Real estate investors are really hoping for a better 2021 after a very challenging 2020 as a result of the effects of theCoronavirus pandemic on the economy. Occupancy fell dramatically in many areas of the country, especially urban areas, due to the pandemic-induced job loss. Still, multifamily real estate weathered the pandemic better than most real estate sectors, and a quicker rebound is expected in 2021.
The success of a multifamily real estate investment is mainly dependent on occupancy and rent collection, both of which have been affected by COVID-19. That’s why, when looking at the multifamily real estate predictions for 2021, we are going to focus on how these factors will change. While we have started 2021 with the same issues we had in 2020, they are likely to be less prevalent this year due to a number of reasons including the rollout of the COVID-19 vaccine.
If you are considering investing in multifamily real estate, understanding market trends will be paramount to your success. Here is a glimpse of the top multifamily real estate predictions for 2021:
Related: The Future of Real Estate Investing After the Pandemic
1. Demand for Multifamily Real Estate Will Rise
Although multifamily real estate demand levels in 2021 may not reach the pre-COVID peaks, they are likely to rise significantly due to factors such as:
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Coronavirus Vaccine
The promise of the Coronavirus vaccine is deeply intertwined with the real estate forecast for 2021. As the COVID-19 vaccine distribution reaches much of the US population, and things begin to return to normal, many businesses will be revived, and more people will return to work. Job opportunities will provide people who have lost their jobs and have been living with their parents or friends more financial stability to live on their own. This will drive multifamily real estate demand up.
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New Coronavirus Aid
While it’s still uncertain but very much likely, additional Coronavirus aid from the government would go a long way into alleviating the effects of the pandemic. President Joe Biden is actually pushing for quick action on a new Coronavirus aid package. Moreover, the conclusion of the presidential elections brings a level of stability and reduced uncertainty. As a result, markets will be less volatile.
Related: Will There Be a Real Estate Boom Post COVID-19?
2. Suburban Submarkets Will Lead in Recovery
In the wake of the Coronavirus pandemic, the appeal of urban submarkets declined significantly due to the high rents, the closing of many urban amenities, remote working requirements, the need to maintain social distancing, and other factors. Urban living currently has fewer benefits compared to the pre-pandemic times, and, therefore, the high cost of urban living isn’t justified.
While the decline in urban multifamily real estate demand may not be permanent, urban submarkets will have a slower recovery in the multifamily sector.
On the other hand, more affordable and low-density suburban markets fared quite well in 2020. And according to CBRE, suburban multi-family homes are positioned for a solid performance in 2021 and will outpace urban multifamily properties.
Affordable multifamily real estate (Class B and C) will continue to have low vacancy rates. Class A assets currently have higher turnover as people are seeking less expensive housing to cut costs. They may not recover as fast as the more affordable multifamily homes. Therefore, investors may be best served to look for multifamily homes for sale in smaller cities and suburban centers.
According to Mashvisor’s data, here are some of the best multifamily markets for 2021 based on traditional cash on cash return:
Fort Wayne Real Estate Market
1. Fort Wayne, IN
- Median Property Price: $98,230
- Price per Square Foot: $55
- Price to Rent Ratio: 11
- Monthly Traditional Rental Income: $742
- Traditional Cash on Cash Return: 5.77%
2. Naples, FL
- Median Property Price: $486,644
- Price per Square Foot: NA
- Price to Rent Ratio: 14
- Monthly Traditional Rental Income: $3,005
- Traditional Cash on Cash Return: 5.26%
3. Cleveland, OH
- Median Property Price: $122,838
- Price per Square Foot: $59
- Price to Rent Ratio: 12
- Monthly Traditional Rental Income: $848
- Traditional Cash on Cash Return: 5.18%
4. Aurora, IL
- Median Property Price: $224,575
- Price per Square Foot: $167
- Price to Rent Ratio: 12
- Monthly Traditional Rental Income: $1,615
- Traditional Cash on Cash Return: 5.01%
5. Akron, OH
- Median Property Price: $113,738
- Price per Square Foot: $65
- Price to Rent Ratio: 11
- Monthly Traditional Rental Income: $836
- Traditional Cash on Cash Return: 4.88%
6. Baltimore, MD
- Median Property Price: $320,025
- Price per Square Foot: 165
- Price to Rent Ratio: 167
- Monthly Traditional Rental Income: $1,576
- Traditional Cash on Cash Return: 4.74%
7. Cincinnati, OH
- Median Property Price: $306,968
- Price per Square Foot: $413
- Price to Rent Ratio: 19
- Monthly Traditional Rental Income: $1,341
- Traditional Cash on Cash Return: 4.64%
8. Rochester, NY
- Median Property Price: $130,207
- Price per Square Foot: $59
- Price to Rent Ratio: 11
- Monthly Traditional Rental Income: $1,012
- Traditional Cash on Cash Return: 4.60%
9. Detroit, MI
- Median Property Price: $195,009
- Price per Square Foot: $72
- Price to Rent Ratio: 17
- Monthly Traditional Rental Income: $955
- Traditional Cash on Cash Return: 4.59%
10. Scranton, PA
- Median Property Price: $124,753
- Price per Square Foot: $56
- Price to Rent Ratio: 11
- Monthly Traditional Rental Income: $979
- Traditional Cash on Cash Return: 4.58%
If you are looking to invest in the US housing market 2021, be sure to use Mashvisor’s real estate investment tools to conduct your property search and analysis. These tools include the real estate heatmap (for neighborhood analysis), the property finder (for investment property search), and the multifamily deal analyzer (for investment property analysis). With Mashvisor’s analytics, you will be able to find lucrative Airbnb and traditional properties in a matter of minutes.
Mashvisor’s Multifamily Deal Analyzer
3. Multifamily Construction Will Increase
In light of the pandemic, apartment construction went down even though investor demand for multifamily real estate remained higher than expected. As the COVID-19 pandemic spread, and restrictions were introduced, many contractors struggled to deliver due to dire labor shortage and disruptions in the building material supply chain.
According to a recent report by the National Apartment Association, the US needs about 328,000 new multifamily units each year until 2030 to keep up with demand. Fortunately, with more access to building materials and labor expected in 2021, the construction of multifamily units is likely to surge. As market conditions continue to improve, the supply of multifamily real estate will surely increase.
4. Investment in Multifamily Real Estate Will Surge
The spread of the COVID-19 pandemic moved many multifamily investors to the sidelines due to increased risk. While it has been a wild period for the real estate industry, market conditions are steadily improving. With more clarity on the future performance of the multifamily market now, multifamily investing is set to increase. For instance, if travel restrictions are eased, multifamily short-term rental investors will become more active.
Moreover, mortgage rates are expected to remain low in 2021 compared to historical averages. This will provide additional incentive for increased buying of multifamily real estate. However, there’s a possibility that the rates might go up later on in the year when COVID-19 vaccines become widely available, and normalcy begins to return.
Related: Multifamily Real Estate Investments: Here’s What You Need to Get Started
The Bottom Line
For many years, the multifamily real estate market has been growing until the pandemic hit. While experts believe that the sector will recover in 2021, nothing is completely certain. It will be interesting to see how things play out as we try to heal from the pandemic. With that said, it’s true that investors who focus on suburban markets and do proper market analysis are likely to fare better than those who don’t. If you are looking to get into multifamily real estate investing in 2021, be sure to use Mashvisor for your market analysis and investment property analysis. Sign up for a 7-fay free trial now.