Multifamily 2020 Review and 2021 Outlook (3 minute read)

Does Anyone Else Think the Stock Market is a bit Unstable Right Now?

What the hell is going on with the stock market? Is there a stock market bubble? Maybe, maybe not, but I don’t care! Why? Because I’ve diversified my investments and have spread my risk into apartment investments. Apartments have been amazingly stable during the pandemic. 

Here's another set of questions for you: Did you make money in the stock market over the last year? What’s your plan to deal with all the taxes you’ll be paying when you start taking those dividends? I won’t be paying any capital gains on my apartment investment returns! As in investor in apartment complexes I’m able to offset my capital gains by leveraging depreciation.

Right now you may be saying to yourself "OK, I get it. Yes diversify, but where to diversify and how to find someone that can help me get into the right real estate investments?"

Read on to see if apartment investing can help you…

What have I been up to?

In 2020 I spent a lot of time focusing on my physical health. I had back pain, shoulder pain, leg pain, and sciatica. I made a commitment to exercise 3 days a week. Nothing more than just moving. I stuck with that commitment and it’s evolved into some great exercise and great health benefits. I have no more pain and I lost 20 pounds. I didn’t plan to lose 20 pounds and I didn’t plan to have all my aches and pains go away I just knew that I needed to start moving. I got sick a couple of times and missed exercise days but I didn’t give up and now I get to reap the rewards even better than I was hoping for.

My new focus for 2021 is on my financial health by moving from a passive investor in apartments to being a deal sponsor. It’s an exciting decision which begins with baby steps, but I know that just like exercising, it's not easy but the rewards will be worth it, not only for me but for my investors as well.

What have I been doing to prepare for my transition to being a deal sponsor?

• -Studying apartment investing
• -Researching markets
• -Practicing underwriting
• -Reviewing case studies
• -Meeting with my coach and creating an action plan
• -Setting clear goals
• -Oh and by the way, my first investment made in 2018 will be going full cycle (selling) in Feb of this year

But enough about me.  Let's get to the good stuff!

2020 Recap and 2021 (and beyond) Outlook

2020 Recap

• -Multifamily remained the most stable among commercial real estate
• -Multifamily collections and occupancy remained very stable throughout 2020 despite eviction moratoriums 
• -Prices went up for properties – meaning they are more in demand
• -Added 364,449 new construction units – A 20 year peak!
  
• -Lost 9,879,900 jobs down 6.5 % Y-O-Y
• -Occupancy dropped 60 bps to 95.2%
• -Rent collections averaged 94.9% vs 96% in 2019
• -Rents contracted 1.0%
• -Average price per unit $180,887 up 6.7%
• -Average cap rate reduced 20bps to 5.2%

• Even with low cap rates, interest rates are at an all-time low.  This image shows that the current spread continues to make apartment loans very favorable.
• 
  

2021 forecast (and beyond)

• -3,695,100 new jobs up 2.6% (and 2.9% in 2022) – Expected full recovery!
• -Job growth strongest in white collar (A class)
• -Occupancy down 40bps due to new supply
• -Rents up 1% in 2021 and 4.1% in 2022
• -Construction planned to be up 14.5%

Lots of economic growth expected over the next two years with construction slowing down in 2022. This will lead to increased demand in apartment complexes and a larger volume of renters.

How and Where to Invest To Maximize Your Returns

Recipe for double digit returns

• -1st investment should be in your education! 
• -Define investment criteria
• -Find a stabilized property where value can be added
• -Leverage other people’s; Experience, Time, Money
• -Purchase complexes larger than 60 units (for economies of scale)
• -C and B class properties
• -Learn to pivot and be dynamic

What makes a good market?

• -Landlord and business friendly
• -Above average cap rates
• -Above average population growth
• -Above average affordability gap

Where are the jobs going?

2020-2025 Employment Growth Projections

Considerable job growth is still on the horizon.  Notice the top 3 location and their alignment with the good investment market criteria

Where are the people going?

2020-2015 Population Growth Projections

Once again notice the alignment with good investment market criteria.  

Top 2021 markets for apartment investing

• -Atlanta
• -Texas – DFW/Austin/Houston
• -Tampa/Jacksonville corridor
• -Phoenix
• -Columbus
• -Denver/Colorado Springs
• -North Carolina Primary and Secondary
• -Nashville/Knoxville
• -Indianapolis
• -Salt Lake City/Boise
• -Des Moines Omaha

You don't have to take my word for it!

Here’s a link to a recent webinar hosted by my mentor Brad Sumrok. Watch Recording 

He covers a 2020 recap of the apartment sector and the 2021 forecast in great detail (about 90 minutes).  

If you have questions or would like to learn more feel free to drop me a note and I’ll do what I can to help.  Here's to an awesome 2021!

Stephen Lee-Thomas

• 
  
• 
  
•