If the subject line sounds random, that’s okay. The last few weeks have been extremely eventful so I will immediately list out what I am going to discuss.
1. The concerns of coronavirus and financial instability
2. Why I am still confident in large multifamily investing
3. Oil prices and Midland, Texas
1. Coronavirus and Market Instability
Many of you are aware that I work at the Centers for Disease Control (CDC) and I invest in the large multifamily space. This puts me in a unique position to see how this crisis has developed. As I write this, the US just closed the border with Canada and they stopped trading stocks for the fourth time in two weeks. There is a lot of bad information being circulated around, so for the most up to date facts please visit: https://www.cdc.gov/coronavirus/2019-ncov/index.html
There is financial instability in the market due to concerns over the effects of the pandemic: businesses are closing, lots of people are not working, schools and other institutions are shutting their doors in the hope to slow the spread. The markets reacted quickly and down nearly 30%.
There are other lagging behavioral factors in play that are not immediately recognizable. As a whole, when people are fearful and not as confident, they are less like to buy a new vehicle, book a vacation (obviously that’s the case now), go out to restaurants, buy new consumer goods, and discretionary spending falls. The list is long and markets react. While I do not give advice for stocks, bonds, municipal funds, CD, and other paper assets…but if you are calling your financial advisor and they are not responding, find a new advisor. Have a plan in place, even if the plan is to stay the course.
2. I am still confident in multifamily investments. Here’s why:
- Over the last 3 recessions(2008, 2001, 1990-1991) multifamily has performed well compared to other asset classes and single-family housing. With minimal default rates, steady occupancy, and rent rate percentages, multifamily (especially in the Class B and C space) has been a secure investment. One large exception is during the dot-com bust in 2001, for example, San Franciso reported large vacancies and rent decline. It’s primarily a one-industry town (more about that later).
- Bank financing is extremely cheap and the US Government does not intend to raise it anytime soon. My personal thought is the rest of 2020 and 2021 will have low-interest rates.
- Depreciation is fantastic right now! Bonus depreciation was increased from 50% to 100% for property placed into service after September 27, 2017, and before January 1, 2023.
Bonus depreciation phases down as follows:
80% for property placed in service before January 1, 2024
60% for property placed in service before January 1, 2025
40% for property placed in service before January 1, 2026
20% for property placed in service before January 1, 2027
- And finally, affordable housing has never gone out of style. As single-family homes increase in cost, more and more people need affordable places to stay.
3. Oil Prices and Midland, Texas
Many of you have heard me speak and I always bring up in regards to selecting a market to invest in, ensure there is job diversity with no industry representing more than 20% of the employment pool. There’s a reason I bring this up. It’s not making the news as much, but you have certainly seen the gas prices are getting cheaper. While cheaper prices are great for consumers, it means people are being laid off in places like Midland, Texas, Oklahoma and North Dakota. I feel horrible for folks in those communities, but I just cannot risk my money or yours investing in apartments in one-industry towns.
Please let me know if you would like to talk anytime!