Over the years, I had always thought the stock market was the place to invest your hard earned dollars! I watched the market closely, probably too closely, and would make moves from one sector to another. Usually at the WRONG TIME! Studies show the typical stock market investor over the last 20 years has eked out about a 4% return on their stock market investments and inflation has run just over 2%. So, you are taking on all the volatility of the stock market for an inflation adjusted return of about TWO PERCENT…
What I finally decided about the stock market was I should listen to Warren Buffett and Tony Robbins and invest in low cost, broad market index funds because very few active managers can beat them. There are some interesting Life Insurance products out there that lock in market gains and eliminate the negative years from your portfolio growth. I will let your financial adviser talk to you about those products.
As I was considering how I wanted to invest leading up to and during my retirement, I kept coming back to the problem…High Stock Market Volatility. No one can tell you when the next Black Swan event will trigger a 10 to 30 percent drop in your stock portfolio…only that it is a “normal” part of the stock market and it will come back over time. I don’t know about you, but when I hit seventy, I don’t think my heart or sanity can survive a $200k to $600k drop in my $2 million dollar portfolio!
So I started looking for what else is out there that can provide a better return than Muni-Bonds and provide some potential upside over time like the Stock Market without the crazy volatility.
I found the information from Thompson Reuters Datastream above that shows that Core Commercial Real Estate has the Annualized Risk of the Bond Market and the Annual Total Return of the Stock Market over 20 years…WOW! Is this why the wealthiest families in the U.S. have significant holdings in Commercial Real Estate?
Multifamily Commercial Real Estate has historically been the least volatile of the major real estate classes…Retail, Office and Industrial. In a large part because there is ALWAYS a need to live somewhere, even during market downturns. Also, large multifamily properties have over 100 tenants vs. the few tenants of the other classes.
Finally, there is a Macro Economic reason to invest in Workforce Multifamily housing. There is a continued DEMAND with shortages of SUPPLY throughout the country of quality apartments. Baby Boomers are returning to renting, Millennial’s have delayed household formation and the Immigrant population, largely renters, continue to grow at a fast rate. Supply has not kept pace with demand for years. Builders can only supply Class A apartments at a cost of ~$150,000 per unit which only a small portion of renters can afford!
These are some of the reasons I have decided to invest directly into several Workforce Multifamily Syndication’s over the last year.
J.P. Morgan Asset Advisors said it best in their report,
“Real estate: Alternative no more”
Is the current market environment heralding the realization of a new normal, a new world of uncertainty, heightened volatility and slower growth? Perhaps, but the reality is that investment portfolios focused on the “Big Two Traditionals,” bonds and equities, are forcing investors to compromise—either by sacrificing return for lower volatility or enhancing return at the expense of higher risk. Real estate may offer a way out. This is why we believe real estate is increasingly being viewed, not as an alternative, but as an essential portfolio component.
I couldn’t agree more…
Here’s to your wealth and happiness!
Dan Engdahl, Co-Founder Multifamily Connections, LLC