In the last newsletter, we discussed why you might stay on the sidelines with all the volatility in the market right now. Investing in multifamily properties during a high-interest rate and unstable market can still be a smart strategy for several compelling reasons:
Multifamily properties offer a consistent stream of rental income, which can counterbalance the impact of rising interest rates. What percentage cash flow are you willing to consider on a deal? The treasury is paying 5% on for a low risk return.
Housing is a fundamental necessity, and multifamily tend to enjoy steady demand even in turbulent market conditions. Also, there is a wide affordability gap between renting and owning. Due to the high-interest rates, more people are choosing to rent. bolstering the multifamily rental market.
Multifamily properties, as tangible assets, can act as a hedge against inflation. Rental income and property values often rise with increasing prices. Always make sure you do your market research and look at historical increases in the area.
Investing in real estate can diversify your investment portfolio, reducing dependence on traditional assets like stocks and bonds. It also allows you to diversify across different real estate markets. Ray Dalio says that you need to be in 10-15 uncorrelated assets to preserve and create wealth.
Despite short-term market fluctuations, well-chosen multifamily properties in desirable locations can appreciate significantly over time. Look at longer-term holds over 5 years. Location, Location, Location!
Rental Rate Flexibility:
Multifamily property owners have the flexibility to adjust rental rates in response to changing market dynamics. Make sure there is downside protection in the deal.
Even in high-interest rate environments, favorable financing terms can still be secured, particularly if the sponsor has a strong credit profile and track record.
Real estate investments offer tax advantages, including deductions for mortgage interest, property taxes, and depreciation. Talk to your CPA to see how you can use these advantages on your taxes.
Diligent property selection, location analysis, and effective property management can help mitigate risks associated with market volatility.
It’s essential to conduct comprehensive due diligence, evaluate your risk tolerance, and define your objectives and investment strategy. While potentially significant rewards are possible, it’s equally important to recognize the inherent risks and align your decisions with your financial strategy before engaging in any investments.
So… Are you all in or on the sidelines???