Home Thinking Aloud The Post-Pandemic Portfolio: The Asset Class New Investors Can’t Afford To Miss

The Post-Pandemic Portfolio: The Asset Class New Investors Can’t Afford To Miss

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by Emir Dukic, CEO of Rabbu

The word ‘recession’ has echoed through every industry since last March when the financial effects of the pandemic became undeniable. But ‘recovery’ is perhaps the more useful word as we fix our gazes forward. A sooner-than-expected opening of the US economy, paired with a swift vaccine rollout and a steady incline in employment, has delivered us to a new economic landscape faster than we might have anticipated. And crafting a recovery-era portfolio is an art on its own.

The basic principles still apply; portfolio diversity is positive, due diligence is necessary, and limiting investments to amounts that are manageable to lose will always be a must. But unlike recessions, which are known to have weak equity market performance and stronger fixed-income levels, recovery economies offer investors a different market landscape. Stocks could boom as the economy expands and consumer confidence returns, if slowly, to the market. And as it does, the distribution of opportunity is rarely uniform.

It’s for good reason, then, that investors both young and established are weighing the balance of their post-COVID approach. Strong strategies obey the fundamentals while taking the shifts of the past year into account. There have been massive rearrangements across our personal and corporate normal, some of which will endure and shape the details of our recovery, making them an important part of any post-pandemic portfolio.

The New COVID-Era Asset Class: The Shorter-Term Stay 

Change, as the only COVID-constant, has impacted the housing market. The work-from-anywhere adoption has forever altered the way we think about home, office, and ‘home office.’ Newly liberated from the locale of the office, more families are exploring different markets with more favorable living conditions. Professionals are engaging in local, leisure travel, looking for spacious properties with remote work amenities. Most importantly, every tenant or renter is looking for flexibility.

So, while travelers lost confidence in overnight accommodations, more and more demand started coming online for vacation rentals listed at medium-term stay lengths. Similarly, the massive uncertainty made tenants want flexible, shorter-term leases in case their corporate or personal situation changed. The confluence of both forces has created a new asset class in the housing market; short-term rentals are outperforming, and all signs point to sustained success as the recovery continues.

A Brief Market Outlook:

Beginning with the big picture, residential real estate has always been a welcoming space for new investors. In fact, housing has been the best investment on the planet for 150 years. Today, it’s global asset value sits at roughly $180 trillion. Reward is traditionally high with lower-than-average volatility; new data from the University of California-Davis found that between 1870 and 2015, housing has yielded an annual return of 7.05% on average.

But the pandemic has introduced new barriers to finding and operating traditional long-term rentals. The moratorium on evictions has changed the market landscape, and long-term strategies are vulnerable to the continued fluctuations in demand. Demand for shorter-term stays, on the other hand, is not only new demand, it’s also demand that far outweighs the existing market supply.

According to a recent report by CNBC, Airbnb will need millions of additional hosts to satisfy the rising need. This is particularly true in the multifamily buildings where, according to a new study by the National Multifamily Housing Council, 65% of Airbnb rentals are taking place. Existing owners and new investors are already seeing tangible success and sustained demand by renting space to short term tenants. This is especially the case for those in destination markets and smaller metropolitans, where traditional unit occupancy might take longer to rebound and lower home prices can mean a more manageable initial investment.

A Well-Oiled Machine: Passive Rental Management 

Capitalizing on the new opportunities in the rental market can be as easy as listing a bedroom, or renting out an owned property during the next stretch of travel. But there are a few new must-haves for winning (and keeping) a post-COVID guest. First, new safety needs have elevated all contact free operations. Investors who are looking to enter the space need to be prepared to make the necessary investments into the hands-free booking technology that can enable distanced access control and virtual ID verification. Luckily, many vendors now exist on the market to make that easy.

Investors who can make similar investments in the direction of minimizing their need to be on the ground will also see outsized returns. Cleaning services can be audited and staffed by need, tenant turnovers can be digitized and effortlessly managed, and an owner’s portal can keep all of an investor’s key metrics in one place, allowing them to streamline costs, payments, and accounts receivable. All of these things in combination can help a rental portfolio start to feel like it’s able to move on its own.

It wasn’t long ago that the Airbnb home-sharing model sounded completely alien. Now, the future is that kind of flexible, and the short-term rental strategy is positioned to see a massive influx of demand in the post-COVID market. And with a record-setting shortage of supply in the sector, this is one of those investment moments that only come around once or twice in a lifetime.

 

Emir Dukic is the CEO of Rabbu, a frontier flexible rental asset management company. With proprietary technology, Rabbu automates all aspects of asset management—from marketing to operations to tenant health and safety. Rabbu helps property managers supercharge their operations, eradicate contact and manage their assets across major rental platforms: Airbnb, Zillow, Booking.com and more.