The multifamily asset class is off the radar for most which often leads to the question: Why do you invest in multifamily?
Like most, I was Conditioned early in my corporate career to invest in the stock market and fuel my 401k, so I understand why people ask this question which usually leads to another question:
How does an average guy who commutes an hour to his corporate office job and coaches his kids’ soccer teams get into apartment investing?
During the Great Recession of 2008 I realized how fragile my seemingly safe corporate job was. When the company I worked for was acquired, layoffs and uncertainty pervaded the company.
Despite still being employed, my financial future felt uncertain.
After all, my hard-earned retirement and investment portfolio was severely damaged from the economic downturn. I knew there was a better way to invest and build financial security into my family’s future.
After reading Rich Dad, Poor Dad I believed real estate was the best path to expand my portfolio and build the financial security I desired.
Like many real estate investors, I began purchasing small assets. After three years I accumulated 16 units and found myself working my corporate job as well as my new job: Real estate manager.
Despite building a more stable investment portfolio, I wasn’t achieving the time-freedom I desired.
That’s when I discovered syndication, where a group of investors pool their capital to buy property together instead of purchasing and managing their own. I enjoyed the benefits of investing passively and in a few short years built enough passive income to leave my corporate job to become a full-time real estate investor.
Truly passive income is one of the many elements that drew me to multifamily investing:. The simplicity of wiring money to participate in a purchase and receiving distributions without the responsibility of managing any of the operations freed my time for the things I wanted to pursue.
However, there are other details that lured me further from Wall Street.
Continued population growth and the lag in new construction paired with the human need for shelter lends itself to greater stability. In addition to the population growth, sub-demographics including Baby Boomers commonly known today as the “Silver Tsunami” and their grandchildren, the Millennials, are impacting housing in a powerful way.
As the Silver Tsunami heads further into their retirement years many are finding themselves ill-prepared. The impact? More movement from homes to apartments.
Their grandkids, the Millennials are commonly entering their adult years encumbered by debt. Paired with a lack of affordable homes for purchase, home ownership is often delayed and the rental years elongated. These trends were further reinforced with the economic impacts of COVID.
As I looked deeper at the advantages of stocks vs. real estate, I realized real estate has more up years and fewer down years. I found I could use multifamily investing as a way of protecting my portfolio from the deep dips of the stock market, resulting in a higher risk-adjusted returns and few sleepless nights.
One of the upsides of being invested in a tangible asset is that it hedges against inflation. Historically, commercial real estate provides cash flows that exceed inflation. Paired with organic rental growth and price appreciation multifamily investing provides a strong inflation hedge.
What I also appreciate about investing in multifamily real estate is the consistent cash flow that allowed me to leave my corporate job. Then there’s the tax benefits that supercharge the velocity and growth of my wealth.