COVID-19 has caused big changes to the economy in a very short time span. It’s likely that many small businesses won’t survive this pandemic. Some have already folded. Even larger organizations are feeling the impact of this situation. Millions of people have been laid off or furloughed. Airlines are seeking bailouts from governments. There are record unemployment filings. What might all of this economic change mean for the real estate market going forward?
Experts say it’s unlikely that real estate will be a cause of any coming recession. This is not the 2008 crisis where irresponsible lending was a major factor. The truth is that markets expand and contract in a cyclical fashion. Right now, the economy has seen over ten years of steady growth. That’s right, the US has enjoyed over 120 months of steady economic improvement in the wake of the 2008 recession. That kind of growth just can’t continue forever, pandemic or no pandemic. Whether it arrives in 2020 or 2021, a recession seems more or less inevitable.
One market where people are skittish about investing right now is in rental properties. Investing in multifamily real estate has long been a reliable way for savvy investors to generate mostly-passive income. However, right now investors feel the market is inflated. One consequence of ten straight years of growth is that real estate has been a seller’s market. Purchasing a multifamily residence is generally a good idea. But not if the building and land might lose value rapidly in the next 24 months.
The good news is that a recession can be a great time to buy, and one is definitely on the way now. A recession is the perfect time to exercise the classic buy low and sell high strategy. It’s also a good time for people who are looking to hold on to a property for the long term. During economic downturns, buyers can generally secure better terms for their financing agreements. It’s also likely that vacancy rates in multifamily buildings will be low and that tenants will be stable. It’s important to be frugal and prudent in managing these properties, though. Bad management can ruin an investor, whatever the macroeconomic situation is in the wider world.