Full transcript below.
The COVID Pandemic: It’s Affected Everyone In One Way Or Another
Millions of people all over the country are out of work and unable to pay the rent. It’s hit you, it’s hit me. Evictions are not allowed, nor are foreclosures. Yet I’ve got a buddy that isn’t collecting rent from tenants, but still has to cover upkeep and make those mortgage payments!
Having multiple properties that are no longer producing income could send your business into bankruptcy before you know it. We’ve actually seen this in the past, most recently in 1997 and 2008, which is why I want to talk with you about how the Collective plans to adjust to what we think the market is going to do in the coming months and years.
First, I’d like to tell you how a creative approach has helped keep myself, my tenants, and my lenders, in good standing.
My Personal Story: Short-term Renegotiation
Back in March it became clear to me that my commercial tenants wouldn’t be able to keep their businesses running without clients (most of whom were under lockdown orders). At the time, 30% were thinking about closing up shop and calling it quits.
Of course, if that happened, I wouldn’t be able to make my mortgage payments either since I wouldn’t have any rents to collect.
After careful consideration (and some savvy negotiations) I was able to get a 6-month reduction in the loan payment — I then passed that relief on to my tenants, allowing both of us to stay in business through the reopening.
Given it’s success, a very similar strategy was used on my duplex to keep my tenants safely housed, while still allowing me to make my payments.
2020 has already gone down in the history books as a severe economic challenge, and the year isn’t even over! The COVID impact has changed almost every aspect of doing business and forced us to not only have additional contingency plans, but to also look at the future of real estate development from a much different angle — possibly for years to come.
How The Concept Of Housing Has Changed
Around the turn of the 20th century, America was booming. Cities were growing at an incredible rate. Populations exploded in busy, bustling cities like New York, Philadelphia and Chicago.
In recent decades, we’ve tended to think of a single-family home as the normal living situation, the ultimate goal. But as the wealth and income gap has expanded (the rich are getting richer and everyone else is getting poorer) and as the cost growth of housing, healthcare, and education continues to far outpace wage growth, people have sought new and creative living arrangements.
During the difficult times of the past, boarding houses and flop houses would fit the affordable housing needs of the working people quite well. These types of living arrangements were essentially the answer to low-wages, convenience, and limited available acreage.
The modern equivalents of boarding houses are called coliving and micro-apartments. Coliving involves sharing or splitting expenses where residents occupy a bedroom in a house or apartment, and usually have a private bath and share the use of the common areas – kitchen, living room, yard, office, etc. It’s a trend that actually began to gain traction among millennials and active seniors even prior to the 2020 pandemic.
A micro-apartment, on the other hand, is a completely self-contained living unit, usually with a kitchenette instead of a full kitchen, that occupies a much smaller footprint than a typical “normal sized” apartment. Micro-apartments range from 200-400sf (compared to 800-1,000sf for normal apartments) and tenants share outdoor living space and community entertainment rooms. Micro-apartment furnishings tend to be hip and modern, like hide-away Murphy beds or Bumblebee furniture that is concealed in the ceiling and lowers on demand to maximize usable space without excessive cluttering.
In many ways, coliving and micro-apartments are like life in a college dorm, only a lot better. More high-tech. Better and more modern amenities. In a coliving building residents have private sleeping quarters and have access to shared spaces like the kitchen and living room.
Privacy is paramount, especially in a COVID environment, and residents don’t have to share their personal space with roommates. The biggest difference between coliving and micro-units is that coliving buildings are purpose-built specifically for that modern mission, while micro-apartments tend to be repurposed hotels or other commercial buildings retrofitted with modern furnishings and high-tech amenities.
Oregon started addressing their shortage of affordable housing with their all-ages Harbor of Hope project and it’s going extremely well — I’m moving towards this model as a sound source of long-term income, as well as an amazing opportunity for short-term profitability.
Coliving buildings (houses or apartments) and micro-apartment buildings can both capitalize on seasonal short-term residents by renting excess inventory (vacant rooms or units) in an Airbnb-type arrangement. Coliving and micro-units provide win-win benefits. Tenants typically pay less than they would for a full-size apartment or house, while landlords receive a much higher price per square foot. For example, a standard 1,200sf apartment might rent for $1,500 while a 350sf micro-unit will rent for $900. So this type of housing is more affordable yet contributes more to the NOI (net operating income) of the owner.
Right now the Collective has an abandoned motel under contract in Taos, New Mexico, to convert to micro-apartments, as well as an apartment building in Albuquerque with a mix of standard and coliving apartment units.
If you’d like to discuss this strategy further or see how you can get involved, feel free to call, email or text me and we’ll talk business.