News headlines that read “Inflation Hits New 40-Year High” have become all too common as the 40-year record has been broken several times already this year. The continued increase in the consumer price index (CPI) is causing more investors to look for ways to protect their portfolios or even benefit from rising costs.
One asset class that’s becoming increasingly popular as a strategy to beat inflation is multifamily real estate.
Real estate is well-known as one of the more resilient investment vehicles through market downturns and years of high inflation, but the multifamily sector has some unique benefits that make it an exceptionally attractive investment.
Ability to Adjust Rents: Residential leases usually have a one-year term, which means investors can quickly react to rising costs and increase rents accordingly. On the other hand, commercial leases often keep rental rates fairly locked in for five to 20 years.
Growing Demand: While home prices have started cooling off, higher mortgage rates are making homeownership even less affordable. This means buyers are still being priced out of the market and more people are choosing to rent.
Value-Add: Multifamily real estate values have soared in the past couple of years, making it difficult for investors to find opportunities with substantial upside. However, a value-add strategy allows an investor to purchase an underperforming asset at a discounted price and significantly increase its value through renovations, improved management efficiencies and increasing rents.
Purchasing your own apartment building isn’t a feasible option for most investors. The capital required is often millions of dollars, and managing the properties can easily become a full-time job.
The two most common strategies for investing in this asset class are real estate investment trusts (REITs) and real estate funds.
Independence Realty Trust Inc. (NYSE: IRT) is one of the more popular multifamily REITs right now. The company owns and operates apartment properties across non-gateway U.S. markets, including Atlanta, Louisville, Memphis and Raleigh. The REIT currently pays a dividend yield of 2.72%.
Publicly traded REITs offer a simple way to gain access to the real estate market, but share prices are tied to the overall performance of the stock market. When the market is down, shares in a publicly-traded REIT can be priced lower than the value of the underlying real estate.
While many REITs are benefiting from rent increases, share prices are still down across the board.
The better solution for most investors that truly want to diversify their portfolios could be a non-traded fund that invests in multifamily assets. Most of these funds are only available to accredited investors and have minimum investments ranging from $50,000 to $100,000.
However, there are a few options available for non-accredited investors and those that don’t want to make such a substantial commitment right out of the gate. For instance, CalTier’s Multi-Family Portfolio Fund has a minimum investment of only $500.
Unlike a publicly-traded REIT, units in a real estate fund increase in value based on the value of the assets under management. If the value of the assets in the fund increases, the value of each investor’s equity will increase as well.
Looking for ways to boost your returns? Check out Benzinga’s coverage on Alternative Real Estate Investments:
Exclusive Offering For 3 Large-Scale Real Estate Developments In Markets That Have A Growing Demand For Rental Units
This REIT You’ve Probably Never Heard of Has Paid a Dividend Above 8% For The Last 5 Years
Like Dividends? Then You’ll Love These High-Yield Investments
Or browse current investment options based on your criteria with Benzinga’s Offering Screener.
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