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Should You Invest in a “Frozen” COVID Real Estate Market?

Updated: Mar 7, 2021

man evaluating a real estate investment on video conference call

The COVID-19 pandemic has hit every part of the country, every part of the economy and every facet of the real estate market, including investing in multifamily properties. In the United States alone, tens of thousands of lives have been lost, unemployment is up to a staggering 17.8 million people, and many experts say it may get worse before it gets better.

However, people are still investing in real estate, including multifamily properties. Many investors think this has become a “buyer’s market,” while others believe that we’re in a “seller’s market.” Investors claim that they have seen this type of multifamily real estate market before, during the great recession of 2008. Prices have steadily climbed over the past 10 to 12 years, and investors felt that exceptional deals would once again be available. In their minds, it was simply a matter of waiting it out.

Tenants are Still Paying Rent

The biggest concern was that with unemployment at an all-time high, renters wouldn’t be able to pay their rent, forcing the multifamily property owner to sell his or her property at a discounted price. Despite media reports that predicted that a high number of renters wouldn’t pay their rent, the prediction never materialized. Now, I believe we’re in a “frozen market,” where there’s a gap between buyer’s and seller’s expectations.

According to recent national data, April's and May's rental collections were at 95%. June ended at above 90% collections.. My personal experience with our properties, which are located in Texas, Georgia, and Florida, was that we had 99% rent collections. That’s a far cry from the 75% collection level that the media had predicted.

Buyers were expecting rent collections to drop significantly, which might have moved multifamily prices to drop. Usually when we’re in an economic crisis, the market shifts from a seller’s market to a buyer’s market. That’s when buyers jump in and purchase properties at a significant discount, which is what happened in 2008. However, as I mentioned before, this didn’t happen to many assets. Yes, there are properties that have got hit pretty hard and their collections are way below 95%, but many properties thus far are not doing that bad during COVID. That’s why sellers, for the most part, are not willing to sell at a discount.

Lenders are Changing Loan Requirements

Another aspect of the current multifamily market is due to lenders, who are in the process of changing loan criteria. For example, lenders are giving property owners 90-days forbearance on their mortgages due to the COVID-19 crisis. That means that the expected discounted property prices buyers were expecting simply didn’t materialize. Sellers aren’t really incentivized to sell, not in the first 90 days of COVID, at least. Lenders still remember how painful it was to foreclose on assets during 2008, and are doing their best to avoid this scenario again. My gut feeling is that by the end of the summer, we may see many more deals in the market, as more and more sellers will be at the end of their forbearance period.

Lenders are also more reluctant to lend money at terms they were offering prior to the COVID-19 outbreak. For example, lenders used to require a loan-to-value ratio of 70% to 75% prior to COVID-19 on a solid value-add deal. Now, they’ve lowered the amount their willing to lend to 55% to 65% LTV, which means returns will be lower because you have to put more money into the deal. With lower returns, buyers must lower their prices to meet their minimum returns.

Another change is a new requirement from lenders that at closing, you have to put 12 months of debt payments into escrow. That’s a lot of capital going into each deal, which means that a deal that might have worked several months ago won’t work now. That’s how lenders are reacting to this rapidly changing environment, and they’re trying to predict which properties may default on their loan, for example. The extra capital also affects returns, which, in turn, means lower offers.

What Happens When Tenants Can’t Pay Rent?

While national collections were around 95% in April, that means that 5% to 7% of tenants weren’t paying their rent. What happens when tenants can’t pay? The answer basically is, “it depends,” and it mostly depends on what state your property is located in. Unfortunately, each state has its own laws and regulations that govern when an eviction can take place, so what is applicable in Texas, for example, might not work in California.

My personal opinion is that non-eviction regulations simply don’t make sense. During May and June, we saw a lot of new inquiries from people looking to move to Atlanta, and in one case we had one property that signed 4 new leases. When people see articles about landlords not being allowed to evict tenants for non-payment of rent, the concern was they’d begin to think, “Well, maybe I won’t pay, since nothing can happen to me,” even though they have a job and the ability to pay rent.

The media has been saying that one-third of the people wouldn’t pay their rent in April, and that was definitely not true. Our experience was that 99% of our tenants paid their rent on time in April, 95% in May, and again 99% in June. This helps to reinforce the fact that when it comes down to the basics, housing remains a clear priority to nearly everyone. We will see if this continues into the coming months.

Value-Add Upgrades

At this juncture in the pandemic timeline, many investors believe that it really doesn’t make sense to upgrade in order to raise rents. However, there is still demand for renovated units, even today.

Instead of eliminating value add upgrades, we’ve decided to keep them in place, but in a modified manner. Prior to the COVID-19 pandemic, we would renovate our units and then find tenants to occupy them. Now, we have reversed the order of operation.

When we are showing the renovated units to prospective tenants, we simply offer them the choice. I call it “Renovation on Demand”. The model unit is renovated, and they can rent it at a premium, or they can rent a “classic unit” that hasn’t been upgraded. Only when tenants choose to go with a renovated unit, we will get in and renovate it. It takes us 7-10 days to complete a renovation. This way, we were able to increase rents by 10%-29% during a global economic crisis!

Surprisingly, even in today’s market, many prospective tenants opt to rent the renovated unit at a higher price. That means if you were to stop all renovations and upgrades, you’d be missing out on opportunities to increase your overall income through higher rents. Instead, offer your tenants a choice. By doing so, you’ll still be able to have an opportunity to upgrade your property.

You must remember that not everyone is financially impacted by the COVID-19 pandemic, and many tenants are able to pay a higher rent for a renovated apartment that offers amenities and upgrades that appeal to them. You just need to ask, “Do you want a renovated unit, or do you want a “classic unit?”. The classic apartments are still in great shape, and they’re more affordable. Instead of assuming people can’t afford an upgraded apartment at a higher rent, let them make the choice.

Implementing Cost-Cutting Measures

In addition to doing some modified value-add renovations, we’re implementing some very aggressive cost-cutting measures in order to increase our net operating income (NOI). While it’s always smart to review costs on a continuous basis, it’s even more important now thanks to the financial issues related to COVID-19.

I’ve had our property managers go through every contract, including landscaping, plumbing, and electrical – whatever is currently being paid on a monthly basis is being reviewed. We have renegotiated contracts or chose to go with a cheaper vendor to save costs. We’re also focusing on essential maintenance orders only, which helps keep our staff healthy (since they don’t enter apartments for nonessential work) and reduce costs.

The biggest cost saving measure that helps reduce operating expenses is to reduce tenant turnover. There are many costs associated with tenant turnover including cleaning, painting, repair costs, and advertising costs to attract new tenants. Implementing a tenant retention plan can help to minimize the turnover, and ultimately reduce those costs. Today, we renew leases at an average of 80% (versus 60% prior to COVID).


The COVID-19 pandemic is taking a staggering toll in every aspect of our lives, and it’s something we’ve never had to deal with before now. Taking appropriate steps to minimize or mitigate the impact of this pandemic on multifamily properties will continue to make investing in those assets a smart move. Currently, tenants are still paying their rents on time, but it’s something we’ll need to watch very closely. If your business model is to purchase properties with value-upgrades in mind, you may want to modify your renovation plans for the time being and use “Renovation on Demand”, which worked great for us. Offering tenants a choice between a renovated unit that costs more in rent versus a “classic unit” is a smart move, and you may be surprised at how many tenants opt for the upgraded units. Do all you can to reduce monthly operating expenses so that you are able to increase your net operating income (NOI) each month. Review outside vendors, obtain competitive bids and do all you can to reduce tenant turnover. You will find that by doing these things your occupancy will remain high and multifamily properties will remain an excellent investment.

Want to Invest with Ellie?

If you are interested in learning more about passively investing in apartment buildings, click here to schedule a call with Ellie Perlman.

About the Author

Ellie is the founder of Blue Lake Capital, a real estate company specialized in multifamily investing throughout the United States. At Blue Lake Capital, Ellie helps investors grow their wealth and achieve double-digit returns by investing alongside her in exclusive multifamily deals they usually don't have access to.

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 and learn more about Ellie at


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