STRATEGY
SINGLE FAMILY
The Good and the Bad for Single- Family Rentals Post-Pandemic
WHAT FINANCING FEARS AND OTHER STRESSORS MEAN FOR THE SFR MARKET
by Bruce McNeilage
P
rior to the COVID-19 crisis, the economy was cruising along on
unemployment spiked from just over four percent to nearly 15 percent. The possible negative effect this might have on real estate values has caused banks and other lenders to run scared. Given the historic nature of this crisis combined with the many unknowns about the virus, lender trepidation is understandable. The biggest short-term impact on real estate investors is the reduction in loans on a percentage basis (LTV or LTC). Pre-pandemic, investors could finance acquisitions at the 80 percent LTV/LTC. Similar deals today are being quoted at 70 percent LTV/ LTC. What does this mean in real numbers? A borrower wants to buy a du- plex for $200,000. Several months
ago this property could have been purchased with just $40,000 down. In today’s new lending environment it will take $60,000 to buy the same duplex. That’s a 50 percent increase
all cylinders. It was a good time to invest in Single Family Rental (SFR) homes as interest rates were low, homes were holding their value, and the cost of entry was relatively low. Of course, COVID-19 turned the world upside down almost overnight. How has that impacted the SFR world for real estate investors? So far, it’s a mixed bag. First the down- side: The initial stock market dive, combined with a sharp rise in unem- ployment claims has spooked many lenders. On March 4, 2020, the Dow Jones Industrial Average was over $27,000. By March 23, it cratered at $18,591. States went on lockdown, business activity plummeted, and
“The biggest short-term impact on real estate investors is the reduction in loans on a percentage basis.”
64 | think realty magazine :: july 2020
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