POST-COVID 19 PASSIVE INVESTORS WILL HAVE A CLEAR VIEW OF WHOM THEY SHOULD INVEST WITH
When passively investing, you must vet the opportunity, and most importantly, vet the person's track record with whom you are placing your hard-earned money. Consider this a significant silver lining of this whole pandemic. Once the smoke clears and the dust settles, the contenders will have separated themselves from the pretenders, and you will have a clear view with whom you can invest with into the future.
The current climate presents massive obstacles for all asset classes, and investing in multifamily is no different. Multifamily/Apartments have often been referred to as recession-resistant, as people will always need a roof over their heads. Still, when jobs get eliminated in unprecedented numbers, there is a distinct possibility that your tenants will not be able to pay for that roof. Unless, of course, the apartment syndicator/operator can pivot and adjust and prepare for every scenario, including this unthinkable event.
We cannot forget the Fed's role in this. Had they not stepped in quickly, people would not have paid their rent in April. Now, if only "Get My Payment," actually worked.
As it stands, all my apartment investments stand at 90% occupancy or above. Those are high numbers, considering where things currently stand with the economy. The Fed aside, an apartment investment would fail without a shrewd and experienced apartment syndicator and their well-appointed team – most notably, the apartment manager. The ill-prepared syndicator would not have the proper cash reserves to weather this storm. Maybe they would continue to try to spend on the building, and continue to attempt to raise rents upon renewal. Perhaps they would have been under contract on a building and failed to renegotiate the terms in this suddenly buyer-friendly environment. Would they continue to cut distribution checks and pay themselves asset management fees, ignoring the fact that they currently need to guard against economic vacancy (your tenants are occupying your building, but they aren't paying)?
Now is not the time to be greedy with your tenants; it is not business as usual. It is time to offer incentives for renewing a 1-yr lease – maybe the renewal fee is waived, even perhaps a discount on rent is provided for a long-term renewal with your best tenants. You could get crafty and hold a raffle for half-off a month's rent. When the pandemic hit, it was time to educate them on how to file for unemployment, take the necessary steps to receive their stimulus check, and how to correctly socially distance on the property grounds. Daily, property-wide cleaning guidelines executed and followed. The fitness area needed to shut down, and only one to two people at a time in the laundry facility-strict distancing protocol enforced.
How did your operator, and multifamily real estate in general, perform during the last recession? Well, now you don't have to look back to 2008. Now you have your recession 2.0 to track. Investing $50k or $100k into an investment takes serious precaution. When you are vetting your sponsor/apartment syndicator, now you will have a fresh perspective on how they handled adversity, and how they were able to succeed in a challenging climate. Congratulations, you will now be able to sleep well at night, knowing that your money is with a team that passed the most serious of tests. Your view is clear.