The year 2020 opened our eyes to so many things that we have not witnessed in a very long time. The pandemic, and its many side effects, caught all of us by surprise because it was totally unexpected. It left us wondering, that as 2020 handed off the calendar, is 2021 standing by saying, “Hold my beverage”?
Is that a good thing or a bad thing? There are always two sides of a coin and the proverbial double-edged sword. We all know that it also depends on how we look at things. Let’s take a look at two sides of a few issues that may be on our minds as community investors and operators.
1 – Jobs – After the best unemployment figures in the history of the US, COVID did a number on jobs and shifted much of the workforce from “in office” to “at home”. Many small businesses have shut their doors forever causing many displaced workers to not only search for a new job, but possibly a totally new career path.
There will be a permanent shift in the way that we all work, and that’s not a bad thing. Many companies have found that they have saved money and also discovered that productivity did not suffer, and in many cases, actually increased. Technology has certainly improved effectiveness and efficiencies to successfully continue a company’s vision and mission concerning the workforce.
2 – Tax Law – It was once said that “There are only two certainties in life and they are death and taxes”. And I will add that Congress doesn’t debate every year on changing death! But taxes, absolutely! With potential tax law changes, favorability among real estate assets may be affected. Stepped up basis and the 1031 exchange could see changes to the detriment of all real estate investment classes.
I’m not a CPA, but changes in the tax law can also be looked at as job security for CPAs. They will know the best way to address any changes that effect how much you make and how much you save. Another positive is the many politicians may hold real estate investments in their portfolios and I would think they might not be too interested doing anything that would affect their bottom line.
3 – Housing – Affordable housing may not be so affordable. Housing prices are just about at an all-time high. The potential for higher taxes, higher unemployment, and higher consumer goods prices may make it tougher to realize “The American Dream”. Mortgage defaults are rising and rent is not being paid. In multifamily alone, tenants owe about $70 Billion in unpaid rent.
That being said, rent delinquency rates in manufactured housing communities are among the lowest in all rental asset classes. Affordable housing will be in high demand and rates should remain low in 2021 making it a great time to properly utilize debt to purchase cash flowing assets. There will be a huge number of renters versus buyers due to changing demographics, income levels, and down payment availability, among other things.
So, Hello 2021! Let’s see what you have for us. Just remember, as we turn the pages of the calendar, how are you looking at the glass? Is it half full or half empty? I say grab the bottle and fill it to the top…just so there’s not any question!
John