Logan is the Co-Founder of Landlord Studio, the only complete property management and accounting solution for real estate investors.
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The past year threw a number of curveballs at the real estate industry, and as property owners and managers side-stepped these, more subtle but nonetheless integral changes were underway beneath the surface. Despite the relative stability and even strength of the real estate market over the last year, it has not been immune to change.
The pandemic has made everyone rethink even basic things like how to interact with one another. It has also driven the adoption of new technologies and been the catalyst for increasing numbers of people looking to begin investing. Of course, it’s also introduced more working-from-home opportunities, which for many companies is a first.
How do all these changes stack up, and what do they mean for the future of the real estate industry? I explore the data collected from my company’s own software, Landlord Studio, as well as several other sources to analyze these emergent trends and make predictions for what they’re going to mean for the future of the real estate industry.
Changing Renter Demand
It used to be that location was everything. People would overlook the limitations of a small apartment as long as it was where they needed it to be – somewhere close to their favorite shops, bars and restaurants and, most importantly, somewhere close to their work.
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However, the pandemic has shown us all that it’s perfectly possible for employees – in many industries – to work from home. Suddenly, renters who had no option but to pay large rents for city-center locations have the possibility to go further afield, to consider rentals that are larger and more affordable. One survey from April 2020 even showed that nearly one-third of Americans considered moving to a less densely populated area at the time.
These stated intentions showed in the migration from city centers, as reflected in the data. Expensive city center rental locations suffered. Vacancy rates rose dramatically in locations like San Francisco and accordingly asking rent dropped by an average of 26%. On the flip side though, small to mid-sized markets have experienced a sudden boom, with rentals being snapped up in days, and asking rents in smaller cities like Boise – up 13.5% year-over-year – rising quickly.
Homes Selling At Record-Setting Pace
A second trend we’ve seen is a record-setting pace of house sales – with 42% of homes selling in under two weeks in the four-week period ending February 14 of this year. This is driven by a few factors; the first is a supply shortage and an increase in demand as many people were forced to wait during last spring.
On top of this, mortgage interest rates hit historic lows, making now an excellent time to look at purchasing a property. Finally, the factor that might play into the longer-term is the millennial generation increasingly looking for their first home. Many of them are finally reaching a point in their careers where this is actually a valid financial option. Because of these factors, Zillow’s expert economists have predicted up to seven million existing-home sales in 2021, a year-over-year growth of almost 25% and the largest number since 2005.
Changes In Landlord Processes
Probably the greatest mitigating factor of the impact of the pandemic has been technology. With software like Zoom, offices have operated surprisingly efficiently from their various disparate homes. The internet has allowed collaborative work and fast communication all while playing a big role in the maintenance of our sanities.
And while the real estate industry has historically been slow when it comes to adopting new technology, the pandemic has acted almost like a cattle prod – forcing landlords and property managers to search for digital solutions to their new and immediate problems.
The first and most major problem was rent arrears. If we look at data in the March 2021 Real Estate Index Report from my company, you see a clear trend in late and missed rent concurrent with lockdown and government stimulus action.
The impact of Covid-19 can be seen most clearly in the months of April and October, where the report shows missed rent payments increased month on month by 2% and 2.3% respectively. This trend can also be seen toward the end of the year, as on-time rent payments dropped over 4% between December and February 2021.
To tackle this issue, there has been an uptake of new technology such as accounting software, online rent collection tools and solutions for managing online tenant applications like electronic document signers.
A final note on this front is that because of the pandemic, people are looking at fewer properties before they move – as such, many are favoring those listings with more information such as those with detailed floor plans and videos. In fact, preliminary results from two separate studies of MLS data by Matterport showed that listings with 3D tours closed with a 4% to 9% higher sale price and up to 31% faster.
What Can Landlords Do To Better Prepare For The Future?
Planning for the future is especially challenging when there is so much uncertainty. That being said, the basic rules for real estate investors are universal no matter the historical context. When it comes to preparing for an uncertain future then, it makes sense to double down on these basics.
Firstly, vacancy rates are up 2% year-over-year according to the March 2021 Real Estate Index Report Landlord Studio’s data. And while these negative trends may well reverse in the coming months with lockdown restrictions easing, the rollout of the vaccine and the signing into law of the $1.9 trillion American Rescue Plan, now is a good time to really focus on tenant retention.
And finally, improve or employ professional processes and tools to optimally manage your properties. Tracking your income and expenses is vital. With various systems available to help you gain a clear oversight of your business, you have options to explore when you’re ready. A quality system will help you maximize deductions as well as prove cash flow and profitability for refinancing purposes. And, for the day-to-day management of your rentals, it’s time, if you haven’t already, to explore a good rent collection tool and a system for well-managed tenant communications.
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