If the pandemic of 2020 has highlighted anything, it’s how quickly everything can change. The world as we know has shifted dramatically in just a few weeks. Life will get back to “normal,” but it will never be quite the same. And at the same time, the pandemic has exposed the fragility of many investment routes. So where should your money be going as you consider pandemic investing?
Single-Family Income Properties: Stability in the Storm
Real estate investment has always been one of the most stable places to put your money, and during a time of pandemic investing, this is as true as ever. There are some good reasons to invest in residential rental properties right now and especially single-family homes:
Other Real Estate Markets Are in Decline
For retail, commercial, and office real estate, the coronavirus is simply accelerating a process that has been underway for a while.
Work From Home: Office Rental Market Shrinkage
There's obviously a growing trend of companies that have employees work from home. In the last month, though, every business in American has had to consider how to accommodate at least some of their people working remotely. By the time social distancing and quarantine orders are lifted, many companies will have invested quite a bit of time, money, and thought into developing sophisticated practices for staying productive with everyone working online.
At the same time, they’ll have gotten a taste for how much money they can save when they don’t need to pay sky-high overhead to accommodate so many people in one office. Without so many people together, they also don’t have to pay for a company break room, snacks and drinks, on-premises liability insurance, or even hold sexual harassment training and seminars as they once did. We can expect a lot of companies to run with this change and use it to streamline costs, meaning the market for office space is likely to shrink.
Retail: The Self-Imposed Recession
For retail locations like shops, restaurants, and even movie theaters, the bottom dropped out so quickly you could be forgiven for missing it if you didn’t look fast enough. There simply is no box office anymore, and many movie releases are being delayed. In other cases, studios are considering online releases. Meanwhile, nearly every restaurant has had to switch to delivery or take-out only.
Even farmers and fishermen are trying to sell directly to the public while adhering to social distancing rules instead of using the retail distribution centers they once did. Will things ever go back to “normal?” Certainly, but that new normal might look quite different from what we took for granted only two months ago. This pandemic is an important moment for those who go through it, and something this generation won’t soon forget.
Can restaurants expect that people will quickly flock back to crowded dining facilities? How long will it be before anyone is willing to risk visiting a crowded movie theatre to see a blockbuster weekend release, especially when they’ve gotten used to seeing the newest film releases on their enormous big-screen TV in the comfort of their own home? The retail real estate market is now a victim of a voluntary, self-imposed recession: and things may look quite different on the other side.
Industrial concerns are also facing important changes. The smart companies are recognizing that being so tied to China is a bad thing and that they must diversify if they’re to survive the next pandemic or other global shudder. It’s too early yet to say how this will all work out, but industrial real estate is also going to see dramatic upheaval in the coming months.
The Home Is the Center of the Universe
There is an area of real estate that is still in demand, and that’s the home. The home has always been important. After all, people can tighten their belts in a lot of ways, but they always need a place to live. But for pandemic investing, it’s key to note how the home has become the one point of stability in all the chaos. If anything, the market for single-family homes is about to grow.
We Need the Room
Quarantining is going to change a lot of people’s attitudes towards the size of their domicile. Think about a typical family of four with both parents working. Most of the family is away at work or school for the majority of the day, and even in the evening, there are sports and social obligations that keep at least some family members away. All that has now changed, and every member of the family is stuck at home all day long. Families in this situation are going to be rethinking how they want to live.
Consider the example of two roommates sharing a two-bedroom home. When both were at work and living their own lives in the evening, there was plenty of room. Now, however, they both need a home office—and maybe their bosses have even given them some funds towards building a home office–and both are considering getting their own place. The residential real estate market demand in that small spot has just doubled.
Long-Term Social Distancing
Another issue we can expect to see is a sort of low-level, long-term social distancing. People won’t soon forget the COVID-19 pandemic, and a lot of people in crowded urban environments are going to be re-thinking whether they really want to be living in the heart of a big city when the next pandemic arrives. People who rent in apartment buildings are going to be wondering if they want the risk of all that shared space and be considering single-family properties for rent.
Look to see people migrating from the high-density population areas with cyclical markets, like LA or NYC, to areas with a less dense population where it feels easier to ride out a crisis and be more self-sufficient: linear markets where we’ve already seen some migration in recent years, like Memphis, TN or Jackson, MS.
A New Perspective
Everyone is getting a new perspective on how to live life with the home as the center. This is happening for those with jobs, and while some people will certainly go back to offices after all this is over, many will not. But university students, too, will be thinking differently. The old model of giant universities with enormous overhead and over-priced degrees is likely to crumble as students realize they shouldn’t be paying $50,000 a year to learn from home on their computer.
Government Actions That Boost Single-Family Real Estate Value
Another reason single-family homes will increase in value in the coming months is simple government action. Huge monetary and fiscal stimulus will increase inflationary pressure. This will eat away at debt, such as long-term, fixed-rate mortgages. And if the government reacts to the inevitable recession we face with universal basic income or a national housing program, inflationary pressure will rise even further, along with demand for rental properties.
Pandemic Investing: Invest in Stability During Unstable Times
The single-family income property in linear markets is poised to be the best asset class for investment, both during this health crisis and even after it’s over. Are you prepare to take advantage?