6 Reasons Why Apartments are a Stable Investment

May 10, 2016

One of the topics that intrigues people about investing in apartments is the security of real estate – coupled with their wariness of the stock market.

Why is multifamily is the safest asset class?
First and foremost, the need for housing is an Inherent need of survival. Like food, shelter is a central necessity that can’t be ignored. Not everyone needs to go get their nails done, but they all need a place to live.

There continues to be a dramatic shortage of workforce housing. The new inventory of units coming online is largely at the top of the market, luxury rentals in metro-central markets. It is not cost effective to build for middle income and strong demand will continue to exist for the middle income renter pool, a sweet spot for opportunity.

How does an investor benefit from these healthy market conditions? Multifamily investments offer a stable place to invest, as an inflation hedge, and it offers great growth potential. The passive investment benefits include:

  • Cash flow – If you have the right accountant on your team, multifamily real estate is one of the few remaining investments where you can take a paper loss while collecting cash today.
  • Principal Paydown/Asset Creation – Time becomes your friend and more and principal is paid down faster and faster by your tenants.
  • Forced appreciation – Increase the value of your property regardless of market conditions. Growing rents via property improvements or operational improvements equates to increased value in your property.
  • Market appreciation – The importance of buying your deal in the right location can’t be overstated. Understanding the merits of the location sets the stage to allow market momentum to boost your property value further.
  • The power of leverage – With rates as low as they are, there has been no better time to borrow and enhance the returns on your investment.
  • Tax benefits – Through careful deployment, these powerful benefits will allow you to pay taxes on as little and pocket as much money as possible.

Diversification is important to any well-balanced portfolio. The fundamentals of multifamily real estate have shown durability beyond the initial explosion of interest in this asset class.