“Be fearful when others are greedy and greedy when others are fearful.” — Warren Buffett
Multifamily investing keeps getting more and more attractive!
Investors are getting spooked because interest rates keep rising.
You might want to wait on investing because of this.
If inflation is around 15% to 18% (which shadowstats states), you could be losing 40% of your wealth over the next two years due to inflation.
Warren Buffett says: “Be greedy when others are fearful, and be fearful when others are greedy.”
When there’s fear, there’s a great opportunity to make a lot of money.
We’re gonna go over this in three easy steps!
1. Buy Real Assets That Pay You to Hold Them
Inflation has become a big issue for a lot of people.
Simply holding and waiting is going to penalize you.
The answer to this is to buy assets that pay you to hold them.
Multifamily investments can be that asset.
There are other investments like self storage or mobile home parks.
They’re great assets that have a built-in inflation hedge.
This is different from bonds and stocks.
Bonds and stocks do not have inflation hedge.
Yes, as money creation and inflation rises, stocks could go up.
However, in Germany during the 70s, stocks did not keep up with the pace of hyperinflation.
My friend George Gammon has a great allocation formula called 10-80-10.
10% of your money would be in physical gold.
That acts as insurance against inflation.
80% goes to cash flowing assets that pay you to hold them.
The remaining 10% is speculative assets.
Maybe it’s crypto, maybe it’s gold mining stocks, maybe venture capital.
There are many things you can do that give you the opportunity to really grow your wealth over time without the high risk that happens with inflation.
2. Multifamily Rents Are Rising
The second reason why multifamily is so attractive is that rents are rising.
In October 2021, the average rent in Jacksonville was $1,320.
A few months later in May, it was $1,460.
In August, it was $1,566.
That’s a rent increase of 19% in 10 months!
Why is this happening?
During the pandemic, the government created a lot of new money.
Specifically, they increased money creation by 40.9% over a two-year period.
Because of this, physical cash increased by almost 41%.
That’s insane, right?!
That’s why I think real assets that pay you to hold them, such as multifamily, become so much more attractive.
The value-added approach also gives safety to a deal.
Let’s go over an example from a real turnover we did:
Current rents are $1,000 per month.
We do a $6,000 upgrade per unit.
By upgrading simple things like appliances and flooring, average rents go up to $1,566 per month.
That’s a 57% upside!
A value-added approach is much better than buying brand new Class A properties because of this.
When you buy older properties, you make them better.
If you buy newer things, you don’t get downside protection.
Value-added protects you from rising interest rates, decreasing valuations, unforeseen economic risks, and rising inflation costs.
We’re actually buying below replacement costs.
We acquired a building for about $165,000 per unit, and the going cost to build new apartment units in this market is around $190,000 to $200,000 or more.
Costs keep going up.
There’s also a great inflation hedge in multifamily.
But the biggest numbers aren’t in rents or acquisition costs…
3. We Are Still Short Millions of Housing Units
There’s a debate going on about how many units we are short in the US.
This study from Realtor.com says we’re short 5 million.
Another from the Association of Realtors says 6.8 million.
The Housing Underproduction report says 3.8 million.
Whatever the number is, it’s a lot.
We’re short millions of housing units.
There are not enough places for people to live, particularly in growing markets.
Supply is low, demand is high, and rents keep pace with inflation.
This chart from Mother Jones shows that rents and inflation are almost hand-in-hand and follow a trend line.
As they continue to print money, rent will continue rising over the long term, even if there’s some short-term movements.
It’s going to work out very well for apartments over time.
Because interest rates are rising, that actually leads to a higher cost of ownership.
I don’t think it’s as simple as interest rates going up so the asset value goes down.
It’s the cost of owning the asset that goes up.
Rent, in turn, goes up, so the income for the property goes up.
It’s a very unique time right now.
A lot of money is made in times where things are uncertain.
You do pay a premium to have a lot of clarity in the short run…
But if you know something will be great, and there’s high demand, it’s time to jump in with both feet!
Now I want to hear from you.
Have I convinced you to invest in multifamily?
Can you think of other benefits that I missed?
Let us know in the comments below!
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.
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.
