When considering purchasing a value-add multifamily apartment property, your first step should always be deciding what needs to be done with the building to increase investor returns. In these cases, the best sponsors adopt a balanced approach aimed at minimizing risk and achieving the strongest possible ROI.

A wide variety of renovations and improvements can be made to any given property, so it can be tough to figure out which will genuinely attract renters and which will be nothing but a money pit.

Our decades-long experience in real estate investments and management, with a specific focus on multifamily properties, has enabled us to develop a simple acquisition process optimized for returns. Using a systematic approach, we assess all potential acquisitions to identify the most profitable options and calculate the overall impact they are likely to have on ROI. For each property, we decide which areas need improvement, how much it will cost, and when the improvements should be made. We then apply this knowledge to our budgeting process to align all decisions with our commitment to providing good value for our residents.

Understanding what upgrades to perform on a building usually means gaining deep insights into current market and area tenant demands. This article will review the most crucial aspects of that process.

Strategy, strategy, strategy

The first part of the value-added process is the acquisition strategy. There are three keys to success at this level: conservative estimates, risk management, and locating an undervalued property. By acquiring the property at the best price, we can improve its chances of success and also offer the investor an important safety margin.

Any given deal is subject to market timing and local nuances, so value-driven acquisitions are more important when looking at overall strategy. Factors beyond a real estate company’s control can disguise bad underwriting in the short term, but strategic errors will always surface over time. Letting your investments be driven by sentiment rather than strategy will have lasting consequences for any investor, especially in extreme market conditions.

Much has been written on the topic of market timing. However, industry veterans who have navigated recessions will tell you to never force a deal and never compromise your underwriting standards to get a deal done. Lowering your standards will inevitably cost you money in the long run.

Balancing maximum returns with risk management

We take a balanced approach to reducing risk and ensuring a reliable return on investment.

When aiming to achieve the highest returns from a multifamily property, there are several considerations to bear in mind. A comprehensive underwriting process, market analysis, in-depth local knowledge, and thriving professional connections are all integral to better returns. Then, a pre-acquisition study enables us to develop, scope costs, and schedule a post-acquisition renovation plan tailored to the property, so we can invest smarter and more reliably.

Identified target demographics, predicted growth trends, and the median income household of residents in the area are just a few factors that guide decision-making regarding the project’s scope and which improvements to make.

In fact, this is why we focus on multifamily properties. Compared to other investment classes, like industrial, retail, or office investments, these properties show excellent risk-adjusted returns with relatively stable long-term cash flows.

Multifamily is also known to have less downside risk during recessions due to the stable tenant base in most major markets. When potential homeowners become renters during economic downturns, the demand for apartments increases, and investors reap the rewards.

Why it’s important to analyze market conditions

During the first property screening and subsequent due diligence, learn everything you can about the market and competitive properties. Value is relative to the market in which it is calculated, and property owners should know what options are available to consumers in that market.

You’ll need to know what the competition is doing, what the marketplace is bearing, and what market segment the property falls into. But, you also need to consider how the property is positioned in the market. Although not every property has to be the best in town or offer the lowest rents, at Nathan Holdings, it is vital for our communities to provide good value for our residents, no matter the rental price or the number of amenities.

When studying the market, the primary goal is to determine its parameters and see what types of upgrades (if any) will work for the property in question. It is essential to recognize that the market dictates strategy, not the other way around. Renovations that return the most significant ROI always correlate with the market in which the property is located. It is crucial to understand that the market dictates strategy, not the other way from it. Renovations that return the most significant Return on Investment usually correlate with the property’s location. For example, installing smart home technology packages only adds value if competitors in the area also offer these features or if research has shown both demand for such upgrades and rent hikes from current tenants willing to pay more for them.

Deciding which renovations to make

Intelligent, informed decisions are the key to successful renovation projects. As mentioned above, it is necessary to perform thorough market research before purchasing a value-add asset because how much you can make on an investment largely depends on the asking price for similar renovations in that area.

We use two important criteria at Nathan Holdings when deciding whether to invest in a specific upgrade:

The first is the upgrade’s ROI. We like to see capital expenditures on unit upgrades produce at least 15% ROI. For example, if an upgrade costs $12,000, we want to see at least a $150 per month increase in rent to justify that investment. A $150 monthly rent increase yields a $1,800 annual increase, which is a 15% return on the original investment.

The other is how the upgrade contributes to enhancing the overall value of the building. When determining the equity multiplier of an investment in CapEx, we calculate the rental increase gain from a renovated unit and multiply by the cap rate projected in the sale of the property. Using the example above, in a 5-cap market, a $150 per month increase, yielding a $1,800 increase in annual rents, would add $36,000 to the property’s value. Compared to the initial cost of the renovation, $12,000, this would be a multiplier of over 3X on the original investment.

Repair vs. renovate

Determining when to repair or renovate involves the assessment of the project. Which strategy will lead to an upgrade in efficiency and which will only lead to an upgrade in appearance? Is cosmetics more important than energy efficiency? Does the existing feature perform well enough to merit its repair? These are the questions that should guide your decision-making process. Understanding what materials in today’s market are worth renovating and which ones are better off repaired is vital.

What’s the difference between repairing and renovating?

A repair typically involves restoring an existing feature to working condition. A renovation, on the other hand, entails removing the old feature and installing something completely new.

Assessing cost-effectiveness through the lens of the holding period is a wise choice. In many cases, renovations are often simpler, and repairs are cheaper. It would be best if you chose which option best suits your investment goals, planned exit date, and risk tolerance.

Information such as when it was built, what it is made of, and how well it still works – can give hints about whether the thing you are looking at needs to be replaced or isn’t going to last much longer. It is also essential to take note if the look of an apartment unit features old-fashioned designs and see if any updates could bring in new tenants and charge higher rates for rent.

Technology advancements have led to many useful and efficient improvements in many facets of construction. Unfortunately, many manufacturers’ “planned obsolescence” model has also led to an increase in disposable products built to last just five or so years. This also needs to be taken into account.

Cosmetic/aesthetic renovation

The aesthetics of a property add to its value through increased appeal to current and prospective residents. These can include painting, landscaping, and updating interior and exterior finishes – changes that might seem trivial but will significantly affect property performance, including vacancy and rental rates. These upgrades also help keep tenants happy, which increases retention.

Red Bay Apartments – Before and After:

Structural & major renovations

In general, renovations involving structural or major changes require the most involvement. These types of renovations can include replacing a roof, repairing foundations, adjusting mechanical systems, switching to high-efficiency toilets, improving kitchens, replacing floor coverings, and providing common area amenities. As this type of renovation is the most intensive, it can often result in the highest return on investment. Upgrades to in-room amenities are generally recognized as yielding the greatest ROI.

For example, we recently completed water, energy, and waste management improvements in one of our properties. This included installing new high-efficiency toilets in 500 bathrooms across all 288 units, achieving a reduction of over 30% in water consumption.

Operational upgrades

An underperforming property can also be improved by upgrading its management. Property management is the key to unlocking value through, for example, raising the rent to market levels, collecting back rents, and adding new revenue sources such as valet trash services to improve waste management and curb appeal. These operational issues should be addressed case-by-case to ensure the property runs smoothly and tenants remain satisfied.

 Increasing cash flow

A tiered, gradual strategy for upgrading multifamily assets gives property owners a way to both retain current residents and earn increased revenue through renovating units by group (building, floor, unit type) and upping the rent.

The impulse to act quickly and aggressively by upgrading everything at once is frequently thoughtless in more ways than one. It’s easy to forget that a multifamily property is more than just an asset classification. It’s a home to dozens or hundreds of people. You need to strike a delicate balance between preserving ongoing cash flow from existing residents and encouraging turnover for enhanced asset improvements and value appreciation when adding value to a property.

Value-adding renovations and improvements that appeal to current tenants, attract prospective tenants, and help keep a property’s occupancy rates healthy will be significant for maintaining profitability over time. Doing too much too quickly is a risky strategy. Going past what the market can handle may cause property owners to hold assets longer than planned, compensating for low cash flow stemming from periods of high vacancy rates caused by them.

Instead, experienced owners will contact on-site management, discuss planned upgrades, and see if the required rent increases are compatible with local market conditions, easing the potential risk.

Improvements may fluctuate in cost

The cost of improvements varies with economic cycles. The past year has seen material and labor shortages as well as a surge in overall construction costs, making it much more challenging to plan projects. Many renovators have thought to have paid around 15-20% more than they would have the previous year.

Macro-economic changes like inflation, supply chain disruptions, and interest rates will cause costs to fluctuate from those anticipated initially during initial underwriting. Financial discipline is necessary. These conditions require all upgrades to be planned carefully, with solid communication between owners, contractors, and suppliers. Remember that a schedule may still be disrupted, despite companies’ promises. We have encountered various economic swings over time at Nathan Holdings and are ready to avoid downswings by anticipating possible challenges.

For example:

Construction Materials Producer Price Index by Commodity is up ~35% in the last 24 months.

Check-in on progress

In renovation projects, there is often a focus on speed rather than costs and the appropriate processes. It is always vital to check in to ensure things are still going according to plan, which means keeping an eye on your budget.

Continued market research and communication with the on-site management team will inform you about the success of your recently renovated units and how to price and market them. It’s essential to stay informed so you can adjust your strategy as needed.

For example, if demand is higher than expected, you may want to increase rent. If construction costs are higher than expected, it may be time to revisit budgets. Or, if there’s an opportunity to rent or sell at a premium to recoup costs quicker, that’s something you should consider. If everything is going according to plan, continue monitoring until all projects are complete.

Conclusion

When determining the costs of renovating a potential investment, the most beneficial method is thoroughly analyzing the asset’s current state and understanding the demographics and competition in the local submarket.

A pre-acquisition study enables us to develop, price, and schedule a renovation plan deal tailored to post-acquisition, so we can invest smarter and more reliably. This is our practice and tradition at Nathan Holdings.

Where is the price rising?

In June, the National Federation of Independent Business (NFIB), found that 47% of small business owners are raising their average selling prices, the highest reading since January 1981, at the tail-endof the Great Inflation of the 1970s.

Price hikes were most frequent in wholesale (82% higher, 4% lower), retail (63% higher, 1% lower), and manufacturing (62% higher, 5% lower). Seasonallya djusted, a net 44% plan price hikes (up 1point). The NFIB report concludes, “The incidence of price hikes on Main Street is clearly on the rise as owners pass on rising labor and operating costs to their customers.”

Why Prices are Rising?

The federal reserve has highlighted two main culprits for this current rise in prices: Supply Shortage & Hiring Difficulties

Supply Shortage

Due to the supply chain bottleneck mentioned above, the prices for many goods and products have risen significantly. For example, in May, lumber (LBS) reflected a massive 461% increase over the past year. However, lumber prices have begun to fall, and as of mid-August are only 20% up on their pre-pandemic price, at the end of January2020. This data may support the Fed’s position that current inflation will mostly be short-lived.

In terms of shelter, which makes up nearly one-third of the CPI, prices increased 0.5% for the month, and are now 2.6% up on the June 2020 figures.

“What this really shows is inflation pressures remain more acute than appreciated and are going to be with us for a longer period,” said Sarah House, senior economist for Wells Fargo’s Corporate and Investment Bank. “We are seeing areas where there’s going to be ongoing inflation pressure even after we get past some of those acute price hikes in a handful of sectors.”
Returning to the lagging effect of higher house prices on inflation, a
paper by Fannie Mae suggests that CPI components for rents tend to follow the Case-Shiller price index, with a delay of about five quarters. Eric Brescia, an economist at Fannie Mae, has drawn the following conclusions:

Due to how shelter costs are measured, the housing components of the indices decelerated considerably over the pastyear, despite robust home price appreciation. This has kept topline inflation from being even higher.

Lagged effects from the past year’s house price appreciation and more recent rent recovery could begin to flow into inflation measures as soon as the May readings.

House price gains to date suggest an eventual acceleration in shelter inflation from the current rate of 2.0 percent annualized to about 4.5 percent. If house price growth continues at the current pace, shelter inflation would likely move even higher.

Timing lags suggest that increasing shelter inflation will last through at leastצ2022, meaning “transitory” increases to the overall inflation rate may be more prolonged than many expect.
Due to the heavy weight given to shelter, housing could contribute more than two percentage points to core CPI inflation bythe end of 2022 and about one percentage point to the core PCE. Both would be the most substantial contributions since 1990.

The global supply chain grid lock may not be cleared until well into 2022. Shipping rates continue to soar, delivery delays are up significantly, and inventories are insteady decline. Container freight rates, forexample, have increased more than 400% over pre-pandemic levels.

According to the Institute for Supply Management’s latest data, delivery timeshave also slowed, with manufacturing supplier delivery times roughly 30%  slower than they were a year ago.

“Shipping costs are increasing at a double-digit pace, wait times for products remain unusually long even as throughput at ports has improved, inventories are still inadequate, and labor is hard to find,” theWells Fargo economists wrote. “Not onlyare these problems symptomatic of ongoing supply chain constraints, they area source of price pressure that continues to filter through the economy and stoke inflation.”

Ken Simonson, chief economist at the Associated General Contractors of America, commented in the AGC’s June release that, “Steadily worsening production and delivery delays have exceeded even the record cost increases for numerous materials as the biggest headache for many non-residential contractors. If they can’t get the materials,they can’t put employees to work.”

He added that contractors are being told they must wait nearly a year to receive steel shipments and 4-6 months for roofing materials. As a result, home builders could not keep up with demand, manufacturers faced delivery delays of materials needed to finish goods, and “it remained difficult for many firms to hire new workers, especially low-wage hourly workers, truck drivers, and skilled trades people.”

Of course, the construction industry is far from being alone in this predicament. Two other notable sectors suffering from supply issues are the semiconductor and automotive industries, as the Computer Chip Shortage of 2021 shows no signs of slowing.

Intel has warned that the global semiconductor shortage that has affected the auto industry and raised the cost of some consumer electronics could last until the middle of 2023. “While I expec tshortages to bottom out in the second half [of 2021], it will take another one to two years before the industry is able to completely catch up with demand,” CEO Patrick Gelsinger said recently.

That is particularly disheartening news for carmakers, with many of their plants lying idle this year due to a lack of chips –General Motors was forced to stop making most of its full-sized pickup trucks for aweek in July. Due to the limited supply ofnew vehicles, used car prices are soaring.

Goldman Sachs has said that new car inventories are unlikely to recover until September and will remain well below pre-pandemic levels through the end of next year. The bank said it expects new car inventories to fall further in August, toaround 1 million vehicles, before beginning to steadily increase in September. The firm forecasts that new car prices will likely continue to rise over the next few months, peaking around 6% above their pre-pandemic level toward the end of this year.

Location is Everything

For several reasons, manufacturers of all sizes are taking a hard look at location – both where they produce and where their supplies are located. Recent upheaval and supply chain issues, including the COVID-19 pandemic and trade disputes, have driven home the point for companies that it is irresponsible to maintain just one point of production far away from their consumer base. In addition, rising labor costs in China and other parts of Asia, when coupled with the economic power of the U.S. consumer, are encouraging manufacturers to rethink their conventional goods production strategy.

Of course, the issue of relocating production closer to home dovetails with another high-profile challenge: hiring difficulties in the USA and other developed nations.

Chnging Workforce Demographics

Apart from the wage angle, hiring difficulties have also led many businesses to expand their horizons when it comes to recruitment considerations, which includes lowering their standards in terms of qualifications and experience. Teenagers are now filling an essential gap for businesses across the U.S. who are struggling with a labor shortage. In May 2021, more than 22% of teens ages 16-19 had a job, the highest level since 2018, according to the Bureau of Labor Statistics.

Companies and other employers are also beginning to introduce phased-retirement and part-time work opportunities. Americans’ increased longevity, coupled with the need to finance a growing share of their care, are significant factors driving older adults to delay retirement and remain in the labor force. While the U.S. workforce is expected to grow at just 0.5% over the next decade, adults over age 65 represent the fastest-growing segment. By utilizing their potential, companies are able to draw on several other benefits, such as retaining skilled workers for longer, and enabling them to pass on key institutional knowledge to their younger colleagues.

Immigration

Looking elsewhere for workers will also result in many companies opting to import workers from overseas in order to resolve hiring problems and offset the increasing wage and product costs driven by current inflation. This may however be bad news for American talent, as the presence of foreign guest workers can depress wages and conditions in the sectors that employ them, argued Kent Wong, director of the University of California, Los Angeles Labor Center and former staff attorney for the Service Employees International Union. “Historically, employers have pushed for relaxing visas and relaxing immigration policies in order to maintain a low-wage workforce,” he said.

Global businesses that have established connections and an existing pipeline of migration workers will enjoy far greater flexibility in their hiring process. During 2020, the COVID-19 pandemic had a significant effect on immigration and visas, fueling calls for lawmakers to allow for additional H-2B visas, those allocated to temporary seasonal workers in non-agricultural jobs, such as hospitality, landscaping, food service, and processing.

Perhaps unsurprisingly, the unemployment rate for leisure and hospitality workers, while shrinking, was still the highest of all industries in the BLS May jobs report, at 10.1%. In a June 21 report, Goldman Sachs economics researchers wrote: “We expect that the collapse in visa issuance during the pandemic will reduce the labor force for the next few years.” That collapse reduced the labor force by 750,000 people, with 450,000 of those stemming from a drop in temporary worker visas and 300,000 from immigrant visas. “Since the loss in immigration in 2020 won’t be offset by higher immigration going forward, most of this drag will persist,” they continued.

In response, the U.S. Chamber of Commerce has advocated expanding legal immigration and access to worker visas by doubling the annual H-2B visa quota and introducing a permanent exemption for returning workers, among other measures. While many agree that more worker visas are generally beneficial to the economy, it may not be a straightforward solution.

“The labor supply everywhere is disrupted,” said Abigail Wozniak, a labor economist at the Federal Reserve Bank of Minneapolis. “It might make sense on paper to open the doors to more foreign workers, but these disruptions are happening in the individuals’ home countries as well, matching the right employers with the right employees takes time, and employers who aren’t accustomed to the rules of various worker visa programs are unlikely to adopt them suddenly.”

The Florida Real-Estate Market and the Minimum Wage Increase

Minimum wage increases are a constant yet controversial subject across America, with politicians, economists, activists, and the general public weighing the pros and cons. Broadly speaking, the effects of any increase tend to be viewed as positive for low-wage earners and negative for small businesses. The national debate surrounding the $15 minimum wage rages on, but Florida voters passed a ballot proposition last November that will raise the statewide minimum wage to $15 an hour. Florida is the 8^th state to pass such a resolution. According to the Economic Policy Institute, this measure will raise wages for around half of Florida’s workforce (as 50.1% of people currently earn less than $15 an hour).

Concentrarions of Low-Wage Workers – Florida VS. Nationwide 

Statewide, 3.85M workers (50.1%) earn under $15 an hour; 2M (26.8%) earn under $10 am hour

When and How?

Florida’s minimum wage will gradually be raised to $15 an hour over the next six years.

Currently set at $8.56, the minimum raise will increase to $10 per hour in September 2021, and will then increase by $1 every year until it reaches $15 an hour in 2026.

Then, from September 30, 2027, Florida’s minimum wage will be adjusted for inflation on an annual basis.

Effects of Raising the Minimum Wage

Economists have always differed in terms of both the type and extent of economic consequences that may arise as a result of minimum wage increases – and they continue to represent a whole spectrum of views today. Main points on each side include possible effects on jobs, inflation, small businesses, and the federal deficit.

The standard reasoning against raising the minimum wage is that wage increases are an inefficient way to ward off financial insecurity. However, if the increase is too high and places too great a burden on businesses, it can also affect employment.

Advocates for raising the minimum wage argue that a higher starting wage will increase financial stability for low-wage earners, giving them more money for expenses and necessities like rent, and reduce government welfare spending. As low-wage workers tend to spend most of their extra earnings, this will help to stimulate the economy and spur increased business activity and job growth. In addition, there will be less job mobility, and workers will keep their jobs longer, which will offset the cost of higher wages. Increasing the minimum wage also benefits large companies and urban areas, which can support higher wages than small businesses and rural areas.

Crucially, from our perspective, raising the minimum wage strengthens investors’ ability to raise rent accordingly in lower-income areas. It also significantly reduces the risk of missed rent.

U.S. Job Openings Hit Record High as Wokers Quit in Droves

Hiring Diffculties & Worker Attitudes

The U.S. Economy Currently has More Open Jobs than Job seekers

Experts attribute current hiring difficulties to several primary factors:  unemployment benefits, pandemic concerns,  and childcare. One thing is clear, the issue is not down to a shortage of jobs. In June, according to the Job Openings and Labor Turnover Survey, U.S. job openings soared to a record 10.1 million, exceeding available workers for the first time since the pandemic recession began. A handful of sectors were even tighter than the broad ratio implied. The wholesale trade sector — businesses that sell goods and merchandise to retailers — had a three-month average ratio of just 0.4 workers-per-opening, per Economic Policy Institute data. That made it the tightest industry in the U.S. Meanwhile, the finance, insurance, and government sectors displayed similar ratios of 0.6, and restaurants and accommodation businesses had ratios of 0.8.

The sectors most adversely affected by the COVID-related economic shutdown are still struggling to fully recover. Pandemic-related concerns are still a key factor for many Americans, as jobs that require physical interaction with other people (nurses, servers, checkout staff, hotel cleaners, etc.) continue to receive substantially fewer candidates than open positions. University of Massachusetts Boston professor Françoise Carré noted that retail jobs have been particularly grueling during the pandemic because of their “frantic pace” and employees’ fears over catching COVID-19.

Harvard University economist Lawrence Katz has highlighted the fact that, while many employers might want things to go back to the way they were before the pandemic, many workers have something else in mind. “It’s a mismatch of expectations and aspirations,” he said.

Rich Templin, a lobbyist for Florida AFL-CIO, a federation of labor unions around the state, commented that the biggest issue is that jobs in the tourism and service industries don’t pay well and don’t provide benefits. “We are seeing a major reset of the labor market in this country because of what we just went through and what we’re going through right now. What business owners are saying is, ‘We want you to come back under the old rules and be paid poverty-level wages,’” Templin said. “And people are saying, ‘no.’”

Chris Tilly, a professor at UCLA’s Luskin School of Public Affairs, said it’s hard to make predictions about what’s next for the labor market, but noted that consumer demand appears to be outpacing retailers’  ability to staff stores – circumstances that give workers more leverage. “I don’t think we’re at a point where workers have permanently gained the upper hand, but I would be cautious about saying exactly when the power is going to shift back more to employers,” he said. The central issue is that “retailers are having trouble attracting workers at the rates of pay that they’re offering. Consumer demand is expanding faster than people are able and willing to go back into the labor force,” he said.

Echoing his sentiments, Sylvia Allegretto, a UC Berkeley labor economist, pointed out: “There’s simply no labor shortage when you’re talking about finding house cleaners for a hotel—there is a shortage of workers who want to work at what you’re offering.” She said the country is experiencing a “wage and benefits shortage.”

Leading Brands are Raising Wages

The availability of vaccines, paired with a broader reopening of the economy, has spurred a snapback in economic activity in recent months, and consumer demand has vastly outpaced businesses’ hiring ability. Scrambling to find workers as business surges, many companies have started to raise wages and offer hiring bonuses to attract candidates.  Average hourly earnings were up 4% last month over the same period last year. In May, Chipotle announced plans to raise its hourly wages to an average of $15 by the end of June. Soon after, McDonald’s said it would raise the hourly wage of its restaurant employees by an average of 10%. Costco is among other companies that recently pledged to increase their minimum wages to at least $15. Disney is also offering $1,000 bonuses to recruits who sign up to become housekeepers and kitchen staff amid the labor shortage.

“If a bunch of large employers in the labor market raise pay, other employers are going to be compelled to raise pay a little bit too, to make sure that they can recruit and retain their workforce,” Ben Zipperer, an economist at the left-leaning Economic Policy Institute, told Insider in March. Zipperer said that small businesses in those areas will probably feel those spillover effects and will likely feel compelled to respond.

A recent working paper from the University of California examined the impact of Amazon, Whole Foods, Target, Walmart, and Costco’s starting wage increases. The researchers found that minimum wage raises at big firms may have had a knock-on effect at other businesses in the area. Following wage increase announcements at large companies, nearby firms followed suit, even matching the announced wage in some cases.

 

The study looked at the companies that were most affected by these increases or employers in the same labor market where a large share of wages before the announcements was at rates below the new voluntary wages of these major companies. According to the research brief, the more affected companies went from having similar wages to the less affected companies before the big company announcements, to then raising their advertised wages significantly afterward.

A separate report from the Labor Department’s Bureau of Labor Statistics noted that the big monthly hike in consumer prices translated into negative real wages for workers in the month of June. Real average hourly earnings fell 0.5% for the month, as the CPI increase negated a 0.3% increase in average hourly earnings.

Florida Postioned as Long Term Winner Post COVID

As a direct result of Florida’s generally well-balanced approach to handling the pandemic, protecting the state economy alongside public health, the Sunshine State has become a leader in population growth. More Americans are now choosing to move to Florida than ever before.

Florida’s unemployment rate now stands at 5%, lower than the 5.4% national unemployment rate. In addition, the state’s attractive tax policies (including 0% state income taxes) are a strong allure for both businesses and high-earners.

It is against this backdrop that Florida has become the first southern state to raise the minimum wage to $15 by 2026. More than 50% of the Florida workforce will receive a pay raise (as they now earn less than $15 an hour). This will naturally attract young blue-collar workers from neighboring states to Florida.

As a result of Florida’s proactive yet thoughtful economic planning, creating balanced initiatives to boost the economy, the state may well have hit on a winning strategy that others are sure to follow.

In the current economic climate, real estate has received increasing attention as an asset class. Florida’s multi-family industry was one of the most resilient sectors in the face of the pandemic, showing strong rent gains and high occupancy.

Multi-Family Industry in Florida

62,000 New Renters Moved to Florida in 2020. More Americans are now choosing to move to Florida than ever before.

Demand for multifamily rentals in Florida increased post-Covid-19 due to population growth from people migrating from other states, mainly New York & Texas. Household formations in Florida have increased by over 165,000 in 2020, which represents more than 62,000 new renters. 
In commercial real estate, population growth and job growth are key indicators fueling rent growth—and Florida has those two trends going notably.

Moved into Florida

With no state income tax and low cost of living, more companies are moving their operations to Florida.

In August, Amazon announced plans for six new buildings in Florida. A new robotics fulfillment center and five new delivery stations will create more than 2,000 full-time jobs in the Sunshine State. 

Earlier this year, Pfizer announced plans for a ‘global capability hub’ in Tampa, leasing more than 100,000 sq. ft. of office space with 600 new high-wage jobs. Over the last three years, more than 70 financial firms have relocated from New York City to South Florida, including hedge fund giant Elliott Management, who announced moving its headquarters to West Palm Beach. 

Announcements from large companies proceed to happen across the state, strengthen the population growth that is driving multifamily demand. Florida, structural, long-term, and sustainable economic growth has been persistent over the recent years. As GDP growth is a strong driver of real estate prices and rents, real estate investments provide a direct way to participate in the strong growth of Florida’s economy.

Minimum Wage

Last November, Florida voters passed a ballot proposition to raise the statewide minimum wage to $15 an hour by 2026. 

Currently set at $8.56, Florida’s minimum wage will increase to $10 an hour on September 30th, 2021.

According to the Economic Policy Institute, this measure will raise wages for around half of Florida’s workforce (as 50.1% of people currently earn less than $15 an hour).

Raising the minimum wage strengthens investors’ ability to raise rent accordingly in lower-income areas. It also significantly reduces the risk of missed rent payments, as tenants will have more money in their wallets on a regular basis.

Florida’s proactive yet thoughtful economic planning, creating balanced initiatives to boost the economy. The state has hit on a winning strategy that makes Florida a tremendous real estate investment market.