Episode 1
Let’s first clarify that investment is not gambling. Investment is a legitime process of creating value over time.
People could argue that there are multiple ways to create value over time. There is a known list of types of investment, such as stocks, bonds, cryptocurrencies, precious metals, etc., but these investments are like gambling in a casino. In addition, they are very speculative with a very low assertiveness on the “experts” predictions.
But without argument, income property is the most reliable and secure way to create value over time while it is producing income.
Income property is a multidimensional asset class, which is the opposite of stocks, bonds, etc., which are unidimensional – Why low – Sell high. This formula does not always work in the investor’s favor, but more frequently works in the trader’s favor.
We must consider the difference betwee
n the Wall Street Economy and the Main Street Economy.
We may say that the Main Street Economy is facing an adjustment with the interest rate increasing and inflation going up. That is a fact. But even with the interest raising, real estate is still the best investment.
Historically interest rates have been fluctuating from 16.63% in 1981 with an inflation rate of 10.32%. Then from 1983 to 1990 oscillated from 13.88% to 10.13%.
Contrary to what people may think, there was a boom in commercial real estate during the 80s and early 90s.
Now let’s come back to 2022 – We may th
ink that we need to wait for the interest rate to go down before we invest in real estate. Well, let’s think twice…..
Multifamily investment has been known to outperform other major commercial real estate sectors and it is on track to continue this trajectory. These are the factors.
1. Younger generations renting longer.
2. Number of downsizing empty nesters increasing.
3. Individual Credit Card debts and low credit scores.
4. Demand for apartments has continuously outpaced supply. According to the National Multifamily Housing Council (NMHC), America needs 4.6 million more apartments by 2030.
5. Millennials are delaying purchasing a home due to lifestyle choices and student debt.
6. The National Multihousing Council projects that the country needs to build 328,000 new apartment units annually through 2030 to meet demand — but between 2011 and 2017, only 243,000 new units were completed yearly, leaving an average annual shortfall of 29.8%. Also, we must consider that almost 50% of apartments in the United States were built before or during the 1980s. This creates exceptional demand for quality multifamily products.
7. Housing rents account for 33% of consumer spending.
8. Rent increases with value-add such as interior renovations, which offers predictable growth.
9. Hedge against inflation. We see rent increases up to 20% in some cities.
10. With inexpensive capital and favorable financing widely available, multifamily has an advantage over other investments.
Stay tuned and I will explain why it is a good time to invest in real estate regardless of interest rate and inflation increases.
Also, I will elaborate on the factors leading us toward what Dr. Peter Linneman has called “the golden age of multifamily investing.”
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