Investments are viewed in the context of risk and reward. The four main asset classes are equities (stocks), fixed income (bonds), cash (CDs, money market, savings) and real estate (REITs, GP & LP ownership structures).
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Individual investing must be based on risk tolerance, a desired investment hold period and return on investment. These are the foundations of prudent investing and they should be considered before placing capital in any investment.
Basic real estate advantages:
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Cash Flow: Builds wealth over time through rental income.
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Appreciation: Increased value through proper site selection, demand and operating efficiencies.
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Inflation Hedge: Rental returns may rise with and exceed that of the current inflation rate.
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Amortization: Commercial mortgage interest is tax deductible. Reduction of taxable income.
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Depreciation: Real estate is a depreciable asset. Improvements may be depreciated over time. Reduction of taxable income.
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Commercial real estate may generate preferred annual returns for an LP investor of up to 5-8% per year and gross returns of up to 15% per year based on operator, business plan, hold period and asset class.
Real estate is a strong addition to a diversified investment portfolio. It has the potential to produce greater returns compared to other investments over a business plan's hold period.
Average Yield (Cap. Rate)
2025+ Strong Multifamily Fundamentals:
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A) Multifamily rents have stabilized to a more historical pace. Vacancy rates are in the 90-95% range.
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B) Rising home prices and interest rates have pushed affordability to its lowest level in decades. This has resulted in continued increased rental demand.
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C) Multifamily supply is anticipated to be absorbed in the next two years leading to a rise in rents as supply and demand equilibrium is attained.
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D) Multifamily rentals are expected to continue their trajectory as a strong long term investment due to its demand as a substitute for single family housing.
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E) In a rising interest rate environment, multifamily assets are a hedge against inflation. Short, annual leases have the flexibility to reflect a economic environment. When purchased using a conservative business plan, the asset class will generate positive cash flow and appreciate over a reasonable hold period (5-10 years).