How Stimulus Checks & Unemployment Benefits Impact Real Estate Investing

The recent passing of the latest version of the CARES act, which the administration called the American Rescue Plan, came in at just under $2 Trillion and offered many benefits to consumers. Individuals making $75,000 or less have received $1,400 and couples making $150,000 or less filing jointly have received $2,800. Dependent children under 18 have also received $1,400.

In addition, the plan includes federal supplemental employment benefits of $300 per week. This amount is in addition to the state unemployment benefits that a recipient is entitled to from their state and is scheduled to extend through September 6, 2021. However, despite the administration’s plan, some states are now countering these measures in an effort to combat the negative impacts I will share below.

The Overall Impact on Real Estate Investors

At first glance, the American Rescue Plan sounded like it was really good news for real estate investors and property owners, because tenants would be receiving funds, whether they’re employed or not. The thought was that they’ll be able to pay their rent. Initially, it seemed like a good idea to everyone, including me.

However, there were some negative aspects to the financial assistance that people were receiving, When the first CARES benefits were distributed, many detractors expressed concern that with the direct stimulus check and the increased unemployment benefits, workers would lose their incentive to return to work. The argument was, if someone was handing you that amount of money, why would you want to return to work?

In California, for example, the state’s unemployment payment can be up to $450 per week. Tack on an additional $300 in federal supplemental employment assistance benefits and a California resident is taking in $750 per week. For hourly wage earners, that amount could represent a significant bump in income.

Potential Negative Impact #1: Staffing Shortages

That’s one example where a negative impact could hurt real estate investors and property owners. Since a person could be taking in more than their current salary, and they’re not willing to return to work, it becomes harder to hire both leasing and maintenance staff. When that happens, it impacts vacancies as there’s nobody on site to show and lease vacant units, and property maintenance could suffer as well.

Without maintenance staff, nobody is around to fix a leaking faucet or replace a broken tile on a kitchen counter. Exterior maintenance could suffer as well, as there is no staff to call upon to get things painted or repaired. This might impact the property’s curb appeal, making leasing more difficult. Turnover may suffer as well, as nobody is available to paint, clean and prepare apartment units for new tenants as old leases expire.

Potential Negative Impact #2: Renovation Delays

Our business model is to purchase Class B properties and perform value-add renovations in order to drive up rents and the property’s net operating income. Renovations are usually on a very specific timeline as tenants move out and units become available. Without the proper staff on hand to manage the renovation process, delays can ensue.

Also, you have to realize that it’s not only the property’s staff that is no longer available. All of the contractors who are involved in the renovation process are also having staffing problems as well. That could include painters, carpet and floor installers, and other tradespeople. It ends up being a domino effect, and the entire renovation is delayed.

Potential Negative Impact #3: Printing More Money

One of the surprising negative impacts of stimulus checks and unemployment benefits is a result of the government printing more money to cover those $1,400 payments that were sent to qualified individuals - inflation. Many experts and analysts had predicted that there would be some inflation in America as a result of the American Rescue Plan’s latest round of stimulus and unemployment, and it appears that they were correct in their predictions.

One of the key indicators of inflation is the consumer price index (CPI), which has risen 2.6% for the 12 months that ended in March 2021. It’s an important indicator as it tells how fast prices are changing. The 2.6% amount, compared to 1.7% for the previous 12 months, ended up being slightly higher than the initial predictions, indicating that the economy was in fact experiencing some inflation.

If inflation continues, it means that real estate prices will rise as well. It’s a function of price increases on materials and labor. As housing prices rise, demand for rental properties will go up. With increased demand, property owners can help to combat the impact of inflation by raising their rents.

Looking Forward

While the American Rescue Plan provided direct stimulus checks to consumers and extended unemployment benefits, there is still some concern for multifamily real estate investors moving forward. The concern is based on worries that continued high unemployment figures will cause an increase in both delinquencies and evictions, especially when the rental assistance funds run out and now that the eviction moratorium has been put into a holding pattern.

According to Yardi Matrix, a bigger problem is that property owners and investors will face payment shortfalls at about $70 Billion overdue rent comes due. This means that some owners are dealing with payment shortfalls, meaning that some are having trouble meeting their own obligations. This could increase requests for forbearance and causer problems for lenders.

To help, the Federal Housing Finance Agency has extended the multifamily forbearance for qualifying multifamily owners through June 20, 2021. In order to qualify, multifamily owners have to show that they incurred a financial hardship due to the COVID pandemic This extension shows that COVID-19 continues to impact not only tenants, but property owners as well.

According to Fitch Ratings, there are risks to multifamily housing despite the stimulus checks. However, another boost for multifamily property owners was when the US Department of Housing and Urban Development extended loan forbearance through August 31, 2022. In addition, State Housing Financing Agencies (SHFA) can help borrowers modify loan, and funds that are available from SHFA can be used to help cover shortfalls if multifamily owners become delinquent on their mortgages.

Summary

Despite the American Rescue Plan, with its stimulus payments to consumers and the addition of supplemental unemployment benefits, the outlook for multifamily investors isn’t the rosy picture many made it out to be. In fact, there are negative impacts that can be directly tied to the stimulus checks and boost in unemployment benefits.

The consensus was that the $1,400 per person stimulus checks along with the additional $300 supplemental unemployment benefits would dissuade people from returning to work, particularly low hourly wage earners. Another problem was that with many workers receiving the stimulus, staffing became problematic for property owners. This is especially true with respect to leasing staff and maintenance people. It also carried over to the tradespeople who would perform renovation work, hurting their ability to meet timelines.

In addition, the stimulus checks from the American Rescue Plan have caused concern that inflation will continue to rise. There are current indications that it’s started, with an increase in the consumer price index that was larger than experts predicted. With inflation, real estate prices are expected to rise. This includes housing prices, which will cause an increased demand for rental properties.

Moving forward there is still concern for multifamily property owners, as owners and investors could face payment shortfalls from renters. This could impact their ability to make their mortgage payments on time and could escalate forbearance with lenders. In fact, the US Department of Housing and Urban Development extended forbearance on agency loans through August 2022. Hopefully, with vaccines in arms and the economy opening, everyone is hopeful that any impact on real estate investors will diminish.

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About the Author

Ellie is the founder of Blue Lake Capital, a commercial real estate investment firm specialized in multifamily investing throughout the United States. At Blue Lake Capital, Ellie partners with both institutional and individual investors to grow their wealth by achieving double-digit returns by investing alongside her in exclusive multifamily deals they usually don't have access to.

A defining factor of Blue Lake Capital’s strategy is founded in utilizing machine learning/artificial intelligence throughout the course of all acquisitions and asset management. This advanced technology enables the company to produce accurate and data-driven forecasting for all assets on a market, property, and even tenant basis. In doing so, Blue Lake is able to lead commercial investments with the full capabilities of today’s technology.

Ellie is the host of REady2Scale, a podcast that highlights honest, insightful, and thought-provoking discussions on the multiple approaches for successful real estate investing.

She started her career as a commercial real estate lawyer, leading real estate transactions for one of Israel’s leading development companies. Later, as a property manager for Israel’s largest energy company, she oversaw properties worth over $100MM. Additionally, Ellie is an experienced entrepreneur who helped build and scale companies by improving their business operations.

Ellie holds a Masters in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.

You can read more about Blue Lake Capital at www.bluelake-capital.com and learn more about Ellie at www.ellieperlman.com.