We’re in the waning days of 2020, but the events of this year will have a lasting impact on the real estate market, according to a new white paper from Lima One Capital. MPA recently chatted with Robert Neely, director of marketing for Lima One, about which trends real estate investors should watch out for in the coming year.
MPA: The COVID-19 pandemic has kick-started a move to the suburbs. Do you expect that to continue in 2021?
Neely: I think one of the big factors here is, what are companies doing about work from home? If you can work from home, it vastly opens up places where you can live, and clearly your budget’s going to get you more space further out. If that’s important to you, it’s going to be an option. We’re seeing that a lot in Silicon Valley – a lot of tech companies are going remote. It’ll be interesting to see if it takes hold in other cities.
MPA: How does that affect commercial real estate investment?
Neely: I think that it really plays into single-family rentals. Multifamily has held up pretty well, compared to retail and hospitality, but the entire commercial space is something to watch. Quarantine has also revealed to a lot of companies a place where they can trim their expenses long-term, which is their office space.
MPA: Tight inventory and the need for new construction were problems even pre-pandemic. Will they continue in 2021?
Neely: It’s a continuing issue. If anything, quarantine affected the supply chain in ways that make it worse. For investors, there is an opportunity here to accelerate as the market catches up.
The price of lumber is two to three times what it typically is because of interruptions. I have some contacts in the forestry industry, and they got absolutely sidelined for months. If you don’t have any timber coming out of the woods, prices are going to go up. It was already tight; it’s even tighter right now.
MPA: So how does low inventory affect real estate investment?
Neely: If you’re a savvy investor, it’s hard to find properties to flip. It may just make sense to pivot to building. The same thing with rental properties – they may just need to build the houses they’re going to rent out.
MPA: Lima One also warns in its white paper of a possible spike in pandemic-related evictions and foreclosures as moratoriums expire. Could that spell trouble for investors?
Neely: Eviction moratoriums and foreclosure moratoriums are fine, but eventually somebody’s got to get paid. Eventually, for the system to work, it’s got to get caught up. It’s just a question of where the stress point is. Say a blue state says, “No evictions until 2021.” If you’re a landlord that owns two single-family rentals, and one of them stops paying, you’re probably going to end up unable to pay your own loans.
Overall, the rental market is going to be fine, because people need a place to live. It’s really investors who are highly leveraged who are at the most risk.
MPA: So what advice would you give real estate investors heading into next year?
Neely: Overall, the housing market has held up very well. The trends aren’t about super-bad or super-good – they’re really about pivots. Smart investors need to be able to pivot.
For a more in-depth look at real estate trends to follow in 2021, download Lima One’s white paper here.