resilience in multifamily housing. A recent Gallup Poll indicates that only 50% of Americans think now is a good time to buy a home. That is an all-time low reading. As fewer Americans feel comfortable buying a home, an increase in the need for multifamily housing increases because shelter is still a basic human need. Due to increased demand, rental prices often increase during both recessions and bull markets. For example, at the height of the most recent bull market in 2019, the average U.S. multifamily rent increased by $2, bringing the total average to $1,472. Cities like Austin, Texas, topped the charts. During recessions, unlike single-family housing, the need for apartment homes typically continues to rise. Relocation Considerations Specifically, in cities like Austin, the need for multifamily properties is driven by corporate relocations. Central Texas will soon be home to a new Apple Mac Pro manufacturing headquarters. The city already hosts existing companies such as Dell, General Motors and YETI. On top of that, there’s a certain lure for other companies to come to Texas. Investors saw that in May 2020, when Tesla announced it was considering moving from California to Texas. This type of volatility increases demand for flexible housing that doesn’t require a long-term commitment. With millions of Americans laid off, or fearing a layoff, the need for short-term housing that allows relocation options is high. Laid-off Americans are expected to be on the move, as they rebuild lives changed by the pandemic. Changing Needs in Unprecedented Times Today’s circumstances call for unprecedented considerations. Stay-safe-at-home orders is driving the need for nicer rental properties. Residents are looking for a nice space to work from home and want a better place to spend their time during the shutdown. Rather than spending disposable income on entertainment, more people may be considering spending extra funds on a nicer place to live, to enjoy amenities and new comforts. Many lifestyles have changed dramatically within just a few months. To gain a competitive advantage, locations and amenities of properties are key. Companies with specific strategies will gain an upper hand and see the most resilience. For example, sparkling renovations at discounted prices in desirable parts of town often drive demand. You can save thousands of dollars without cutting corners by building a strong and loyal relationship with vendors. Quartz countertops, soft-close cabinets and other smart home features are lower-cost amenities and upgrades that can attract an abundance of renters. Producing amenities to ensure the health and safety of residents is another factor to consider in post-pandemic developments. For example, future projects will likely focus on health-specific details such as antimicrobial copper buttons on elevators. The buttons will prevent the spread of viruses because viruses cannot live on copper. Along with that, there is the opportunity to include new filters and UV lighting that would be disruptive to virus growth. Tax Benefits of Multifamily Investing Strategic tax write-offs offer another incentive to invest in multifamily real estate during a down economy. A few of these include maintenance and management costs, insurance premiums, marketing costs and other business expenses, utilities and repairs. One major tax benefit specific to multifamily real estate is the depreciation tax break. Even though the value of a carefully chosen property should only increase within time, the IRS operates on the assumption that properties will depreciate due to the aging process. The IRS deduction covers all properties (structure only, not land) in the U.S. and is based on aging buildings, in order to smooth out eventual capital expenditures needed to maintain buildings. This special tax code is only for real estate owned for income-producing purposes and does not apply to your place of residence. Many financial experts refer to depreciation as a “phantom” expense, because you are not actually writing a check. Instead, the IRS is allowing you to take an annual deduction, whether you are spending any money on the building or not. Also, even though the IRS says the building is depreciating, that’s usually not the case. There is a good chance your property’s value is continuing to increase. No other investment type can provide this unique combination of benefits. Lower Risk Factors If housing prices fall during a recession, multifamily real estate will allow investors to still earn income. In fact, because there are multiple units paying multiple rent, the risk is smaller. Even if some renters vacate or pay late, you are still generating income because it’s not an all-or-nothing proposition. There are ways to handle leasing issues with residents that can result in fewer losses. During the height of the pandemic, some properties saw a record in new leases and very few late rental payments. Property managers attribute this to strategic and transparent communication styles with residents, along with the ability to quickly pivot marketing plans to a changing environment. Overall, in part because of the unique economic challenges and uncertainties surrounding the COVID-19 pandemic, 2020 is the year to consider multifamily real estate investment options. Historically, rates of performance for multifamily real estate are quite strong. For U.S. apartments, the average 10-year rate of return has been a very respectable 6.08%, with 20-year averages even stronger at 9.27%. There’s no reason to believe that will change long-term. There is always a risk with everything in life, but times like these present an opportunity to be bold and to take advantage of opportunities with the potential to increase your revenue for years to come.

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