Why buy an apartment building?
Buying an apartment building for your portfolio is a great way to beat the devastating effects of inflation. The prices of goods and services are skyrocketing around the world. Soybean prices have tripled in the last 3 years. Oil is at record highs. Gold is making a comeback. This surprising spike in commodity prices, combined with a declining US dollar, creates a perfect storm for runaway inflation. What makes inflation hurt so much for the individual investor is the fact that prices are rising while the value of the dollar is actually falling. In other words, people pay more for goods and services even when the value of their assets is falling. However, the value of an apartment building is determined by the property’s net operating income. Therefore, as rents continue to rise along with other consumer prices, the value of a multifamily investment should continue to appreciate even during an economic downturn.
Multifamily Gaining in Value
Paper assets like stocks and bonds are extremely vulnerable to inflation because even if an investor is lucky enough to own stocks that are rising in price, the value of the paper asset is actually falling due to the falling dollar and the price increase. However, most stocks are falling in price even as the value of the dollar is plummeting. What this means is that your stock portfolio is like a big boat, slowly filling with water from a small leak while binge-eaters can’t keep up with the pumping of the water. Unfortunately, this financial turmoil is occurring at the same time as the worst residential real estate crisis America has ever seen. Apartment buildings are poised to gain value as rents rise.
Smart investors targeting commercial real estate
Smart investors can protect their net worth right now by investing in hard assets like real estate. I don’t recommend purchasing residential real estate at this time because it could take years to clean up the home mortgage mess created by speculation and careless underwriting. What investors need are tangible assets that produce a steady stream of monthly income. Investors need a place to put their money that has pricing flexibility. This is why so many savvy individual investors and institutions are flocking to multi-family real estate. A strong income stream and few vacancies are the keys to a successful investment in an apartment building.
Multifamily properties are an investment stronghold
Multi-family buildings are a bulwark in a down economy because people will always need a place to live. Multi-family properties have a distinct economic advantage over paper assets, residential real estate, and even most other commercial real estate investments. For example, a triple net rental income property may not be as protected against economic downturns as an apartment building because the tenant, a corporate retailer like Tire Kingdon, or a restaurant like Applebees may be forced to scale back operations in a recession Meanwhile, the average consumer will go out to eat a lot less and may not buy a new set of tires for a few thousand miles, but they certainly won’t mind living on the streets. The first bill people will pay at the beginning of the month is their mortgage payment or rent check. This fact leaves the investor in the construction of apartments in a good position.
Foreclosures cause drop in apartment building vacancy
Foreclosures across the country are at a record level. Families are leaving their homes. They still need a place to live and apartments offer a great alternative. Another advantage for the buyer of an apartment building in today’s market is the fact that banks do not lend money easily for the construction of new multi-family properties. Banks are suffering from their poor underwriting of residential loans for the last five years and are not very willing to lend money on the speculation of a new apartment building. This creates a potential shortage of affordable housing in major cities and could have an upward impact on the long-term value of multi-family real estate.
If you are concerned about the effects of the erosion of the US dollar and rising inflation on your portfolio returns, now is an excellent time to consider the many benefits of a strategic investment in the apartment building industry.
