1. Everlasting Demand
Affordable housing is always in demand. During any economic climate one thing remains certain, people will always need an affordable place to live. As demographic shifts occur and consumer preferences change, consumers my prefer more or less space, different floor plans, interior finishes, etc., but the one thing that remains certain is that people will always need an affordable place to live.
2. Recession Resistant
During times of economic hardship affordable housing actually increases in demand and cap rates for Class B apartments decrease. As consumers budgets tighten and they reconsider living in Class A luxury apartments, many renters in the Class A (luxury market) will bump down to Class B (workforce housing) and the Class B tenants will stay put. This dynamic provides you as the investor a margin of safety during an economic downturn.
3. Tax Free Wealth
As a real estate investor you receive monthly distributions from the income generated by the property. Those taxable distributions are offset by the amount of depreciation applied to the property which is often greater than the amount distributed to you during the fiscal year. This substantially reduces your taxable income and provides you with tax-free distributions.
4. Increasing Number of Renters
An increasing number of the American population is now renting their residence instead of purchasing a home. Since their rent is your income, this trend has been increasing the demand for multifamily housing reducing vacancy rates and increasing the returns on investment multifamily properties.
a. The home ownership rate peaked at roughly 70% in 2005, dipped as low as 63% in 2016 and has slowly increased to 65.6% as of 2021 (Source: Home ownership rate for the United Stats FRED).
b. Generational Wealth: Multifamily residential units provide you the opportunity to create generational wealth through, income received from operations (rental income), wealth generated by renovations to the property and increased operational efficiencies (forced appreciation), and wealth generated by paying down the principal balance on the mortgage every month.
5. Dependable Income Stream
Every month you will receive distributions for rental income. Our property management team conducts though due diligence to ensure that the tenants have the ability to make their monthly rental payment. Additionally once the property’s renovations are completed, rents will increase and consequently your monthly distribution will increase.
6. Non Correlated with the stock market
Multifamily real estate is a not positively correlated with the stock market and remains stable during times of economic hardship.
7. Capital Preservation
During the 2008 recession the single family housing market had a default rate of 2.1% compared to the multifamily default rate which was 1.1%, showing that during economic hardship multifamily is twice as likely to remain stable when compared to single family residential (Source: FDIC, Statistics on Banking).
8. Inflation Hedge
The average multifamily lease last for 12-months. At the end of the leasing term, the owner of the multifamily property has the ability to increase rents to match the rate of inflation. This acts as a hedge against inflation for multifamily investors. Conversely the average commercial lease ranges between 5-15 years and has fixed rates for the duration of the lease.
9. Physical Asset
You’re investing in a tangible asset that provides real value and undeniable value to people’s lives. Unlike many financial instruments which attempt to engineer value through complex financial manipulations while the underlying good that people receive isn’t improving.
10. Cheap Debt
Agency lenders—Fannie Mae and Freddie Mac—realize that the risk of financing a multifamily asset is relatively low and in return they provide multifamily investors with extraordinarily low interest rates. You as an investor are generating additional income on the spread between the return on cost of the investment and the interest rate on the loan on the property. Real estate is one of the few asset classes where you can take advantage of leverage to increase your return on investment.