Some of the greatest investment opportunities come out of turbulent economic climates and when things seem more uncertain than ever. Of course, these are also times when deciding where to invest your hard-earned money is more difficult than ever.
Markets are currently being hit from multiple directions right now, making stocks extremely volatile but also making one particular investment look quite attractive.
Inflation is running wild, despite the Fed implementing some of its most aggressive rate hikes in decades. The housing market spun out of control, only to be tamed by mortgage rates quickly jumping from all-time lows to their highest level in over 10 years. This means housing prices may be coming down, but the cost of buying a home is higher than ever. Since the U.S. is still faced with an extreme housing shortage, rents continue to climb at a steady pace.
These factors alone make multifamily real estate look like an attractive option since the demand for rental units is likely to continue growing. However, multifamily prices are up over 15% since pre-Covid, according to Green Street's Commercial Property Price Index, so the upside is limited for investors.
When you consider some other factors, such as lumber prices falling, a pullback in demand for contractors and inflation far outpacing wage growth, the potential of this one investment looks promising:
President Biden has announced a plan to address the housing shortage in the U.S., but a large percentage of Americans still cannot afford these houses. With the current situation, we’re in for a long stretch of high inflation or a long stretch of high interest rates. Either scenario points to housing remaining unaffordable for years to come.
Rent growth and appreciation both outpaced the increase in construction costs in 2021, which are up 17.5%, the highest in 50 years. This gives developers the ability to construct a superior product in the market while being able to offer competitive rental rates.
Once stabilized, these properties can then be sold to institutional investors at a price based on the property’s net operating income. Even with expected cap rate compression resulting from rising interest rates, sale prices in the next five to 10 years are projected to far exceed the cost of development.
The problem for most investors is that taking on a multi-million dollar real estate development isn’t the most realistic option. One opportunity is to invest in a residential REIT that has a growing portfolio of multifamily properties. REITs like Independence Realty Trust IRT have multiple units in their development pipeline that will be completed over the next few years.
The downside to publicly traded REITs is that market volatility has a way of hampering upside if the exit isn’t timed perfectly.
Private equity offerings allow individuals to be passive investors without stock market fluctuations coming into play. However, these also have larger minimum investments ($25,000 - $50,000), have limited liquidity options during the hold period and are reserved for accredited investors. They also consistently generate annualized returns of 20%, or greater.
You can find private equity real estate investments with Benzinga’s Offerings Screener and filter investments based on your criteria.
Recent Offering Announcements:
- Exclusive Offering For 3 Large-Scale Real Estate Developments In Markets That Have A Growing Demand For Rental Units
- New Jersey Multifamily Investment Offering With 20% Target IRR
- Target IRR Of 15% On Washington, D.C., Metro Commercial Real Estate Offering
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