When Dust Settles Multifamily Rises To The Top

TruePoint Capital

Investing fads come and go, but when chaos ensues and the dust settles, the holders of the boring, tried-and-true assets survive a disaster.

Think of an apocalyptic event. If such an event were ever to happen in our lifetimes, when the dust settles, it would be the humans who have access to essentials like food and water that will have the best chance of surviving. Big houses, fancy cars, and yachts won’t fill your belly.

Speaking of investment fads, crypto was all the rage in 2021. Fueled by stimulus money and unemployment checks, newbie investors flocked to the crypto exchanges like never before.

The result was stratospheric price increases in currencies like Bitcoin, reaching a record high of $68,789.63 last November. However, in the face of runaway inflation, recession, and geopolitical uncertainty, Bitcoin has since shed more than 71% in value to a price of around $19,900 as of the writing of this article.

What about all those pundits who were bullish on crypto? They have since abandoned the ship.

Sharks are always looking for their next prey.

So, what are the experts turning to in the current economic environment after turning their backs on crypto? Multifamily.

It shouldn’t be a surprise that multifamily is what investors are turning to in a time of uncertainty. Its resilience and ability to outpace inflation is why smart investors have relied on multifamily for reliable cash flow and consistent growth.

In the face of economic disaster, essential assets like housing that are not only left standing but – in the case of some multifamily segments – thrive. The COVID-19 pandemic put the resilience of multifamily on full display.

Although the onset of the pandemic impacted nearly every sector of commercial real estate (CRE), besides the industrial and warehouse sector, which was buoyed by increased demand from social distancing, lockdowns, and stay-at-home shopping, multifamily stood out among all other sectors.

According to CBRE’s 2022 U.S. Real Estate Market Outlook, multifamily quickly recovered from the COVID-induced recession in 2020 – noting that the U.S. multifamily sector finished 2021 with overall occupancy and effective net rents above pre-pandemic levels.

Multifamily’s resilience has carried over into 2022 in the face of runaway inflation, with growing demand and rent growth keeping pace with inflation. As inflation drags down the public markets, multifamily is the ideal antidote to the effects of rising prices. As inflation erodes payrolls and buying power, investors seek alternative income streams that will keep pace with or exceed inflation. Multifamily is uniquely suited to meet this need.

Check out the following headlines:

The Cost of Rent Is Where Many Americans Are Feeling Inflation Most wsj.com

Inflation Hits Renters: 11% Overall Rent Increase in 2021 dwellsy.com

Multifamily demonstrates its value in the face of inflation by maintaining demand even as rents are increased. Historically, multifamily has consistently outpaced inflation. Multifamily returns have outpaced inflation in 34 of the last 41 years. Multifamily Outlook for 2022. Greystone.com

As for the future, the demographics also favor multifamily. Demand is forecasted to be strong. A strong demand environment combined with structural supply deficits in many markets provides a positive leasing market backdrop for the sector.

Why Multifamily Rises To The Top…

Multifamily is the ideal inflation hedge because it’s a proactive hedge, not a reactive one – a hedge that leverages inflation instead of adversely impacting it. Multifamily doesn’t garner the attention of more buzz-worthy assets like crypto. Still, it quietly goes about prospering in any environment, and this is the type of asset you want at your side in any environment.

Cash-flowing multifamily possesses the two attributes built to prosper in uncertain and inflationary times:

  • Appreciation of the underlying asset.
  • Increased income through rising rents.

This ability to increase rents without diminishing occupancy and income is the ideal counter to inflation. And that is why when the dust settles, multifamily rises to the top.