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“Go West, Young Man”–Horace Greely

My radiology partner often discusses real estate issues with me during our downtime.

In fact it was he who really piqued my interest in real estate in the first place, touting the benefits of depreciation, etc.

My partner has gone mainly with the single family home route for real investing as he and his wife actually enjoy rehabbing projects and managing the tenants.

I knew that direct real estate ownership was not for me as I previously owned 2 condominiums and found the headaches of dealing with issues that would pop up not worth the money I was receiving for my time.

So I ended up choosing investments through real estate syndications that allowed me to partake in positive cashflow and tax advantages without the headache of being the point man in operations of these properties.

My preferred real estate syndications were multifamily apartment complexes, typically located in densely populated cities, most notably in Texas.

This was a tried and true method of building wealth as the apartment complexes I targeted were considered Class B entities catering to the blue-collar workers who worked in these cities.

This assured the investors that there would always be a steady and fairly reliable stream of renters to keep these properties at an occupancy level well above the breakeven point.

Enter COVID-19 onto the scene.

My colleague, who knew my predilection for these multifamily investments, brought to my attention several articles that warned of a possible mass exodus of people from these densely populated locales towards “greener pastures” in the suburbs and other low populated areas.

There were two primary driving forces behind this migration, accelerated by COVID-19:

1. By moving to lower populated areas, person-to-person spread of COVID-19, or any other infectious pathogen, would be greatly diminished.
2. The rise of the stay-at-home worker.
   • Many individuals got a taste of working from home because of widespread stay-at-home orders.
     • Without the hassles of commuting, there may be a trend for workers, and companies for that matter, to have a larger workforce forgo being onsite while still maintaining productivity.
   • No longer bound to being a certain distance from the workplace, workers can explore greater options further away, also benefiting from lower cost of living in these areas.

Is there a cause for alarm for multi-family real estate investors in major cities?

I am sure there are many tenants that have a heightened sense of fear for contracting COVID-19 compared to their suburban counterparts.

The very nature of apartment complexes is bringing a large number of individuals into a relatively confined space.

It is near impossible to engage in proper social distancing in elevators, etc.

But do I believe a mass exodus will occur leaving these properties financially at risk?

I am sure that there will be a small percentage that will leave on these grounds, however I do believe that the majority will indeed choose to stay.

Most of us are creatures of habit.

Just the effort required to move somewhere else should be a large enough hurdle that most will stay put.

I also fully believe that COVID-19 will be just a blip in history when it is all said and done.

Vaccines will no doubt be discovered and COVID-19 will most likely transition from the current pandemic state to the far more benign endemic state.

Granted increased working from home scenarios may negate the need to live in densely populated cities where most businesses are concentrated.

However there are other reasons for living within these cities besides workplace proximity.

There will always be a young urban class of the population that thrives in the cities where they can mingle with other like-minded individuals.

Major cities offer its inhabitants highly-rated restaurants, fine arts and theater, sporting events, and nightlife that just can’t be replicated in the suburbs.

Is there an opportunity this migration can provide for investors?

Even without COVID-19 fueling the migration, there has been talk that most individuals were getting priced out of coastal cities and looked elsewhere to build a life.

Financial Samurai has discussed capitalizing on this trend in his article about investing in the “Heartland” of America.

Whether COVID-19 accelerates this process remains to be seen.

But as the populous continues to grow, there is only so much room available in the densest of locales and it does make sense that the Midwestern states will grow more attractive for those looking to relocate.

For now I am happy to be in the multifamily syndications that I am currently invested in.

It is important, however, to continue to keep a pulse on any migration trends that may gain traction from this pandemic.

 

 

 

 

Note:

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-Xrayvsn