The Stock Rollercoaster! Diversify With The Stability of Multifamily

Your financial future deserves attention.

And you deserve every opportunity to realize your financial goals.

Though it may not seem so recently, investing in the stock market can have its merits and a place in your overall portfolio.  The current volatility can make that investment decision difficult.  At the time of this writing the S&P 500 has dropped as low as around 20% since the February 19, 2020 high of 3,390.

Regardless of current circumstances in the financial markets, there is another option available that is more secure, more consistent, less volatile, and more dependably profitable on your path towards financial freedom.

Multifamily real estate is one of the most stable, best performing, and best cash-flow producing investments available and is one of the most proven asset classes in investment history.

Additionally, the durability of returns from multifamily during the downswing of economic cycles far exceeds that of the stock market.

And perhaps most importantly, the Money Killers (inflation, fees, and taxes) that eat away at your stock investments are largely ineffective against the strengths associated with multifamily investments.

Investment Protection / Reward vs. Risk - Your Money is Safer

With multifamily apartment investing, your money is far more secure than other investments.

Multifamily has the best risk-adjusted return (or Sharpe ratio) of any real estate class and has one of the lowest failure rates of any real estate investment. It is such a stable asset class that it is a large part of almost every AAA rated insurance company portfolio.

Sharpe Ratio:
An investments return relative to its risk, the higher the ratio the better.

Commercial real estate has the best Sharpe ratio compared to any other asset class.

Source: Thomas Reuters Datastream; www.treasury.gov

NPI =NCREIF Property Index

This graph actually represents all commercial real estate. If it was only multifamily, the risk adjusted return would be even higher. Your returns would be even better with less risk.

Over the last 20 years, direct ownership of multifamily real estate has had the best risk adjusted returns of not only any other real estate class, but has been a safer investment than the stock market, bonds, and REIT’s. The returns of MF were three to four times less risky than REIT’s as well as large and small cap stocks.

Your money is safer with multifamily.

Further emphasizing the stability of multifamily investing, the chart below shows the impressively low foreclosure rates of apartments. Using the 60-day delinquency rate to represent this:

Less than 1%!

With its sub 1% long-term historical failure (foreclosure) rate, multifamily is a significantly better choice for the security of your investment.

You minimize your risk and increase your reward.

Inflation Protection - Your Money Doesn’t Lose Value

Money Killers be damned!

Multifamily is inflation resistant.

Take a look at the following chart.

The 20 year average in this example far exceeds the cost of inflation, leaving a strong return.

Better still, apartments are real estate and classified as a “real asset” which means they retain their value. Apartments increase in dollar terms as the US dollar falls in value.

Also, as a cost of living, rental rates tend to move up with inflation. Because apartment leases are usually a year long, you have the ability to adjust and capture rising rents.

Annual rental appreciation has been steadily rising the last 10 years. It is not uncommon to have annual rental increases of 2-4% throughout the nation.

In the preceding chart, the 2.52% loss to inflation is largely neutralized, allowing you to keep the bigger return.

Multifamily investing moves with and adjusts to inflation.

Economic Cycle Protection - Your Money Will Survive a Downmarket

Multifamily investing weathers the volatility of economic cycles far better than the stock market.

With multifamily apartments you have the ability to be able to adjust to the ups and downs of the economic cycle as well as the demographics and economics of the local apartment market.

As mentioned, apartment leases are typically 1 year in length. This allows the ability to lower rents in soft markets, keeping the occupancy high and maintaining consistent cash flow. As the economic cycle or market gets better, you can bring rents back up.

You can work with the cycle instead of being at its mercy.

Also you have the protection of immediate diversification.

With apartments you have multiple revenue-generating units, independent from each other, in a single investment. The more units you have, the more diversified. It’s extremely unlikely that, say, 50 tenants would move out, or not pay their rent at the same time.

Regardless of the adaptability and diversification, the following graph shows just how economically cycle resistant and strong multifamily and real estate are.

In the twenty worst quarters over a thirty year period for stocks and bonds, real estate was down only three of these.

Real estate was up 17 out of 20 times in these down cycles!

With the strength of real estate over stocks and bonds and the ability to be able to adjust to the down cycles, multifamily offers superior financial protection.

Continuous and Growing Demand - Always the Opportunity to Make Money

Multifamily is always in demand.

Housing and shelter is a basic need for everyone. It will never go away.

Other products and investments have not stood the test of time. Remember Kodak film? Do you still use VCR’s, CD’s? Multifamily as an investment will be around for quite some time.

And the demand is growing.

The largest renter cohort (group) are those age 18-34, while the fastest growing cohort are those over 55. Of the 329,000,000 people in the US, about half of those are the Baby Boomers and the Echo Boomers or Millennials.

As you can see, it just so happens that these Boomers coincide with the 18-34 and over 55.

These populations are massive and they are renting.

Baby Boomers are downsizing and renting and once they’ve done so, they tend to remain renters for the rest of their lives.

Millennials rent much more frequently and for longer than any other age group before them.

And the demand for multifamily will continue to grow.

Generation Z, the generation following the Millennials, is the biggest cohort this country has ever produced. And they too will come of age and start renting.

Multifamily investing is not going away any time soon.