If you have spent more than a few minutes watching the news recently, then you know that the economy has turned the corner and we are approaching an economic recession. Essentially, after printing a tremendous amount of money and injecting it into the economy, inflation has soared to record levels that haven't been seen in forty years which has caused a challenge for the average American trying to pay for a drastically increased cost of living. In response to this high inflation, the Fed has been making regular interest rate hikes The purpose of these hikes is to try and slow the inflation and ultimately help the American people. However, rate hikes have the negative side affect of also slowing the economy and often times resulting in a recession as we are seeing now. This is due to an increased expense for financing cars, houses, etc. which slows the demand on these items.
What are my investment options during a recession?
Many people are asking what they should be doing with regards to investing during an economic recession. The decline and volatility of the stock market leaves little confidence in the performance of this investment choice for the near future, but leaving funds liquid also appears to be a poor choice with inflation soaring well above 8%. Cryptocurrency and other digital investments have also shown to be volatile during this time similar to the stock market. This is why we at Apogee Capital believe that the value of investing in a hard asset such as real estate is crucial for both preserving and growing your money during these times.
How do multifamily investments perform during a recession?
While it might seem obvious that a hard asset such as multifamily real estate is a good choice for investors, many people still seem concerned as they wonder how it will perform over the next few years. In order to answer this concern it is important to look at the historical performance of multifamily along with the current metrics we are seeing today. First, when we look at multifamily as an investment during the 2008 recession, we can see that it continued to perform even while the single family market did rather poorly. This is because commercial lending did not have the same loop holes that were present in single family rentals (where houses were overpaid for and leveraged sometimes at 100%) and also because as owners and renters were forced out of foreclosed homes they sought apartments to live in which actually increased the demand for multifamily housing. While we do not see the same signs of a housing bubble today that were present in 2008, we do see many of the demand characteristics on multifamily to be similar. As prices and increased interest rates cause new house payments to soar, more and more buyers are finding themselves priced out of the housing market for the time being. Many strong markets such as DFW show that the gap between monthly rent and a monthly house payment is now greater than it has been in years which means that rents can likely continue to increase with minimal pushback from tenants. Finally, we continue to see that there is a housing shortage particularly in the southern sunbelt states where much of the population is moving too. This supply and demand imbalance suggest that multifamily will continue to perform very well over the next several years in these areas as having a place to live is a basic necessity that must always be met. It's also worth nothing that the cost of living in many of these areas is still far less than many of the states such as California and New York which these people are relocating from. In short, while the market and overall economy may be bearish for the foreseeable future, we at Apogee Capital continue to be bullish in multifamily investing and believe that it offers a safe alternative investment strategy for the individual seeking capital preservation and continued growth over the next few years.
There are many important considerations when evaluating a multifamily deal and we make it our mission to careful vet each of these items. If you would like to learn more about passively investing in multifamily, please set up a meeting with us through our Calendly link and subscribe to our weekly blog here.