The Multifold Value of Multifamily Assets

We have all attended networking events, read blogs, flipped through TV infomercials or listened to podcasts where people share their success stories of starting with little or no money and attributing their wealth to investing in real estate. Countless reality shows on TV feature folks who have found success in flipping single family homes. It is important to note, however, that not all investment strategies carry the same benefits and risks vary greatly across asset classes as well. And there is a reason why investors are turning to multifamily assets.

FEARS OF ANOTHER RECESSION

Some of us are still feeling the impact of the financial crisis that took place when the bubble burst over a decade ago and the market came crashing down. Naturally, given the pervasive volatility in the financial markets, there is an unnerving amount of fear that another recession is waiting just around the corner. Experts point to slowed corporate earnings and higher interest rates as telltale signs that we may be headed towards another downturn.

As such, it behooves us to invest in assets that are not correlated to the stock market and to have diversified portfolios made up of assets that have the power to stay the course over the inevitable ups and downs of various market cycles. This is why many investors are putting their money into multifamily properties.

POST RECESSION PERFORMANCE

Of all the major real estate asset classes, the multifamily market has seen the strongest growth since the last recession, seeing a more rapid increase in prices than retail, office and mixed-use assets. Also, multifamily rents have seen a consistent three to four percent growth each year since 2012. This is likely due to the decline in homeownership as more and more people are choosing to rent and vacancy is at an all-time low. Higher rents means higher profits.

A RECESSION-RESISTANT ALTERNATIVE INVESTMENT

Alarmist or not, markets are behaving as if bracing for what many would say is another inevitable and unavoidable recession. But regardless of how the economy is doing, one thing is for certain: People will always need a place to live. And during a recession, those hardworking individuals are not going to be looking for Class A high-end luxury apartments with all of the bells and whistles. Those renters are going to be looking for affordable and safe housing in secondary markets where Class B & C properties are offered.

Savvy investors are getting ahead of the curve, knowing that even if a recession hits, multifamily investments have historically proven to be recession resistant, often increasing in value during recessions, outperforming other real estate asset classes. Those investors also know that recessions usually mean reduced interest rates which in return lowers capitalization rates. All of this equates into a multifold increase in the valuation of multifamily assets.

INVESTING IN THE FUTURE

Investing in multifamily properties has proven to be a successful strategy for mitigating risk and generating consistent cash flow. And recession or not, the future of the multifamily housing market looks bright. Many would be willing to bet money on it. In fact, many of us already have.