Inflation just hit a new 40-year high with the consumer price index (CPI) for February rising 7.9% compared to last year. While inflation has already been a major concern, this continued increase is causing more investors to look for ways to protect their portfolios or even benefit from rising costs.
One asset class, in particular, is becoming an increasingly popular strategy to attempt to hedge against inflation: multifamily real estate.
Why Multifamily Real Estate is a Good Hedge Against Inflation
Real estate, in general, is well-known as one of the more resilient investment vehicles through market downturns and years of high inflation. However, the multifamily sector has some unique benefits that make it an exceptionally attractive investment.
Ability to Adjust Rents: The leases in multifamily properties are usually only for one year, which means investors can quickly react to the effects of inflation and increase rents accordingly. Commercial leases, on the other hand, often keep rental rates fairly locked in for five to 20 years.
Apartments are a Necessity: Another major benefit to multifamily real estate is that it’s a necessity-based asset. Most people will prioritize paying rent over other expenses and won’t simply give up their apartment if forced to cut back on discretionary spending.
Growing Demand: Home prices have surged over the past 18 months and many signs point to this trend continuing. While this may be great for sellers, it also means that many buyers are being priced out of the market. Since home ownership is becoming an increasingly unaffordable option for a growing number of people, the demand for rental units in multifamily properties has increased.
Maximizing Returns: Multifamily real estate values are soaring, making it more and more difficult for investors to find opportunistic investments. However, investors can still find great opportunities and maximize targeted returns on multifamily investments by using a value-add strategy.
This strategy allows an investor to purchase an underperforming asset at a discounted price and significantly increase its value through renovations, improved management efficiencies and increasing rents.
How to Add Multifamily Real Estate to Your Portfolio
Going out and buying an apartment building isn’t feasible for most investors. The capital required is often millions of dollars. Besides that, finding and managing the properties can easily become a full-time job.
The two most common strategies for investing in this asset class are real estate investment trusts (REITs) and real estate funds.
Publicly-traded REITs offer a simple way to gain access to the real estate market, but share prices are tied to the overall performance of the stock market. When the market is down, shares in a publicly-traded REIT can be priced much less than the value of the underlying real estate.
The better solution for most investors that truly want to diversify their portfolios is a non-traded fund that invests in multifamily assets. While most of these funds are only available to accredited investors and have minimum investments starting at $50,000 to $100,000, CalTier’s latest fund is also available to non-accredited investors and has a minimum investment of only $500.
CalTier Multi-Family Portfolio Fund: The CalTier Portfolio Fund aims to invest in existing class B and C multifamily assets throughout the United States, where population growth is increasing the demand for rental units. The fund is also targeting assets with an identified value-add component, which have the potential to increase rents.
Unlike a publicly-traded REIT, units in the fund increase in value based on the value of the assets under management. If the value of the assets in the fund increases, the value of each investor’s equity increases as well.
CalTier has also made the process extremely simple, to the point that investors can create an account and own shares in a portfolio of cash flowing real estate in minutes.
This article was originally published on February 22, 2022.
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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