MULTIFAMILY: A STABLE INVESTMENT
So, you are considering investing in an apartment complex. You realize there are significant beneficial features of real estate investments when compared with others, such as stocks, mutual funds, or gold.
AN IDEAL INVESTMENT
Mike shared five of these benefits last week: Income, Depreciation, Equity build-up, Amortization of the loans, and Leverage. The first letters spell I.D.E.A.L.
- Real estate creates INCOME, rents paid by residents come in, expenses go out, and there is a net income at the end of the month. Income is the first benefit of this IDEAL investment.
- DEPRECIATION is next, a tax benefit, which is not available with mutual funds or other types of investments.
- EQUITY build-up is third. The value increases over time.
- AMORTIZATION is fourth, making principal payments on the loans.
- LEVERAGE is the fifth, being able to borrow money to add to your investment, thus multiplying the returns.
Those are significant, especially as they add together.
Let’s look at another benefit. The stability of the valuation of apartment complexes.
Every investment has some volatility. Values go up and down, of course, with all investment vehicles. The price of gold goes up and down. Bitcoin values go up and down.
Home values have been going up and appear to be coming down a little bit right now. Do you remember the housing crash of 2008? Retail, single-family home values took a scary plunge back then. It was the largest decline in single-family home prices since the great depression.
Stock values fluctuate a good bit, too, don’t they? If you have been around for a while you realize the ups and downs of the stock market, sometimes huge. They can drop in a matter of days, even hours. Do you remember Black Friday in October 1987?
Remember Mike’s story of a stock he owned that dropped 30% in one day? Ouch.
Erratic fluctuations in the value of investments are big stressors, aren’t they?
MULTIFAMILY IS LESS VOLATILE, MORE STABLE
There is one asset class that has a history of not only providing an excellent return on the investment, it also has remarkable stability in its valuations.
I am talking about multifamily properties. Apartments have proven for decades to be a sanctuary from market volatility. Even though prices do go up and down a bit, historically the swings are much lower compared with the other asset classes.
This helps me sleep better at night, knowing that some external circumstance or event will not have a large effect on the price of my multifamily properties, one way or the other. Multifamily real estate has demonstrated significantly lower volatility compared with alternative investments.
A mathematician, Nobel Laureate William F. Sharpe, developed a formula for evaluating the performance of various investments relative to volatility. The formula is called the Sharpe Ratio. It considers not only the return you make on the investment over time but how much variation there is in the value over that same time period.
A higher Sharpe Ratio means that a particular investment has provided better risk-adjusted returns. It measures volatility. The higher the Sharpe Ratio the lower the volatility. You and I want these better risk-adjusted returns.
Commercial Multifamily Real Estate is 3 to 4 times less volatile when compared with corporate bonds, large-cap stocks, gold, and other asset classes. It has a higher Sharpe Ratio.
WHAT DOES THIS MEAN?
What does this mean? Two different investments may return the same amount over a given period of time. Multifamily properties are 3 to 4 times less volatile, they don’t bounce up and down as much over the same period. They aren’t as scary.
Apartment valuations, for example, during the recession around 2008, unlike stocks, unlike single-family homes, did not fluctuate much at all.
It is kind of like the tortoise and the hare story. Multifamily plods along more steadily keeps on keeping on, no big swings in value. Stocks dart up and down, like the hare racing and sleeping.
The tortoise won.
Why? Those who study the forces of supply and demand know the difference between basic needs and changing preferences. Multifamily serves a basic need.
People need a place to live, an affordable, flexible place to live. Apartments provide this year after year after year.
Over the past four years, with our 128-unit apartment complex, we have witnessed this stability. Sure with COVID and the interest rate hikes the value of our property went up and down over time. But, all in all, the volatility was a whole lot less than in single-family homes and the stock market during the same period.
If you want a less volatile (read less scary) investment, take a good look at investments in apartment complexes. Safe, affordable housing meets a basic need. It serves a steady, proven demand.
This gives stability and even steady growth over time.
THIS IS WHAT YOU WANT, ISN’T IT?
As passive investors in a syndication, a more stable valuation of your asset is what you want. These are long-term investments. They are working for you for 3, 5, 7 years or longer.
You are seeking an appropriate, even excellent return, but without the scariness of volatility while you are holding it, right?
Kind of a set-it-and-forget-it investment. Like an autopilot.
When investing, be sure to check out not only the return on your investment but also the volatility of the value of your investment. You will find a multifamily investment to be significantly less volatile, and a whole lot more stable.
That is what you want, isn’t it?
Help Us Get to Know You Better
Join us at noon Eastern time on the third Wednesday of each month as multi-family investors network and engage in conversations about how to be better investors. We discuss opportunities and what we are doing in the current market.
Our next Multifamily meetup is Wednesday, February 21, 2024 at noon (Eastern).
Attune Investments provides a better return for our investors. And we make a positive impact in people’s lives and in our world.
If you want to learn more about how others are investing with us then we invite you to join our club and request a conversation with us. See below.
Through the power of a syndication partnership with other investors like you, working with managing partners who are experienced in managing apartment complexes, you can own multifamily assets.
Or you can choose to loan money, get in with a clear return, and get out earlier.
If you haven’t already subscribed to our BLOG, you can increase your knowledge and comfort with this asset class by subscribing now. It’s free. We publish an article every week. SUBSCRIBE HERE And take one more step. Become a member of our ATTUNE INVESTORS CLUB in which you have more personal access to us. JOIN HERE.
Harland leads our Investor Relations. He is a “repurposed” Pastor and Army Chaplain. He is an author, speaker, mastermind facilitator, and coach. Harland lives with his wife, Barbara, in DeLand, Florida.