The Azucena Take: Everything a Multifamily Investor Needs to Consider in 2021

It’s the second half of 2021 and a lot has changed since January. The pandemic is coming to an end as most of the population becomes vaccinated while governments lift many of the economic restrictions. Meanwhile, the third stimulus has set the foundation for a post-pandemic boom that we are already witnessing. 

However, it hasn’t been all good news as supply has been unable to keep up with demand (thus resulting in a minor uptick in inflation). Plus, investors are also worried about the proposed changes to the tax code. 

So, what should multifamily investors know heading into the second half of 2021? Here are the major points to consider: 

The Economic Boom: This will not be a repeat of the 2008 crash, a new era of prosperity is here. Governments have been lifting the restrictions on business and public gatherings as more people get vaccinated. Combine that with the fact a lot of us have been in quarantine for a year and you have a demand to enjoy life.

Here are some key points to know:

• Core retail sales jumped by 38% in March and continued to grow in April and May.

• Confidence in the economic recovery has been strong among both business owners and consumers.

• Pent-up demand and an increase in savings will fuel the economic growth of 2021.

• Hiring has recovered 2/3rds of the jobs lost during the pandemic.

• It’s expected that employment levels will hit the pre-pandemic numbers by mid-2022 at the latest.

Behavioral Changes: The pandemic has had a major impact on how society behaves. The concept of work from home has been fully embraced, but many would like to come to the office at least once a week. Employers have either made working from home permanent or are working to find a balance. 

The popularity of work from home has also resulted in a massive migration from major metropolitans to third-tier markets. Vacancy rates in major cities jumped during the pandemic while demand for homes and suburban apartments began to rise. This was a slowly growing trend, it was accelerated by the pandemic. 

Proposed Tax Reform: The most important thing to understand about the proposed changes to the tax code is that they are only being proposed (President Biden can't just change the tax code by decree). For those in the investment real estate market, any increase to the capital gains tax rate, setting a $500K cap on 1031 exchanges and eliminating the step-up basis.

If an investor is looking to sell before anything is changed, they should look at their options and plan a strategy that will allow them to gain the most without placing themselves in a compromising position. One should first speak to a professional (like the Azucena Group of Marcus & Millichap) to see what the options are.

Trends in Supply and Demand: The housing market is currently a “sellers’ market” due to high demand and low supply (brought on by disruptions to numerous supply chains). This has resulted in a demand for apartments and self-storage units, thus presenting a lucrative opportunity for owners of existing properties. This has especially been true in smaller cities and third-tier markets that have seen a boom in migration.

Investors should be aware that this is going to be temporary and they should look to grow their portfolios.

Understanding these facts will set a foundation for what to expect in 2021. Be aware that the markets could change in the next few months, so it's best to speak to numerous professionals and have a strategy ready.