Unlike other property markets like retail and hospitality, which have been devastated by COVID-19, the multifamily housing market is resilient and has not experienced a drop in demand. The market demand is likely to remain unaffected because people will always need places to live no matter what is happening around us. In fact, with lockdowns, remote working, and business closures, people are using their homes more than ever.
Although the demand is unchanged, there have been changes in how we do things. And these changes are likely to remain post-COVID.
At Trion, we are experiencing continued success in the acquisition, improvement, and operations of multifamily assets. Our rent collections are above the national average, consistently exceeding 90 percent. Despite the current health and economic crisis, we continue to deliver outsized returns for our investors because of adaptations we have made to our proven techniques.
Related: How to Build A Recession-Proof Real Estate Portfolio
We don’t believe that you prepare for a crisis on the first day of the crisis. Wisdom dictates the employment of sound business practices beforehand, so when crises inevitably happen, we can weather the storms.
We believe in diligent resident screening. We look for potential residents who have high-credit scores and stable income sources–even if this means a unit is left vacant for a little longer.
We buy in healthy, growing markets. We prefer regions where incomes are reliant on more than one industry, like Beaverton, where there is a world-class local economy with employers such as Nike, Intel and Salesforce .
Finally, something we believe we should all be doing in preparation for inevitable downturns is to operate with a low debt load. Going into an economic crisis with low leverage and interest-only payments gives you significant financial cushioning for operating shortfalls. In this position, you could even drop rents without a severe impact on cash flow. We prefer our portfolio to be leveraged in the mid to high 60% range.
Some of the ways our business has been affected by COVID-19, including changes we have made:
Impact on Operations
Immediately in March, we moved to do virtual tours instead of in-person home tours for prospective tenants. We put Matterport onto our websites, and people could view vacant properties in their own time.
Later in the pandemic we added self-guided tours where prospective residents could access units through a lockbox or Bluetooth lock to view a unit in person. We had the flexibility to do this because of pre-crisis preparations.
Impact on Acquisitions
We began to underwrite much more conservatively, assuming a much higher collection loss in the next two years, so we underwrote negative rent growth in year one and positive rent growth starting in year two through the remainder of the hold period.
We continued to do deals for acquisitions, placing five deals under contract in the first few months of the pandemic. Compared to the previous year, we had been just as aggressive in our acquisitions, even gaining some deals with COVID discounts.
We didn’t feel the need to change our target markets. We were already buying in growing and supply-constrained markets, so we haven’t had to change our focus much, as we’ve been exclusively focused on these areas of first-rate suburbs and primary markets for the last ten years.
Over the next year, we will grow into new markets, but this strategy isn’t strictly COVID-related. We’re following migration patterns in certain parts of the country. We are positioning ourselves to capture some of that growth.
We are of the opinion that COVID has accelerated the out-migration from the upper Midwest and Northeast with movement into the Sunbelt. We’re anticipating massive growth there in the next few years.
Related: Pros and Cons of Investing in Multi-Family Properties
Impact on Renovations
We’re continuing to renovate at a high level, as opposed to scaling back. We offer properties that are fully renovated and of high design quality. There are fewer renters in the marketplace because people are not moving as much at the moment, but we want to beat our competition through higher functionality and sleek design.
Why Prospective Investors Should Care
Trion has built its reputation on successfully investing during downturns because they have anticipated the market’s needs and prepared beforehand. As seen with the current crisis, Trion is doing just as well as it did pre-COVID. We’re steadily ahead of the competition in multifamily units and continuing to push forward.
If we have any advice for others at this time, it would be:
Ensure that your sponsors are not over-leveraging the assets.
If you’re considering a sponsor, discuss with them how they screen prospective tenants. i.e., minimum credit scores and how prospects qualified regarding income (checking for fraud, etc.).
Understand that you are not just investing in an asset, but in a sponsor as well.
Based on some of the changes we have made and what we see in the industry, here are five ways the coronavirus will reshape the housing market:
1. Virtual Tours
As earlier said, we immediately stopped doing in-person home tours when the pandemic hit. And we think that this will be a trend in the industry from now on. Doing virtual tours not only protects everyone from potential exposure to the virus; they also save time and are just as effective as in-person tours.
With Matterport, we provide 3-D tours of homes and give prospective tenants an immersive experience that is more complete and real than other virtual methods.
2. Increased Technology Involvement
Along with virtual tours, many other technology trends in real estate were already in the pipeline, but COVID-19 has accelerated their implementation. One of those trends is self-leasing. The purpose is to rent a property as easily and simply as you could book a hotel room for your next vacation.
This tech makes it possible to avoid going into a leasing office at all. Everything can be handled without personal contact, from the virtual tour, a self-tour, ID checks, and eventually, transacting the lease online.
3. Accommodating Remote Workers
Remote working will continue post-COVID as employers realize so much of their work can be completed at home. When you are marketing homes, you should keep in mind that many people are looking for homes that can also accommodate their work. Consider your amenities and floor plans through the eyes of people looking for home offices, work stations, or copying facilities.
Related: The Ultimate Guide to Multifamily Real Estate Investing
4. Update Common Areas
This is the time to update the common areas of your property. Post-COVID, people will live differently. Some of the habits, such as additional hygiene, may remain. On-site personnel should keep hand sanitizer in the leasing office and in all of the common spaces, especially the fitness center.
5. Community Events
Community Events will return soon but residents will be most comfortable outdoors. We will start planning community events to take place this summer when a substantial amount of people will be vaccinated and the weather permits outdoor networking.
The effects of this health crisis are likely to remain. We have found that even now, there are opportunities for investment and growth in multifamily real estate. With sound business practices and plenty of preparation, it’s possible to sustain a competitive edge while being safe and efficient.
To learn more about real estate investing and changes to the current housing market, contact Trion Properties today.