Multifamily Investing in Inflationary Times - 6 Reasons This Will Protect & Grow Your Portfolio

The past few years have proven to be pretty turbulent, to say the least, and from an economic perspective, there is no end of opinions on what's coming next. Data is pointing to increasing inflation, and the stock market continues to be irrational & exuberant, making many investors fearful of a correction.

I know many investors like to be 'all in' in some form of investing, be it equities, real estate, crypto, gold, etc, but personally, I think that diversification is critical to protecting your assets. It's easy to become emotionally involved in our investment decisions, picking a favorite stock, or buying houses to flip in our neighborhood, or trading crypto because it's exciting, yet if we are really honest with ourselves, if we are investing to build wealth, are we really making smart choices? Are we taking on more risk than we should be, or conversely, are we being so conservative (or, refusing to look at data, over our opinions) that we are missing out on superior returns?

As a long time fan of rental properties, I have finally turned the corner, and plan to invest our future real estate allocation into multifamily syndications. I have written a lot about the reasons why, and you can download 10 Reasons to Invest in Multifamily Syndications if you would like to read more. But, given the concerns of looming inflation, I'd like to explain why multifamily syndications can help you both protect and grow your wealth -

1. Multifamily syndications are not closely correlated to the stock market. Not only that, but commercial real estate, such as multifamily syndications, are even less affected by broader market sentiment than single family homes, further protecting investors from market volatility. If the hot housing market cools down, and if the economy and stock markets experience decline, multifamily syndications are a very attractive alternative, providing stable distributions for years to come.
   

2. Investors are investing in physical assets, which appreciate during inflationary times. Unlike investing in stocks, properties are physical assets, with intrinsic value. Furthermore, the types of multifamily syndications we invest in, as well as offer to our investors, are value add, meaning that our syndicators acquire assets (generally off market) at an attractive valuation, renovate the units & common areas, implement well-reputed property managers, and increase rents to market rates, thereby increasing the properties' valuation on exit.
   

3. Inflation creates further increased costs for construction materials, making newly constructed homes & commercial properties even less affordable (and in less supply) and existing assets more valuable. Not only does this drive housing costs up, but it also makes existing, renovated commercial assets very desirable for investors seeking consistent, stable income streams. REITs, DSTs, funds, institutions, large family investment houses, and high net worth investors are exactly the types of buyers who purchase these stable income streams when syndicators sell their assets.
   

4. Multifamily syndications offer attractive long term income. When inflation sets in, interest rates tend to rise, making the cost of affordable single family homes even greater. But people still need a place to live, so rents often go up, due to increased demand for affordable housing, during times of inflation. And should there be any slowing down of the single family market, commercial assets, particularly in sectors such as multifamily, self storage, and mobile home parks, tend to be less correlated to the market sentiment, thereby further insulating investors from market downturns. Through market cycles, investors can enjoy stable income streams, for years to come, vs being exposed to a rehabber trying to flip a property, and getting caught in a downturn. Multifamily syndications offer a way to enjoy income, and syndicators can elect to 'wait it out' for favorable market conditions, if need be.
   

5. Inflation creates greater rental demand, in a non-binary fashion. During times of inflation, increased interest rates & cost of construction are two drivers for an increase in rental demand. But another driver is overall cost cutting. As Covid stimulus dries up, consumers will be looking to save their dollars, and moving to more affordable housing, in the form of rentals, in more affordable markets. As a single family investor, if your tenant decides to move to a more affordable area, you expose yourself to a vacant house, creating a less dependable income stream. Even if there is increased rental demand in your market (more on that in Point 6), if you're in a high rent area, the data is showing that more and more millennials, young families, and young retirees are moving to the suburbs, for a lower cost of living, safer areas, better schools, and job growth. By investing in a multifamily syndication, or in a multifamily fund, you are diversifying your investment across hundreds of units, thereby reducing your vacancy risk.
   

6. Inflation can affect different geographical areas differently. To me, this is the most critical factor in your decision on whether or not to invest in multifamily syndications. It's the mantra of real estate - location, location, location!

The San Francisco and New York rental markets are just 2 examples of met Not only that, but commercial real estate, such as multifamily syndications, are even less affected by broader market sentiment than single family homes, further protecting investors from market volatility. If the hot housing market cools down, and if the economy and stock markets experience decline, multifamily syndications are a very attractive alternative, providing stable distributions for years to come. The trick is to invest in syndications whose rents will rise alongside inflation, while also maintaining high rental demand. Savvy investors will follow the data, and invest in markets expected to continue to grow, regardless of broader market conditions. Savvy, well-established syndicators are already doing this.

Final Thoughts

I'm always an advocate of being diversified. It helps me sleep better at night. Our portfolio is a mix of asset classes, designed to weather out most storms, including inflation. We have invested in syndications, personally, and will continue to do so for years to come. I'm an SEC Registered Rep, specializing in syndications and self storage, working only with projects that I would invest in, myself. I'm more than happy to answer any questions you might have about this asset class, as it took me quite some time to 'wrap my head around it' and shift out of the landlord mindset. I've written about syndications as a hedge against inflation, but there are a number of other reasons investors love syndications, including tax advantages & the passive income streams, to name a few.