“The best investment on Earth is earth.”
– Louis Glickman
We have a portfolio that includes over 2,000 multifamily units.
But in the last couple of years, we haven’t really been involved in new multifamily investments.
Multifamily has been an interesting place.
We’ve seen some pretty serious challenges.
A lot of investors are scared because they may have been pinched by a capital call or some other issue.
But I believe right now, we’ve reached an inflection point.
We should start getting back into the idea of being greedy when others are fearful.
Now, every investment involves risk, so you should consider your options.
According to this article in the International Journal of Theoretical and Applied Finance, the best investment strategy for alternative assets does two things:
First, it maximizes long-term capital growth.
Second, it considers both average return and volatility.1
Today, I’ll make my case for why I think you should consider investing in multifamily today.
Let’s jump into it!
1. Emerging Trends
Let’s first talk about the challenges in multifamily.
We’ve recently seen the fastest interest rate increase in over 40 years.
The sudden shift caught a lot of people off guard.
This put a lot of pressure on operators.
Particularly those that had shorter-term debts and doing value-add type projects.
There’s an incredible demand for more housing right now.
According to this study, we are 4.3 million apartment units short.2
Everybody needs a place to live, whether that’s an apartment or a house.
Multifamily can meet that need.
It’s a resilient asset, which means we know it’s going to be around in ten years.
2. Market Stability
Now is a great time to invest because if the rates go down, the valuations start to pop a bit.
When you buy, your buying price is fixed.
Your interest rate can potentially be adjusted later.
Sometimes, it’s actually better to buy at a higher interest rate if you know rates are coming down.
A few years ago, there could be over 30 different groups trying to buy a single apartment building.
It was incredibly competitive!
We’re not seeing that so much anymore and it is less competitive.
However, from a population growth viewpoint, we’re seeing markets that are bursting at the seams.
AND selling for a 20% to 30% discount or more.
If you look at costs across the US, we’ve had around a 50% increase in the overall money supply.
It’s no wonder we’ve seen prices for things like groceries increase 50% since 2020.
We’ve created more currency without having an increase in productivity which equals inflation.
Just about everything across the board costs more, except multifamily apartments.
There is growing demand in this area that is not going to last.
For example, we’re getting a deal at a significant discount.
The owner has to sell next month because there’s no way to refinance.
We can take advantage of this for our portfolio, and so can you!
3. Future Outlook
People will always need a place to live.
We know that rents will be more expensive in 10 years.
In this chart from Mother Jones, you can see the correlation between inflation and rents.
As inflation rises, rents will rise along with it.
You can take advantage of this by owning assets that pay you to hold them and have an inflation hedge.
Using other people’s money to invest is also a smart move.
I like deals that are lower levered, maybe 40% or more down.
A very safe, conservative approach with a great operator.
It can be a great approach for someone who’s looking to get back into multifamily.
Now I want to hear from you!
Do you think we’ve turned the corner on multifamily?
Let us know in the comments.
Before you leave, make sure to check out our special report about inflation investing. It shares the best choices to invest during an inflationary environment.
If you are interested in investing with us, we are happy to answer any questions that you may have. Join our investment club today and we will be in touch.
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Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.
Works Cited
1. S. Maslov and Yi-Cheng Zhang. “Optimal Investment Strategy for Risky Assets.” International Journal of Theoretical and Applied Finance, 01 (1998): 377-387. https://doi.org/10.1142/S0219024998000217.
2. “Apartment Supply Shortage.” NMHC. Accessed August 22, 2024. https://www.nmhc.org/industry-topics/affordable-housing/apartment-supply-shortage/.
