Protecting Multifamily Investments


by Joe Fairless

I n the midst of this pandemic-in- duced economic recession, a new president was inaugurated and the balance of power in the House of Representatives and the Senate shifted. This provokes an additional degree of uncertainty. Will the new administration autho- rize additional economic stimuli? When will the eviction moratorium end? Will the economy fully recov- er once the country completely reopens? Will former President Trump’s tax cuts remain in place? Will President Biden raise taxes? These questions and many more are top of mind for multifamily inves- tors. What can you do to protect your investments? Ultimately, your decisions as to when and how to invest should not be based on who is president, who controls the House or Senate, or which part of the market cycle we are in. Investors have made money investing in multifamily under both a Democrat- and a Republican-led gov- ernment, as well as during economic expansions and recessions. If you want to set yourself up for success in 2021 and beyond, here are three sim- ple principles you must follow.

1. BUY FOR CASH FLOW There are two major pathways to make money when investing in mul- tifamily real estate: appreciation and cash flow. Market-driven appreciation is when the value of a multifamily investment “naturally” increas- es. This is commonly motivated by compressing capitalization rates or increasing rental rates due to rising demand. For example, according to Apartment List’s National Rent Report, rents were up approximately three percent nationally in 2018 and ~2.1 percent in 2019. As long as you invested in a market that experi- enced rent growth equal to or great- er than the national average, your investment appreciated in value. However, due to the COVID-19 pandemic, national rental rates decreased by 1.2 percent in 2020. In many markets, rental rates fell more than 10 percent, with San Francisco experiencing a 27 percent reduction in rents. Therefore, if you made a multifamily property investment in early 2020 and based your analysis on the assumption that rents would continue to grow “naturally,” your investment has almost certainly decreased in value.


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