Multifamily Real Estate Investment Outlook Still Positive During Covid-19

Updated on July 15, 2020

Multifamily real estate investment is still an excellent investment vehicle, even during the pandemic. Investors who are looking for cash flow and passive income are continually turning to multifamily properties as an avenue to consider in their portfolios.

Now that we are all adjusting and adapting to the Covid-19 landscape, we’re receiving questions about how it will affect our investments. We can look at market responses during previous market cycles to help us obtain insights into what shifts we can anticipate. Today we’ll focus on the multifamily space.

Covid-19 has kickstarted the downturn. In general, homeownership rates tend to decrease during a recession. This is caused by more strict lending criteria and less available income to afford mortgage payments. With every single-family home that is not purchased, there is another rental unit in a multifamily housing community that is likely filled, helping to keep vacancy rates lower. Unemployment rates are considerably high across the country which will further spike the demand for affordable rental properties.

Millennials have been known for their preference to rent vs. own, and while they are getting older and beginning to shift towards homeownership, the Gen Z demographic is coming of age to be renters. While Gen Z prefers homeownership more than their millennial counterparts; at 90.55 million in their generation population, there are roughly 20% more of them than Millenials. A majority of them rent before owning which will cause more demand for rentals in the coming years.

Covid-19 has slowed the production of new inventory in the US. 2020 was slated to be a year of record growth in the asset class. This slowdown will push demand higher for the existing units until production is able to resume at it’s projected pace.

This is not to say that existing multifamily investment properties have had an easy ride during the pandemic. Across all real estate markets management companies have had to shift their operations to accommodate new standards for Covid-19 and changes in renter behavior. The bottom line is experiencing distress as property management handles bad debt, offers concessions, and reduces rent price as needed in the short term. The Federal Housing Finance Agency (FHFA) has provided protections for renters and landlords during this uncertain time. The government-sponsored enterprises (GSE’s) are allowing up to 6 months of forbearance for qualified properties with a GSE-backed multifamily mortgage. During the time of forbearance, landlords must suspend evictions for tenants unable to pay rent.

Based on a recent report from MRI software, real estate investors can find solace in that even during the height of the pandemic, the rental income payment rate was only down 2% from the previous year. There was a 4% increase in renewals and a 3% increase in 12-month leases. We also saw a 12% increase in electronic payments. A trend that will likely continue and assist in streamlining operations.

While the global market has been shaken by Covid-19, there will come a time when we are saying “remember when” about this pandemic. Real estate investors can rest assured knowing that people will always need a place to live and multifamily investing in well kept and affordable workforce housing does not seem to be going out of vogue anytime in the foreseeable future.

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