Traditional equities and mutual funds are no longer enough. These are forcing investors to look for alternative investments. If you are ready to explore outside traditional investment markets, multifamily real estate could still produce above-average returns during a recession. Here's why:
A hedge against inflation is real estate: In contrast to the stock market, real estate is less erratic and does not follow market indices. Housing is a necessary living expense, making multifamily one of the finest asset classes in real estate during a crisis. Multifamily properties rarely go through contractions, in contrast to other types of commercial real estate like shopping centers or office buildings.
Revenues typically keep pace with cost inflation: Short-term leases are common in multifamily housing, allowing landlords to increase rent at each renewal. Rent hikes are currently outperforming inflation and are expected to do so for many years to come, boosting returns for investors.
Rents are more popular as a result of rising real estate prices: More people are renting for extended periods of time due to the lack of affordable housing. Today, buying a home requires more money and greater wages due to escalating housing expenses. Rents and the financial success of multifamily ventures will benefit as a result of the increased demand for multifamily housing.
"The growing economy is boosting household formation, which had been artificially suppressed by the pandemic. New households are catalyzing demand for rentals, which is expected to match the pace of new deliveries in 2022. We forecast multifamily occupancy levels to remain above 95% for the foreseeable future and nearly 7% growth in net effective rents next year." - CBRE Group, Inc.
In 2022 and beyond, rent increases won't be seen in every location. The demand for multifamily housing in markets with positive net migration, on the other hand, is considerable and offers investors double-digit profits. From Texas to Florida, we concentrate on purchasing and managing apartment complexes in business- and landlord-friendly states in the South and Southeast.
Economic variables other than inflation: Although a recession is on the horizon as a result of inflation and rising interest rates, other economic indicators, such as employment growth, are still positive. Strong employment prospects lower risk in multifamily housing since people tend to pay their rent when they have work. Multifamily outperformed all other real estate asset types throughout the last two recessions.
Leveraging debt and utilizing tax advantages: By combining equity money with a group of investors that work together to become partners in the transaction, real estate syndications further enhance your capacity for diversification which can accelerate portfolio growth.. Bonus depreciation will also be available in 2022, giving you more tax advantages for your real estate investment.
Investing in a multifamily project has many advantages as, on balance, real estate offers lower economic and inflationary risks than stocks.
Of course, the decision to invest in real estate or invest in stocks or bonds or other asset classes, which offer different risks and opportunities, is a choice which depends on an investor's risk tolerance, objectives, financial status and investment style.
If you’d like to know more about multifamily investing please feel free to contact us for a no obligation chat or subscribe to our upcoming newsletters.
Anna and Peter Tan
SuiteLifeMF has acquired, operated and invested in real estate for over 10+ years, investing in over 1500 doors and with over US$ 100 under management (900+ doors). The company also operates a property management company which handles a portfolio of single family homes.
SuiteLifeMF maintains a disciplined approach to investing, which focuses on capital preservation and strong returns with a deep understanding of submarkets, economic and political situations.