Multi-Family Real Estate Investing, COVID-19, and Other Considerations - Chicagoland 1031 Exchange

In our previous blog, we covered the phenomenon of how a macro real estate bull market erupted from the COVID-19 pandemic. Now, as we (hopefully) begin to come out the other side, the question becomes: how should an investor approach this environment?

Across the board, real estate prices have been increasing, and multi-family assets are no exception. These higher prices have investors looking at low purchase cap rates. Certainly, these factors need to be considered; however, we also believe they should be put into context with what may be on the horizon for multi-family assets.   

Analyzing Rising Rents as a Trend

In many locations, rents have already begun to increase. Per the Yardi Matrix, a large commercial real estate researcher, multi-family rents in June increased by 6.3% on a year-over-year basis, the largest YoY increase in the history of their data set.* Here’s why it’s reasonable to believe this is the start of a new trend, not a one-off anomaly:

• The rise in June occurred while many parts of the country still had rent controls in place and moratoriums on evictions. These constraints are expected to run their course over the next couple of months, which would allow market conditions to adjust rents higher to stay in line with the pent-up demand. 
• Many regions have seen a rapid increase in housing prices. This rise in cost, along with the current difficulty in acquiring a house (many properties are receiving multiple offers), has pushed many would-be buyers out of the market—turning them into renters in the process. There’s reason to believe that some amount of inflation is in the cards for the foreseeable future. If this is the case, then investments in operating assets such as multi-family that have the ability to drive rents (and hopefully grow NOI) will likely be essential in keeping up with inflating prices. 

Multi-family real estate has long been at the core of our alternative and DST investment strategies. Given the current environment, we think it’s likely there will be ongoing tailwinds for these assets. We also believe that many submarkets may have even higher potential, where home prices are soaring and there is limited new supply. 

Investing in real estate carries unique opportunities and risks. Every investor should evaluate their goals and needs before investing, and we are available to help you. Please reach out—we are happy to talk to you about your situation and our investment opportunities. 

Source: *Yardi Matrix