Why Income-Producing Multifamily Realestate?
Diversifying your investments is critical in sustaining your overall portfolio performance. Investing in multifamily real estate is a great way to earn passive income while protecting your investment from the roller-coaster stock market cycles without having to own the property!
Many Insurance companies, Family Offices, large Private Equity firms, and individual high net worth investors use income-producing real estate such as multifamily apartment complexes to add diversity against indexed investments.
These types of investments can earn consistent, passive income that is not affected by the constant fluctuations seen in traditional investments such as stocks or bonds. Most individual investors do not realize that the same types of income-producing real estate investments that many savvy investors use ARE available to them as well.
HISTORICALLY HIGHER RETURNS
A quick look at the historical returns reveals that not only has real estate outperformed the S&P 500 by a wide margin, it is also less volatile and diversifies your portfolio. If one had invested $100 in a diversified portfolio of institutional quality real estate in 2000, that investment would be worth $415 as of March 31, 2016. That is a 9.2% average annual total return. The same investment in the S&P 500 would be worth $192.
(The real estate returns are based on the NCREIF NPI index* of unleveraged, core properties (Multifamily, retail and Industrial) so that most real estate investments, even with modest leverage, could be expected to earn even higher returns. See our Summary report: "Diversification and Passive Income: Why Multifamily Real Estate Can Be a Great Option for Diversification in Uncertain Times")
A HEDGE AGAINST INFLATION
Income-producing real estate offers low or negative correlations with traditional assets such as stocks and bonds because they are relatively illiquid, infrequently traded, and insulated from commodity speculation, such as options trading. With relatively short (typically one year) lease terms found with apartment complexes, asset managers can increase rents (income) frequently to adjust for any fluctuations in inflation and rental demand.
At a granular level, the ability to adjust rental rates and lease terms gives the asset manager the ability to adjust to local market demands. This maximizes income and occupancy rates which are both key factors in stabilizing a property for long-term revenue and investment growth.
"Performance in the multifamily market remained healthy during 2019 and is expected to continue into 2020, but with more modest growth in comparison to recent years."
- according to FreddieMac Multifamily Mid-year Outlook 2020-