Ari Rastegar, CEO of Rastegar Property Company, a vertically integrated real estate company with a focus on value-oriented real estate. Ari Rastegar

Multifamily real estate investment properties that produce a steady flow of income have been a consistently profitable asset class for investors. However, we are in unprecedented times for the U.S. and global economies. In a matter of weeks the healthcare system and U.S. businesses have been turned upside down by a coronavirus that no one had heard of until a few short months ago.

Based on all of the current uncertainty, you could be asking yourself, "Is investing in multifamily real estate a prudent investment decision if we are heading into a prolonged recession?”

Recent Economic Growth

Until very recently, the U.S. was in the longest economic expansion in its history. Since the Great Recession ended in 2009 we have experienced 126 months of consistent economic growth. Until very recently the U.S. economy was setting record after record for several economic criteria starting with historic GDP growth and low unemployment.

The 2020 Recession is Here

There is no longer a question about a recession in 2020. The recession is already happening with a vengeance as hundreds of thousands of businesses, large and small, close their doors and more than 10 million Americans have already lost their jobs. There has been no other economic event that has rivaled the speed of this recession.

Outlook for the Future

What is a reasonable outlook for the future? It will get worse before it gets better. And, our collective definition of better may be different than the aftermaths of previous recessions. This global event will damage the U.S.’ $21 trillion economy, but it could inflict even more damage on other countries that don’t have the resources of the U.S.

It is very likely the U.S. will have to lead the world out of a global recession that was spawned by this highly contagious virus.
There is also a good chance major U.S. companies will bring the manufacturing of essential products back to the U.S. which will help the country work its way out of the recession.

Asset Class Investing

It stands to reason there will be billions if not trillions of dollars of capital sitting on the sidelines as Americans sell volatile investments and park the proceeds in cash equivalents.

It also stands to reason that millions of investors will be reluctant to reinvest most of their assets back in the highly volatile stock market. Thousand point drops in one hour and computerized trading programs have scared a lot of people, in particular people at, near, or recently retired. They knew the stock market was volatile, but not this volatile.

Who knows what will trigger the next stock market crash or when it will happen? We do know the global securities markets will be unstable for the foreseeable future.

These investors will be looking for opportunities in other asset classes that do not have severe daily price fluctuations.

Real estate, in particular multi-family real estate, may be that asset class.

The Real Estate Alternative

Some real estate markets may experience lower valuations and reduced lease rates during the recession; however, investments in multifamily real estate should continue to be a reliable source of income and appreciation for the owners of these properties.

There are very few guarantees in life, but most businesses still need real estate to interact with their customers and people still need roofs over their heads. A short-term economic event (months not years) will not change the real estate landscape that much.

Outlook for Multifamily Real Estate

“People do not need stocks, but they do need a place to live.”

How will the coronavirus spawned recession impact the outlook for multifamily real estate?

People are not going to change their residences if they believe the current measures by the government will be lifted, new treatments for the virus will emerge, and life will return to some semblance of normal in the next few months. They just have to survive the next few months.

People will need roofs over their heads, but they still have to afford to pay their rent. The good news is multifamily rentals are one of the lower cost forms of housing. So if some people are forced to downsize during the recession they can live in apartments that will reduce their out-of-pocket expenses.

Multifamily Real Estate Investment Tips

If the volatility of the stock market is keeping you up at night and you have decided to invest a portion of your net worth in multifamily real estate we recommend you follow these tips. Make sure you:

• Conduct thorough due diligence on the property and the market.

• Select markets that exhibit business friendly policies and population growth.

• Seek undervalued investment opportunities where you can add value.

• Focus on buildings that have efficient designs and popular amenities.

The upside for multifamily investing is the constant demand for additional housing in developing markets. There are markets all over the U.S. that have been experiencing current housing shortages. This is a major investment opportunity for people who want to diversify their portfolios.