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Investors consider a 60/40 stock/bond portfolio standard, but real estate has provided solid returns over the past 12 months, convincing many to diversify.
LAS VEGAS – Stocks and bonds have always been the main source for investments across the United States. In fact, the 60/40 stock/bond portfolio is a standard that most investors follow.
However, following that trend cuts out one of the most stable investments out there in today’s market: real estate. For the last 12 months, ending June 30, 2022, the S&P 500 was down 11%, Dow Jones Index was down 14% and Nasdaq was down 22%. The volatile Bitcoin went down 68%.
Meanwhile, multifamily real estate rent amounts continued to increase during that same period, and home values on sale continue to trend up, meaning profits continued to climb for investors.
Real estate investors are finding value in multifamily real estate. Annual rent for multifamily properties grew an average of 13.5% during 2021. In fact, multifamily properties continued to generate the highest average returns among real estate classes in 2021, a trend that has been going on for the last 40 years.
Another point to consider is that real estate does not follow the typical stock market swings. While stocks and bonds follow the stock market ebb and flow, multifamily properties are independent of those swings. While this may mean that real estate doesn’t see large swings in returns and losses like some stocks do, it does mean that return profits are more stable and constant.
For example, in 2021, a portfolio with a breakdown of 50% stocks, 30% bonds and 20% multifamily real estate had an annualized return of 18.5%, as compared to a portfolio of 60% stocks and 40% bonds, which had an annualized return of 15.9%.
While multifamily properties may give the strongest average total return, according to a 2017 report by CBRE Research, there are other types of properties that give average total returns over 9% as well. Multifamily (9.75%), hotel (9.61%), industrial (9.57%) and retail (9.44%) all give strong returns, with office properties averaging an 8.38% total return.
The reason that multifamily properties top the list? Millennials have a strong desire for rental properties, while baby boomers have started renting more, as well.
Lease agreements for multifamily rentals also typically last just one year, allowing for faster increases over office, industrial and retail leases, which are typically five years or more.
Mike Ballard is the co-founder of Camino Verde Group, a Las Vegas real estate investment and development firm, and is involved in the development of more than $200 million of multifamily or mixed-use real estate in California, Nevada, Texas, South Carolina and Utah.
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