Multifamily Investment Sales Broker at Marcus & Millichap
P: 630.570.2246
Randolph Taylor

The good news is that the concerns about occupancy and rent collections never materialized. Cash flow in most properties has remained steady, and  rent collections  have remained high — over 90% nationwide. Of course, it depends on where your property is located and whether you’re in a strong market, but across the board, the numbers look promising.

Lesson 1: The sky didn’t fall after all (if you were invested in a strong market).

Even though there’s risk in every investment, no matter what cycle you invest in, I have worked days and nights to make sure that our properties are cash flowing during the pandemic. When I bought those properties, I made sure they were in strong real estate markets in Texas, Georgia, and Florida. A few years ago, returns might have been higher in Class C assets or in very small and remote submarkets, but we bought Class B assets within an hour’s drive from main employment hubs at a premium, and right now these assets are performing well and weathering the storm.

Aside from being very hands-on operators, the market strength plays an important role in determining which property will perform in a downturn. A strong market is one that has population growth. When people continue to move into an area, it causes a strong demand for apartments. You can track the population growth of a specific market simply by Googling the market’s name followed by “population growth.”

Another sign of a solid market is job growth. As we’ve seen reflected in unemployment numbers due to the pandemic, a market with a wide range of jobs can help to manage surges in unemployment. Job growth fosters population growth, as people tend to move where the jobs are located.

Lesson 2: Conserve cash, but don’t become a slumlord.

Conserving cash is a smart move at any time, but it’s especially important when there is uncertainty due to a pandemic. That is not to say you should become a slumlord. You have to continue to maintain your property, or tenants will see the decline and decide to move away. That includes ongoing maintenance, fixing nonworking HVAC systems, and making similar repairs.

Build a cash reserve so that when unexpected repairs are necessary, you won’t find yourself in a cash flow bind. Focus on performing the necessary deferred maintenance work, and don’t stop improving and maintaining your property just to conserve cash. Another way to conserve cash is by reducing expenses. Try to renegotiate contracts with landscapers, painters, and others who provide ongoing services to your property. Any funds saved should be placed in your cash reserve account.

Lesson 3: Not all tenants are financially impacted during a pandemic.

I know it sounds trivial, but it was a great lesson, because you may leave money on the table if you adjust your strategy based on the (false) premise that all tenants are impacted by emergencies like the coronavirus. While Covid-19 hit the economy hard, it was especially hard on the service sector, including restaurant workers and similar service personnel. However, I learned that not many of my tenants were financially impacted by the pandemic, and many tenants kept their jobs and income to continue paying rent.

In fact, I found that I was even able to raise rents during the crisis by changing our rental model to a unique “renovation on demand” concept. Because of the pandemic, many landlords thought that tenants wouldn’t want to pay additional rent for an upgraded apartment and hence halted renovations. We showed prospective tenants a nonrenovated unit and a renovated unit and let them choose: They could rent a nonrenovated unit for, say, $1,000 per month, or pay an additional $200 or $250 per month for a fully renovated unit. Surprisingly, since April, 70% of new tenants chose the renovated units, which helped us get rent increases of 10% to 29% during the pandemic.


While the pandemic has impacted many areas of the economy, the concerns, and fears about occupancy rates falling and tenants not paying their rent never came to pass. Ultimately, if your habit is to buy in a strong market, you are more likely to weather the storm. And while you have to conserve cash, you still have to spend cash responsibly to remain competitive and attract new tenants, while other properties start deteriorating due to the fear of running out of cash. Not every tenant is equally financially impacted during a crisis. Throughout this pandemic, I’ve learned that a little out-of-the-box thinking goes a long way.

Multifamily Investment Sales Broker at Marcus & Millichap
P: 630.570.2246
Randolph Taylor

How To Evaluate A Real Estate Syndicator Using The MAC Framework

Evaluating a direct real estate investment is different than investing in stocks, bonds, and mutual funds. When you invest in direct commercial real estate, you own a fractional percentage of the actual property. You get access to the property’s performance without having to worry about the market’s volatility and lack of predictability. Many investors find that difference alone compelling because they can focus on business evaluation rather than trying to time the market.

However, finding the right business partner is necessary to make direct commercial real estate investing successful. Because you will be allocating capital with a sponsor (syndicator), selecting the right one is vitally important.

Fortunately, there are numerous approaches to how sponsors attract capital, acquire properties, and manage those investments. That variety means that almost any investor can find a good match for their investment goals.

But filtering through the masses to find the right sponsor can be difficult.

In working with thousands of investors throughout the U.S. and internationally and evaluating countless commercial real estate investments every year, I believe there are a handful of key elements to finding the right sponsor.

Keep in mind that textbooks are written about commercial real estate, so a deep dive into the entire subject is beyond the scope of this article. Instead, I’d like to give you a strong sponsor evaluation framework to help you learn more about this industry and empower you on your journey to match your investment goals with the right syndicator.

I call this framework the MAC Profile: market, approach, and capability. It’s basically three primary areas of research. Where do they work? What are they doing now? How have they done in the past?

Within this framework, it’s important to keep in mind that the answers you gather aren’t necessarily right and wrong. Instead, this is a matching process where you’re looking for congruence between your investment goals and risk tolerance and what the syndicator is doing now compared to what they’ve done before.


When it comes to direct real estate investing, new investors tend to focus on properties first. And clearly, properties are important. However, the best property in the worst market isn’t something I want to put my money into, and you shouldn’t either.

Supply and demand fundamentals vary from market to market and factor into rent growth, occupancy, cap rates, and many other metrics. In fact, many lenders tier markets based on their fundamentals. Top-tier markets have healthy population growth, job growth, and diversity of job centers, among other things.

Investments in these higher-quality markets qualify for better interest rates, lower debt-service coverage ratios, and overall better lending terms from the most successful lenders (i.e., debt investors) in the country.

Investing in lower-tier markets has additional risk. Investors willing to take on extra risk should have the potential for higher returns to compensate. Without the potential for a premium, it makes no sense to take on extra risk.

When it comes to evaluating syndicators, it’s important to know what markets they invest in and why. Do those markets comport with your risk tolerance, and does that syndicator have an approach that will work in that market?


Some sponsors offer a buffet of unrelated investments. They have their hands in retail, office, multifamily, industrial, and hospitality, utilizing a mix of strategies in various markets. That might be worth considering if the sponsor is large with deep specialization in each of these asset classes. But, you have to consider how a multi-asset-class approach will impact their results.

Specialization in an already stable asset class has its benefits. Regardless of the direction you take, it’s very important to understand their approach.

Is their primary business new construction, or do they buy existing properties? Are they long-term holders, or do they focus on short-term renovation and disposition? Do they purchase A-grade properties with the expectation of cap rate compression (i.e., future bet), or do they prefer balanced income and equity growth approaches? Do they avoid or embrace things like qualified opportunity zones or tax credits, and why?

Their approach has to be congruent with what you believe is best for you and your portfolio for there to be a good match.


Occasionally sponsors will pursue opportunities outside of their capability. Be cautious of this because you don’t want to be caught paying for their “educational tax.” Never forget that past performance doesn’t guarantee future profits. However, success leaves clues. And repeated success over a long period of time is more than a trend.

You want to invest with successful syndicators that have proven themselves time and time again. The two must go hand in hand. Avoid inexperienced sponsors, those with subpar performances and those with a shotgun approach.

Some of the questions to ask in this category include how many years they’ve been in business? How many investments have gone full cycle? What have their gross and or net returns been? How much equity have they deployed and/or profitably returned over what period of time?

It’s important to understand their performance through every phase of the investment – from acquisitions to operations to disposition.

Along the way, how transparent are they? Do they share property manager report data, or do they just collate that information into a one-liner that leaves the investor mostly in the dark?

MAC Profile

Passive investing with an experienced syndicator that is aligned with your investment goals and risk tolerance can be quite lucrative. Conversely, investing with a sponsor that is not compatible can be painful. And because of the lack of liquidity, you can be connected with an investment and a sponsor for a long time. Think of these relationships as marriages, and choose wisely.

These factors are why it’s so important to evaluate the syndicator long before you ever invest. The MAC profile framework can be a powerful lens to help find the best real estate sponsor for you.

Multifamily Investment Sales Broker at Marcus & Millichap
P: 630.570.2246
Randolph Taylor

Investor Excitement And Rental Demand Are The Perfect Pandemic Pair In Multifamily Real Estate

For many real estate investors, some asset classes feel completely off the table right now. With the pandemic leaving the retail and hospitality industries in seemingly unending uncertainty, real estate investors are left unable to figure out how to accurately value a hotel or storefront. As a result, there’s been a lot of dry powder capital building up, which has to go somewhere, and asset classes like multifamily are reaping the benefits of eager investors looking to spend.

With more lockdowns and the tightening of travel restrictions cropping up across the country, the timeline to recovery for properties in the hospitality and retail industries is looking more uncertain than ever. Many were hopeful for a recovery over the summer as cases declined and open dining and light travel became more available, but with cases spiking, consumers are fearful again, leading to increased investor reluctance in these markets.

Stagnated wages, mass unemployment, and an exodus from cities are causing increasingly more Americans to join the rental market. Many across the country were struggling to make ends meet even before the pandemic, and most people working full time earning minimum wage can’t afford a one-bedroom apartment anywhere in the U.S.  With the need for stable housing and more people pouring into smaller metros, the rental market is one of the few that’s set to boom in 2021. Even those who have kept their jobs and income will be looking to tighten their belts, with rent being a top expense they’ll be looking to cut down.

For real estate investors, this makes affordable multifamily properties highly attractive due to the vast demand in cities outside of New York, Los Angeles, and San Francisco. Larger apartment complexes shouldn’t fare too poorly, but with so many moving out of cities, they will likely be less appealing to renters looking to escape the dense urban core for more space and access to outdoor areas. Many larger skyrises may find themselves with high levels of vacancies, similar to what’s occurred in New York City. Real estate investors in large cities may continue to see diminishing returns due to rent prices crashing in the wake of the exodus of workers and students who propped up the market, though not all hope is lost because the low price tag will still entice some to urban areas regardless.

The benefits don’t end necessarily when the pandemic does either. While the other asset classes should recover eventually, multifamily should build on its success from the pandemic. Following the 2008 market crash, many young people had little choice but to live with their parents, and it’s likely we’ll see that same trend mirrored in the recovery from the pandemic, slowing down the single-family housing market. The lasting effects of the pandemic will be far-reaching, particularly among millennials, likely meaning a longer stay on the rental market than previous generations. Many will be reluctant or completely unable to make large purchases, such as a house, meaning a sustained demand for rental units for years to come.

Despite the hype, real estate investors will need to keep a close eye on the market as demand should increase for affordable apartments. With so many investors eager to jump into multifamily the cost of properties may become inflated, and the pipeline of viable properties may dry up. With multifamily being a prospering real estate asset class, it’s no surprise that real estate investors are lining up to jump in, but being vigilant and patient in looking for the right opportunity at the right price will serve those investors better in the long run. With capital from investors rolling in and demand increasing from investors, affordable multifamily is an asset class real estate investors can’t afford to miss out on.

Multifamily Investment Sales Broker at Marcus & Millichap
P: 630.570.2246
Randolph Taylor

The economic uncertainty brought on by Covid-19 has led many to remain renters as opposed to purchasing a home during the pandemic. Within this new work-from-home trend, multifamily landlords, developers, and designers are reconsidering design elements fit for the remote work lifestyle, but it’s also important to consider how long this trend will last. It’s easy to get hung up on the latest trends in apartment design, but understanding the balance between what renters need now and what they’ll want in the future is key to a successful rental property long term.

The Here And Now

The pandemic has changed nearly everyone’s daily life, and increased living space has quickly risen to the top of the wish list for many people now finding themselves working remotely full-time. Particularly in smaller, noncoastal cities, the market is heating up with renters looking for more affordable, larger spaces since they are no longer tied to big-city metros for work.

Currently, the biggest focuses for renters are overall safety and cleanliness as well as the size of the living space. Instead of overstuffed high rises where tenants need to pack into an elevator and walk through tight hallways to access their apartment, today’s renters are increasingly looking for outdoor walkups where they can safely get into their apartment without having to share common areas with neighbors. When designing your next apartment building, whether that be a ground-up project, new build, or a modern retrofit, a two-, three- or four-story walkup with open hallways may be your best bet, as opposed to the high rise that sits tightly within the urban core.

We’re seeing this migration away from the urban core because workers are no longer tethered to the office. While we will eventually make our way back into the office in some capacity post-pandemic, we can expect many employers to be more generous with their work-from-home policies. Instead of having employees in the office five days a week, maybe they’ll be required to spend three days in the office, which means they’ll need a place to work from at home. Including a dedicated work-from-home space is a great way to catch the eye of renters now, and given that remote work was increasing in popularity even pre-pandemic, a home office will still appeal to renters even five or 10 years from now.

Basic improvements to cleaning and safety features will also still be relevant in the future. For example, while toe-touch door openings are great now for reducing high-contact points like doorknobs, they are also excellent for families carrying armfuls of groceries and the elderly who may have physical restrictions preventing them from opening doors easily. Improving air filtration and sanitization helps renters stay safe during the pandemic but also in future cold and flu seasons, making these design choices better long-term investments in your rental property.

Curb Appeal For All

The basics of a great apartment for renters are simple: You want to make sure it has a practical, functional layout with a comfortable amount of living space. You can find yourself getting hung up on the bells and whistles of a place, but at their core, people are simple and want something they can feel at home and relaxed in. No matter how exciting or abundant the amenities, if today’s modern apartment feels cramped, renters will likely be unwilling to make the trade-off in viable living space.

Design to utilize as much natural light as possible. It is not only a feature that every generation of renters will love, but it can even help improve their mood and mental health. And wouldn’t every renter love to live in a space that makes them feel better? This can be particularly appealing to elderly renters who may not be able to go out as often as they like due to health concerns or physical disabilities.

Additionally, a way to set yourself apart is to think outside the box and outside the apartment. Green space is increasingly becoming a popular feature across generations of renters. With travel and social gatherings limited, renters have been reflecting more on how to get the most out of their at-home spaces, particularly for those in larger cities. Plant sales during the pandemic have risen dramatically, with millennials leading the way. At-home access to green spaces is a huge bonus for renters who are homebound due to Covid-19, as will be a general bonus for renters post-pandemic.

The lesson to take away from this is when designing for the taste of a variety of renters, focusing on the core functions of the rental property will never steer you wrong. Amenities, decor, and color palettes may fall in and out of fashion, but comfortable living space, ample natural light, and safety features will appeal to all renters for generations to come. By keeping these guiding principles in mind, you’ll save money in the long run by avoiding redecorating and renovation costs in the future.


Multifamily Investment Sales Broker at Marcus & Millichap
P: 630.570.2246
Randolph Taylor


One of the major benefits of commercial multifamily investment is that, under IRS rules, property owners and investors are entitled to “depreciate” the value of their asset each year, which reduces the property’s taxable income and the associated tax liability. Consequently, property owners have a strong incentive to maximize the amount of depreciation taken each year, and one of the ways they do this is through a strategy known as cost segregation.

To understand what it is and how it works, it is first necessary to start with the core concept of depreciation itself.

What Is Depreciation?

A multifamily property is a physical asset, which means that its condition degrades over time. Air handling units break, kitchens go out of date and roofs erode. Each of these things (and many others) represents a reduction in the property’s value because there is a cost associated with repairing these items over time. The accounting concept used to address this is called depreciation.

To address the physical deterioration of the property, IRS rules allow multifamily owners to expense a portion of the property’s value each year. This expense appears as a line item on the property’s profit and loss statement and serves to reduce taxable income. As a non-cash expense, depreciation reduces the property’s taxable income but not the cash available for distribution.

For example, assume that Property A has $250,000 in income and $100,000 in expenses, not including any depreciation. The resulting net operating income (NOI) is $150,000. Next, assume that Property B has $250,000 in income and $125,000 in expenses, which includes $25,000 in depreciation. The resulting NOI is $125,000. If we assume a tax rate of 25%, taking depreciation results in a tax savings of $6,250 in one year. Imagine that compounded over a multiyear investment holding period.

How Is Allowable Depreciation Calculated?

The amount of depreciation that can be taken each year is governed by IRS rules, which state that a property owner can depreciate the value of their multifamily asset over 30 years if they elect to fully deduct business interest, or 27.5 years if they elect to abide by limits on interest deductibility. So, if a property is worth $1 million, the owner can take either $33,333 ($1 million/30 years) or $36,363 ($1 million/27.5 years) in depreciation annually.

Again, because depreciation reduces a property’s tax liability, owners are highly incentivized to maximize the amount taken each year. This is where cost segregation comes into play.

What Is Cost Segregation?

To understand how a cost segregation study works, consider the same property with a value of $1 million. When an outside expert performs a study by reviewing the property to determine what can be depreciated and when they can divide the property value into buckets: 

• Personal property (1): $100,000 with a depreciation period of five years, providing $20,000 in depreciation expense annually. 

Personal property (2): $150,000 with a depreciation period of seven years, providing $21,428 in depreciation expense annually.

• Land improvements: $200,000 with a depreciation period of 15 years, providing $13,333 in depreciation expense annually.

Using the cost segregation strategy, the owner can increase their allowable depreciation from roughly $35,000 to $55,000. This results in significant additional tax savings over the multiyear investment period.

It should be noted that the above is an example for educational purposes only. An actual cost segregation study is performed by a third party expert with the required qualifications and expertise in their field.


The bottom line is that depreciation is a powerful tax benefit of multifamily investment, so property owners are incentivized to take as much as the law allows in a given year. One of the ways this is done is by performing a cost segregation study, which is an assessment of a property and a “segmentation” of its components into different buckets that can be depreciated at an accelerated rate. The result is additional allowable depreciation and a maximization of the tax savings annually. We use this strategy in all our investments and encourage our students to do the same.

Source: Leveraging Depreciation As A Multifamily Investment Tax Benefit

Multifamily Investment Sales Broker at Marcus & Millichap
P: 630.570.2246
Randolph Taylor


Cornelius Vanderbilt is often quoted as saying, “Any fool can make a fortune; it takes a man of brains to hold onto it.” His insight — and advice — is something that if followed by him and his heirs would potentially change the outcome of a now-vanished Vanderbilt fortune. It’s possible that the Vanderbilt fortune could have remained alongside that of John D. Rockefeller, whose heirs hold onto an estimated net worth of $11 billion as of 2016.

What was the difference between the Vanderbilts and Rockefellers?

The Vanderbilts squandered their fortune on depleting assets — wealth-diminishing assets with limited life — while Rockefeller parlayed his wealth into productive assets, evidenced by the family trust’s considerable real estate holdings.  

Known for their lavish parties and their free-wheeling spending on everything but productive assets, Vanderbilt’s wealth — estimated at $100 million ($200 billion in today’s dollars) at his death — was gone in 50 years. Vanderbilt had built generational wealth through his business holdings, but he didn’t take the necessary measures to ensure the lasting legacy of that wealth. Rockefeller, on the other hand, put the financial decision-making over his fortune in the hands of trust administrators designed to maintain the family’s wealth — much of it through cash flowing real estate (even owning the World Trade Center and Rockefeller Center at one point).

For more average Americans, the numbers may be different, but the outcomes are similar. Many aging Americans are not prepared for retirement. In a 2019 report from the Insured Retirement Institute, 45% of baby boomers had zero savings, and many planned to work well into their retirement years. Added to that, lack of financial preparation (along with other economic factors) has impacted the next generation, as boomerang kids — adults who move back home with their parents — pose a threat to baby boomers’ retirement.

How to avoid the fate of the Vanderbilts and the millions of Americans ill-prepared for retirement? Parlay more savings into productive assets that build wealth than into wasting assets that deplete resources. You can earn a million dollars a year, but if you spend it on depreciating assets, there’s little or nothing left to invest in assets that produce wealth. This potentially puts you on a path similar to Vanderbilt’s, where even retirement income can be jeopardized alongside generational wealth.

An important crossroad you’ll arrive at and a junction where you will have to make the critical decision is when income is high enough for you to experience a surplus — after financial commitments are met. Deciding what to do with the surplus will set you on a course to improved financial freedom or panic as retirement approaches. 

One avenue for any surplus is the productive asset of real estate. It’s a path many of the Rockefellers of the world have created for themselves to help build and maintain generational wealth. To understand the attraction to this particular asset, here are a few of its multifaceted advantages.


Although cash flowing real estate can be acquired directly, the wealthy outsource day-to-day operations and other managerial duties to third parties. For investors who prefer to invest in real estate through passive vehicles like private real estate funds or real estate private equity, almost all decision-making is left to the managers of these firms — no expert knowledge required.  

Passive real estate investments don’t require a full-time commitment and leave the headaches to someone else. The passive nature of real estate also allows investors to leverage their capital across multiple assets to generate multiple streams of income instead of sinking all of their assets into a single asset.


Because real estate is illiquid, it’s insulated from mob mentality and broader market volatility because it cannot be easily disposed of. Investors in passive investment vehicles typically lock up their capital for long periods of typically at least five years. Illiquidity protects investors from themselves and prevents them from making snap decisions in a fleeting moment of panic they might regret later.

Easily Transferable

Real estate is easily transferable to succeeding generations. The wealthy set up trusts to hold their real estate assets, and upon the death of the grantor, ownership automatically transfers through the trust. Real estate conveyances at death are much less complicated than conveyances of business disagreements that may arise in roles, compensation, contributions, distributions, etc.

Sustainability and Predictability

Real estate is a proven commodity. There may be down years, but in the long term, real estate constantly appreciates and cash flowing real estate generates consistent income. Trends come and go in other industries and sectors, but real estate continues to be consistent.  

Real estate isn’t the only asset capable of creating generational wealth that grows over time, but it is often found in the portfolios of those recognizable names like Rockefeller.

Although real estate values can fluctuate from time to time, over the long haul, real estate has consistently appreciated over time from inflation and its intrinsic value. Investing in the class can help you generate wealth for not only yourself but for future generations.

Multifamily Investment Sales Broker at Marcus & Millichap
P: 630.570.2246
Randolph Taylor


I think we can all agree that 2020 has been a challenging year for a variety of reasons. The most glaring challenge that we’ve all faced and that’s changed the way we live and invest is, of course, the global Covid-19 pandemic. As it pertains to the business of apartment investing, the pandemic has certainly had an effect on the way investors buy and sell apartment buildings. Let’s take a look at how the pandemic has affected apartment investing over the course of 2020, and consider some predictions on how the pandemic will affect the multifamily investment space moving forward in 2021 and beyond.

Early Effects Of Covid-19 On Apartment Investments

As mentioned, 2020 has been a roller coaster ride for many people in many different industries. The multifamily investment and syndication business has been no different. Early in the pandemic, the immediate effects of this crisis showed themselves right away. Multifamily transactions came to an abrupt halt — sellers weren’t selling, and buyers weren’t buying. Furthermore, the golden standard agency lenders — Fannie Mae and Freddie Mac — made drastic and frequent changes to their lending criteria and guidelines.

This of course is understandable because after all, lenders are in the business of making a profit and protecting their own investors. Some of the notable lending changes required borrowers to put up an additional  12-18 months — depending on the deal and the market — of principle and interest debt service payments, taxes, insurance, and replacement reserves. This was a tremendous hurdle for investors to overcome and in some cases meant that the borrower would have to bring an additional $1 million or more in investor equity in order to close on a deal. As you would guess, this was a serious blow to investor yield and overall returns.

What’s the fix? Lower prices of apartments of course! However, sellers didn’t want to reduce their pricing, and therefore, we witnessed a “stalemate” in the markets over the several-month period roughly between March and June 2020. This can be seen partly in the lower monthly sales volume of $4.7 billion in May. Transaction volume came to an abrupt halt while sellers, buyers, and lenders were all looking at each other and waiting to see how the very fluid pandemic situation unraveled.

What Happened Next?

Slowly, lenders began to update and change their lending guidelines to make borrowing more feasible and to increase the transaction velocity on multifamily investments. They did this by loosening up some of their reserve requirements, reducing the number of reserves needed from 12 to 18 months to nine to 12 months of reserves. Some of the lenders even dropped the need for reserved taxes, insurance, and replacement reserves on a given deal and only required nine to 12 months of principle and interest debt service payments.

This was a bit of relief to investors, and it began to open the markets up again. From that point, there was a flood of sellers coming into the market offering their apartments for sale. Much of this was likely due to pent-up sellers waiting on the sidelines for the previous three to four-month period. The demand continues, as shown in a quarter three report from Multi-Housing News. It was at this point that investors began to pay extremely close attention to the income and delinquent rents on apartments being underwritten. Each new month was a collective hold-your-breath moment for operators as everyone waited to see the damage done by the many jobs lost in the economy. However, collections never fell off a cliff, and outside of a handful of cases, the majority of tenants in every market continued to pay their rent.

This may be a byproduct of the CARES act that was introduced by Congress in late March, which provided millions of Americans much needed financial relief. Because income remained relatively healthy across most apartment investments, many in the industry did not see much — if any — downward pressure on the pricing of these assets through the summer and fall.

Apartment Investments In 2021: What’s Ahead?

The whole investing world has been waiting for pricing adjustments as a result of Covid-19. The reality is, it’s just not here yet. I believe that there is more economic damage to come and that many of the effects of the pandemic will have lagging economic indicators. Although the CARES Act was created to help millions of Americans in financially stressful situations who were impacted by the pandemic, it’s also likely the CARES Act has artificially kept apartment real estate pricing inflated. It succeeded in helping those in financial need. However, the federal government cannot continue to provide this kind of federal relief indefinitely. At some point, the lagging indicators and effects of Covid-19 will catch up, and there is reason to believe there will be some kind of pricing correction in the multifamily investment world. That may come as early as the first or second quarter of 2021, or it may take a bit longer. In any case, I feel that there will be some tremendous opportunities to acquire some very high-quality apartment deals in 2021 at discounted rates.

In The Meantime

Investors continue to look at investment opportunities every day as a place for strong yield and equity preservation. Investors should adjust their underwriting and projections to safely navigate any future turbulence by doing such things as holding back on any proposed value-add opportunities during the first year of operations, paying very close attention to apartment delinquency and making sure you are well-capitalized in a given investment. It’s also important to adjust your exit CAP rate assumptions in order to realistically project investor returns based on forecast inflation rates — which will affect U.S. treasury rates and subsequently real estate CAP rates.

Real estate investing is a long-term commitment. I believe real estate is one of the greatest investment vehicles that investors can use to achieve generational wealth and freedom. My company and I are very bullish on the future of multifamily real estate with the caveat that it takes disciplined underwriting and a clear understanding of all the market forces that affect cash-flow and equity appreciation. In the meantime, happy investing.