Savvy investors see opportunity despite real estate market and rent volatility

Savvy investors see opportunity despite real estate market and rent volatility
by Brad Cartier, posted in Investment Strategy

May rent data is in, and it follows April that showed that small landlords remain optimistic about the value of their real estate assets despite emerging challenges related to COVID-19. Coverage to-date continues to focus primarily on larger multifamily operators, leaving smaller landlords—who hold about 50% of real estate investment assets—as a big question mark.

Stessa allows investors to organize, manage, and report on real estate investments. With tens of thousands of investors on our platform, we decided to reach out to them to better understand the current crisis.

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We analyzed survey responses from just under 500 real estate investors (64% of which manage or own 5 properties or less) to better understand the effect the COVID-19 pandemic was having on their businesses. This data was collected between May 5-12th, 2020.

In May, small landlords continue to remain optimistic about the value of their real estate assets despite COVID-19, and even plan to seek out opportunities amidst market volatility. Here’s how rental property owners are taking action now and how they feel about their investment plans going forward.

Real estate investors continue to be optimistic

Our data points to continued optimism among smaller real estate investors about this asset class as well as their portfolios despite the ongoing pandemic. Read on for the most important insights from our May survey.

  • Investment pace: 54% of respondents plan to continue investing at the same pace despite COVID-19. Further, 25% of respondents plan to actually invest more aggressively in opportunities that emerge as a result of the pandemic. Therefore, we found that 79% of investors are keeping the same investing strategy or increasing despite pandemic.
  • CapEx: 65% of respondents plan to continue with planned CapEx into the coming months, with only 11% holding off on CapEx as a result of COVID-19.
  • Investment choice: 71% of respondents said that real estate is their number one investment choice, followed by the stock market. 20% of respondents said the stock market is currently their first investment choice.
  • Government subsidies: 44% of respondents stated that it is unlikely they will take advantage of any government subsidies or programs.

When asked specifically how COVID-19 was affecting their businesses, here is what some investors had to say:

“I have not experienced any change because of COVID but I anticipate I will not be increasing rent as planned this year.”

“No impact yet for me as my portfolio is small and the 2 tenants have steady jobs currently. I exited from a 3rd condo purchase in mid-March and lost $750 upfront costs.”

“Tenants impacted (laid off) and are paying but have notified me that if they can’t find work they will need to be moving.”

“I have found qualified renters for my open units but I have been getting way less inquiries. So far my rents have all been paid 100% in full and on time, and my 100% occupancy record is intact. But, I’m listing apartments a minimum of 60 days out so I have enough time to find qualified renters.”

Although April data was positive overall, we are seeing a slight uptick in that optimism as we move into May, and jurisdictions across North America look to slowly ease pandemic restrictions.

May Rent + Continued Challenges

Despite the optimism, 48% of respondents noted experiencing tenants who have been unable to pay rent in some fashion in May—deferments, rent reductions, or missed payments. This shows us that despite rent disruptions, real estate investors remain optimistic about their real estate businesses overall.

Payment plans and rent deferments were found to be the most common types of help to tenants offered by landlords in May 2020, with 27% and 25% respectively offering this over last 8 weeks.

Impact of COVID-19 on investments and strategy

Small landlords were clear in their survey responses: COVID-19 is having an impact on their businesses. Here’s a closer look at how the pandemic is impacting smaller landlords:

  • Minimal impact: 23% of respondents stated COVID-19 is having no impact on their businesses, with a full 43% acknowledging an impact but labeling it minimal.
  • Significant impact: 14% of respondents stated COVID-19 is having a significant impact on their investing business.
  • Portfolio value: 84% of respondents only expected up to a 10% drop in value of their investment portfolio as a result of the pandemic, with 20% of those expecting a 0% decline.
  • Recovery: Almost 50% of respondents expected the economy to take more than a year to recover from this pandemic.

Investment plans: 41% stated “I hope to capitalize on new deals as a result” of the pandemic, whereas 33% stated “I will be more conservative with deals moving forward.”