Because we are in the middle of a pandemic, it is logical that people are seeking alternative ways to feel secure about their investments. Further, it is clear that multifamily real estate has less risk than the stock market. We are not saying that there is not any risk, it just isn’t apples to apples. Some of the biggest reasons to invest in multifamily apartment homes include:
When you invest in multifamily homes, you’re investing in a basic need: shelter. When investing in the stock market, you’re investing in businesses that may go under and products that may tank or no longer be useful to consumers. The general public will always need a roof over their head, they may not always want a Tesla.
The National Multifamily Housing Council reports that there are 43 million renters in the US, with 37% of them living in apartments (Quick Facts: Resident Demographics, 2020). This means nearly 8% of Americans depend on rental properties to survive. The United States has had a severe housing shortage for years. In order to make up for it, Freddie Mac estimates that an additional 2.5 million housing units will need to be built. The demand for apartment homes continues to grow (Freddie Mac Economic & Housing Research Group, 2020).
Cash Flow vs. Emotion
Oftentimes, stocks trade on emotions. As we have recently seen, much of the volatility in the market was due to COVID; however, one can argue that an equal amount was due to the information supplied to the public via media and/or social media which creates an emotional reaction from the public. This confidence or lack thereof, is emotional and had negative impact on stocks and the market as a whole. Conversely, multi-family real estate performance is based on cash flow which is objective and steady. Investors will have a steady income through quarterly distributions which is a positive. Further, investors in real estate can lever their investment through bank financing. So, if you invest one dollar in real estate, you may actually have 3 or 4 dollars working for you through bank financing and over time this is a big multiplier.
It has been said that multifamily assets are one of the most recession-proof investment options. According to the National Multifamily Housing Council, “86.2% of apartment households made a full or partial rent payment by September 13 in its survey of 11.4 million units of professionally managed apartment units across the country “(NMHC Rent Payment Tracker, 2020).
There are several tax benefits to investing in multi-family assets. According to Capstan Tax Strategies, “One of the tax benefits multi-family property can provide is the ability to deduct depreciation of the property from your taxable income. Usually, the amount you are able to deduct is calculated based on the federal depreciation table and MACRS class lives for the property.” (Capstan, 2015)
To conclude, multifamily apartments are a low risk, high return, and dependable asset to invest in. To learn more Metonic and our multifamily portfolio, visit metonic.net/properties.
Capstan Tax Strategies. (2015, July 3). Tax Benefits on Multi-Family Projects. https://capstantax.com/tax-benefits-on-multi-family-projects/#:%7E:text=One%20of%20the%20tax%20benefits,class%20lives%20for%20the%20property.
Freddie Mac Economic & Housing Research Group. (2020, February 27). The Housing Supply Shortage: State of the States. Freddie Mac. http://www.freddiemac.com/research/insight/20200227-the-housing-supply-shortage.page
NMHC Rent Payment Tracker. (2020, September 13). Retrieved September 22, 2020, from https://www.nmhc.org/research-insight/nmhc-rent-payment-tracker/
Quick Facts: Resident Demographics. (2020). National Multifamily Housing Corporation. https://www.nmhc.org/research-insight/quick-facts-figures/quick-facts-resident-demographics/