Mar 17, 2020
How will Coronavirus Impact Multifamily?
With the Coronavirus making such an impact on the lives of many Americans, the economy is taking a plunge. Many investors are trying to determine the best path forward and what to do with their money. Should they pull it out of the stock market? Should they buy more?
And what about the reaction to the coronavirus? Are we overreacting with the social distancing? Maybe. However, it’s better to look back in 6 months and wonder if we overreacted than look back and wonder why we didn’t take it more seriously.
With that stated, we know the Fed is taking things seriously as they have cut rates multiple times and it is now close to 0%. Some people are misinterpreting this as interest rates have dropped to 0%, but this is not true. The Fed rate is more about what banks charge each other. The thinking behind the rate cut is to proactively get ahead of the economic impact. It’s critical that business owners and investors spend money to stimulate the economy and the Fed believes that the move is necessary to try to reduce the economic impact which many believe will last for months, if not longer.
Multifamily Investing Right Now
As a multifamily investor, you may be asking yourself what you should do. With rates so low and the economic uncertainty being short term (6-18 months), buying properties with long-term debt presents an attractive option. I spoke with an experienced operator who is looking to place 10-15 year debt as long as it qualifies for a supplemental loan. A supplemental loan would allow the current borrower or a new buyer to place additional debt on the property. This is ideal for anyone with a value-add strategy as it allows them to capture the created equity or entice a new buyer with an assumable low rate while still offering the ability to leverage a total of 70-80% of the deal.
Current owners and investors need to prepare for higher economic vacancies with many workers impacted by social distancing. With fewer workers working, some residents will be late on rent or completely miss payments altogether. Others will lose their jobs. There are resources available to help the impacted residents file for unemployment and begin collecting benefits immediately. It’s wise to proactively communicate with tenants so they understand their options to maintain a sense of normalcy for them and reduce move-outs and turnovers for investors. It is being advised that late fees be temporarily waived. It’s worth noting that some jurisdictions have suspended civil cases, including evictions which makes it even more important to work with tenants to help them with information.
The Best Investment Right Now
Now is a great time to invest in your own education. This doesn’t mean going back for a graduate degree and going deeper into debt. Invest in your own learning through podcasts, books, and networking. Once you have clarity on your goals and specific obstacles to overcome, consider paid mastermind groups and coaching. Networking is the #1 way to grow as an investor and it’s imperative to build a powerful network of peers, collaborators, and mentors that can help you excel. This is particularly true with multifamily investing.
Two industry vets that I follow are J Scott and Jeremy Roll. They have great insights on the economy and you should be sure to check them out on Facebook and LinkedIn.
As a marketer, it’s a good time to be proactive with your messaging as there may be less competition for attention, but don’t be a fear-monger. And definitely don’t try to hoard and resell essentials like toilet paper and sanitizer wipes.
There are a lot of people pushing fear right now (or simply sharing their own fears) and while we know it’s an effective tactic, there is an opportunity for clever marketers to bring levity to the current environment. Use this as a time to demonstrate your leadership, develop your marketing channels and provide direction to others.
What We’re Doing
We are still moving forward with our investment strategy, seeking cash-flowing assets with value-add potential. We like markets with solid fundamentals that will withstand temporary setbacks in the market. In addition, we are increasing expectations for economic vacancy in the short term and ensuring that we stress test deals.
The Midwest Real Estate Networking Summit is scheduled as planned for May 16 and 17. Early-bird tickets have been extended through April 15. We are closely monitoring the situation and will provide updates as new information becomes available. Tickets are refundable up to 7 days before the event and in the event of a cancellation, all ticket sales will be refunded.
We have launched our Capital Impact Club to provide a blueprint for multifamily and marketing. The program includes one on one coaching, templates, and frameworks to help you thrive as a multifamily marketer. More than ever, it’s a great time to invest in yourself and get positioned for the opportunities that lie ahead.
The coronavirus has impacted the global economy and the actual impact on multifamily is not certain today, but there are actions we can take to position ourselves to navigate these times. Whatever you decide on the investing front, be smart and safe, using logic and information, not panic to drive your decisions.