As the Covid-19 crisis continues to impact our lives,
consumers are beginning to make what appears to be long-term pivots in their
housing choices. These decisions reflect new realities of digital connections,
remote work as well as education and the changing fiscal landscape that makes
so much of the economy move.
One example of this long-term pivot across America right now
is that single-family homes are enjoying a renaissance not seen since perhaps
the end of World War II. While it's tough to attribute this boom to any one
particular cause and effect scenario, we know that the overall conditions
around homeownership are conducive to purchasing a home. In many cases, the
knowledge that this home may offer some rental income as well is simply dessert
to an already appealing menu of options.
On the capacity side, record low-interest rates for real
estate in effect reward borrowing and penalize savings. As our central bankers
continue to inject a veritable ocean of liquidity into financial markets, there
is no indication of late that a rate rise of any kind is on the horizon. That
relative certainty gives a sense of security to purchases. Look no further than
the 104% rise in lumber prices this year due in part to a boom in construction
to understand the attraction to homes fueled by inexpensive borrowing.
In addition to the financial atmosphere, the nature of our
work life is changing as well. Our emerging ability — or in many cases our
emerging requirement — to work and learn from home now means that distance and
geography are no longer the barriers they once were to wage earners and
page-turners. These trends continue this fall as seemingly one university after
another sends students — for the first time in their history — home for the
semester. As the oceans and skies were once barriers overcome by navigation and
flight, so has the internet overcome the brick-and-mortar anchors to our
physical presence. This boom also reflects relative confidence in long-term job
markets — knowing you have a steady job for a long time makes a move or home
purchase much more likely.
Add to that the daily headlines around our urban centers
continuing to wrestle in many ways — both physically and philosophically — with
competing visions for their futures. For many urban residents, the relative
uncertainty of that future makes the risks of moving away more palatable — look
no further than the suburban home market around virtually any large city right
now for a barometer of long-term urban confidence.
Lastly, the vacation home market has never been as strong.
With travel and tourism internationally or even by air a question mark for the
short term, single-family homes in drive-to markets are desirable. Particularly
those with reasonable annual rental revenue and long-term asset appreciation.
This demand reflects a desire for secure income and a preference for hard
assets in light of the gap between Wall Street and Main Street.
Taken together, these factors show how our ability to use
our home assets productively — which is to say, earn money for our own bank
accounts — has changed significantly. As an emerging proof positive of this
trend, think of the many new homes available for sharing in some way, via
places like Airbnb, as a kind of residential real estate operating company. It
compares favorably to commercial real estate operations and many other
comparable asset classes in the way of risks, returns and appreciation. Adding
to the proof positive is Airbnb's plans to move forward with an IPO — which was
first rumored before the pandemic. If it moves forward, it's a watershed moment
for home rentals. For many years vacation rentals were considered to be an
alternative vacation niche even within travel circles, but the Airbnb IPO can
help take home rentals firmly into the mainstream as investible equity.
In assessing all of this new information, it's clear that
new opportunities are awaiting both current and would-be homeowners in new and
exciting ways. One challenge to avoiding the inevitable common traps of new
opportunities is the ability of decision-makers to make expert moves early. As
with so many other asset classes, the earliest movers are so often the most
richly rewarded. In assessing an opportunity in this new residential operating
real estate, consider three tips as you make progress in your decision-making:
1. Make sure you have a strong understanding of not only the
appreciation around your current or prospective home in terms of entry and exit
sales prices but also, critically, the credibility of annual rental income.
Like any operating company, your home will need a profit and loss statement to
truly judge cash flow and profitability.
2. Make sure your insurance plans — your risk transferences
— are reflective of the uses of your home. Don't try to skimp here if you're
offering your home for commercial purposes. Time and again, simple claims or
"slip-and-falls" can drastically impact a profit and loss statement.
3. Know your service providers by name, face and
communication preference. Relying on random service providers might work well
when you're standing at the door, but with remote homes or nonprimary homes,
trustworthy service delivery can save you an emotional roller coaster when it
comes to fears of paying too much, poor service and more.
In short, the time we're spending in our backyards right now
has never been so sweet and so attractive to so many. If you own your home, you
probably have a good idea of what you'd sell it for and where you'd go once it
sold. If you're looking to invest in a home that's in demand, preferences have
opened up more opportunities to find a property worth buying. Changes in the
residential real estate market offer new opportunities worth exploring. Now
might be the time to explore them.
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