Pin Your Fortunes On The Reliable, Not The Speculative

TruePoint Capital

Remember in 2021 when everyone was jumping on the crypto bandwagon?

​​Flush with stimulus checks, investors poured into crypto and drove prices to new highs. Even celebrities like Matt Damon started jumping on the crypto bandwagon when he challenged investors to take the crypto plunge by declaring that “fortune favors the brave.” Damon’s premiered on October 28, 2021. Since that date, has fortune favored the brave? Not exactly. If you had invested $100,000 in Bitcoin on October 29, 2021, it would be worth $26,757 as of this writing – a loss of more than 73%.

Even athletes were getting hooked on crypto – with many even declaring they wished to be paid in crypto. Many famous athletes immediately converted their earnings to crypto instead of being paid in crypto. In November of 2021, Odell Beckham, Jr. signed a one-year contract with the Los Angeles Rams – receiving his $750,000 in guaranteed salary in Bitcoin. If he still has that Bitcoin, it would be worth $20,068. Other athletes who took portions of their 2021 salaries in crypto included Aaron Rogers, Lionel Messi, and Trevor Lawrence.

Hindsight is 20/20, but the signs were there that the crypto hype was hype. It was obvious that the crypto craze was being fueled by stimulus money, and it was also obvious that the stimulus gravy train would eventually stop. However, what wasn’t as obvious to investors was how all that stimulus money would eventually come home to roost in the form of inflation. When accounting for inflation, the crypto losses look even worse.

While crypto got all the attention and love in the media and from athletes in 2021, if the athletes were smart, they would have insisted on being paid in another form of the asset instead of crypto or even cash. Even the athletes who didn’t fall for the crypto hook and took their salaries in cash would be about 8.2% poorer today than a year ago if all they did was put their money in the bank. That’s because of inflation, which was last reported as running at an 8.2% annual rate.

Smart athletes would have staked their fortunes on a less buzzworthy asset instead of crypto. This asset has been around forever and has shown a solid performance history. This asset is commercial real estate (CRE), and if the athletes had staked their fortunes into commercial real estate instead of crypto, they wouldn’t be 73% in the hole or even 8.2% in the hole. They might even be ahead. That’s because while the crypto and the stock market have shrunk, commercial real estate has grown since 2021.

Take, for example, multifamily rent growth. Through the first three months of the year, 2022’s national rent growth outpaced 2021’s rent growth, according to Zumper’s National Rent Report.

In Zumper’s March data, the median one-bedroom nationally hit an all-time high at $1,400, representing a 2.5 percent increase for the year so far, ahead of the 1.9 percent growth at the same time in 2021. At that pace, rent growth will hit 10% for the year – well ahead of the 8.2% inflation rate.

Commercial real estate is well-known for its qualities as a recession hedge and inflation buffer. It’s why smart investors heavily allocate their portfolios to it. It’s why smart athletes would be better off pinning their fortunes on it than on more flashy and speculative assets like crypto.

Like the best athletes, commercial real estate performs under any conditions. It’s especially valuable during distressed economic environments where it can provide a shield from market volatility and generate income that keeps pace with inflation, as it has proven in the past year.

It’s not just one or two qualities that make commercial real estate an appealing investment in any environment; it’s multiple.

Here is a summary of the most important benefits:

CRE Rewards Patience. ​​CRE offers reliable, sustainable long-term returns. CRE has long been a reliable source of cash flow derived from rents. CRE only sometimes provides an immediate payoff. It takes time to stabilize and add value to assets. Investments through private companies have long lockup periods that allow acquired assets to stabilize and mature to maximize returns. Investors are rewarded for their patience.

History Of Reliable Growth. CRE has shown to appreciate reliably over time – even outpacing inflation.

CRE Is Insulated From Market Volatility. Because it’s illiquid, CRE is insulated from broader market volatility. This illiquidity protects investors from themselves by preventing herd behavior and market runs.

Passive Income. By investing passively, investors can accelerate wealth by reinvesting cash flow to create multiple passive income streams.

Tax Breaks. Private investments structured as partnerships offer various tax benefits, including deductions, depreciation, avoidance of self-employment taxes, tax deferral, and long-term capital gains treatment not available with other asset classes.

Leverage. Through leverage, CRE investments can turn capital earmarked for one asset into capital used to acquire five assets. Instead of putting 100% of investable capital into one property, that capital can be spread out over 4-5 properties – by using the investment capital as down payments – to generate multiple income streams instead of just one.

Diversification. CRE investments spread across multiple segments and geographic locations provide the type of income and appreciation-insulating benefits traditional stock diversification cannot offer.

Value-Add Opportunities. CRE offers opportunities to force growth through implementing management efficiencies, property improvements, and marketing strategies to improve NOI from improved occupancies and rents.

Why peg your fortunes to speculative assets?

Ignore the buzz and cling to something boring but trustworthy. CRE has been rewarding patient investors for years and will continue to do so. The same can’t be said about crypto and other latest and greatest investment assets.