Multifamily Real Estate Investing:3 Trends to Watch For in 2021

The real estate market is always changing.

As investors, it’s important to recognize and understand the trends shaping the market.

Here are three trends to watch for in 2021:

1. Coronavirus Recovery

I’m sick and tired of talking about the coronavirus. But coronavirus recovery is important.

The coronavirus was a black swan event. It affected a lot of people and a lot of businesses. I know a lot of people who suffered some pretty serious financial consequences as a result of the virus and all the shutdowns.

As real estate investors in general and multi-family investors in particular, it’s crucial that we understand how our customer, the tenant, is being impacted by the economic recovery, coronavirus, and all the implications corona has had.

When we’re looking at underwriting deals, are we taking into account rent collection? How much rent is actually being collected? Are we collecting 100% of the total rent? Or are we only collecting 75 or 80%? Each building is going to be different.

When looking at our current portfolio, how much rent are we currently collecting? Are we going to have a rainy day fund in case corona 2.0 arrives and our rent collection drops down to 50%? Do we have those contingencies in place?

When looking at 2021 and the trends that will affect multi-family real estate investing (and real estate investing in general) the coronavirus economic recovery should be top of mind. Hopefully, we’re at that point now in mid-January. Because it’s going to play a very important role in how the economy recovers and how we get back into a normal way of life.

2. Migration

We can call this “intra-migration.” We have to take a look at how the population is moving.

In the United States, we have the two coasts. A lot of people are leaving those for the sunnier markets in the southeastern states. You have better job opportunities and lower taxes.

On the coast, you tend to have higher taxes. A lot of businesses are being forced out of those markets simply through government policies that are being put in place.

How does this affect us as multi-family real estate investors? Well, employment and GDP growth are key market drivers when we examine new real estate markets. If the GDP growth isn’t there, then the jobs aren’t there. And if the jobs aren’t there, people won’t move to the market, because they need employment. And if there’s no employment there, then there’s no rent growth because we don’t have an increasing population moving there and competing for the rental units. And if we don’t have competition and growing rents, then we don’t have growing property values, and this becomes a big problem.

So on the real estate investing side, we’re looking for those markets. They are experiencing that growth — positive GDP growth. They have growing job opportunities. People are moving there. They want to move there, build families, and start careers in those markets. So in terms of trends for 2021, we really have to pay attention to the migration between the states.

In Canada, we have to pay attention to the exact same thing. Where are people moving to? In Toronto for example, we have a lot of people moving to the suburbs for affordability. How is that playing out when it comes to multi-family real estate? Where are the growth markets and what opportunities do you see in those markets? How can you take advantage of them with properties? How are you positioning properties to a changing demographic?

Maybe 20 years ago, the population was made up of whatever it is. But as the demographics change, as migration happens, that population is shifting. So how are you changing how you’re renovating your units? How are you appealing to that changing demographic? How is your marketing changing? All these things have to be taken into consideration.

Migration, or “intra-migration,” is going to play a major role in real estate over the next 20 years. There is so much change happening right now and I think we’re just getting started. So I think we will be talking about migration patterns for the next 20 years.

3. Rent Control

Maybe we can cue some evil-sounding thunder and lightning in the background — some ominous sound effects for that. Rent control is an issue that we have to watch out for.

I personally believe in the free market. I don’t believe the government should be telling property owners what they can and cannot do with their property, especially when it comes to earning a return on the capital they’re risking in the market. If you can’t risk capital in a market and earn a return on that money, that money will find a place somewhere else. And then we will have housing shortages. (I’m starting to go on a rant about rent control.)

Look at California that recently implemented rent control. We’ve got some other states looking at rent control. On the Canadian side of the border, rent control is a hot topic. In Ontario, the entire province is a rent control province. And it’s pretty tight there.

If you are acquiring property in a given market and that market is considering implementing rent control, you have to ask yourself, how will rents be affected? How will your business plan be affected? How will property values be affected? If you’re already holding property and you’re in year three and rent control comes in, what’s going to happen to your business plan? You have to take these things into consideration.

The call for rent control seems to be getting stronger and stronger. So as real estate investors, we really have to keep our awareness up and really understand what’s going on in the markets we’re investing in so we don’t get caught unaware. Rent control really limits what we can do.

The Bottom Line

These are the three main trends that I feel will be very important in 2021:

1. Coronavirus recovery. I hate talking about coronavirus, but it is our new reality.
2. Migration. Where are businesses moving? Where are people moving for jobs? Where are they moving to for tax incentives? This is going to be huge over the next 20 years.
3. Rent control. It’s popping up even though I totally disagree with it. I think we have to be really aware and work this into our business plan if we are looking at markets where there is strong talk and a strong push for rent control.

What do you think will be the trends to watch for in 2021 when it comes to multi-family real estate? Did I leave one off the list? Do you disagree? Maybe we can do a top ten list because three’s not very much. So put those down in the comments. I’d love to hear what your take is.