Investors have increasingly looked to alternative investment strategies in the chase for yield and equity preservation. Real Estate expert Sean Reger-Flores recently discussed why investing in multifamily properties could be an excellent option for portfolio diversification.
"There are a number of reasons multifamily investing has become increasingly popular in recent years," Sean Reger-Flores said. "If I had to pick two primary drivers for this, it would be centered on multifamily loans and investor benefits."
Sean Reger-Flores first explained that multifamily debt capital origination has been steadily climbing and peaked in 2019 at a record volume of $601 billion. With the outbreak of COVID-19, we will see a 34% decline in 2020 from 2019's record volume, per the Mortgage Bankers Association. The point here is through these years and into 2021 a large percentage of multifamily debt capital is and will be held by Fannie Mae, Freddie Mac, and other government-sponsored enterprises. Sean Reger-Flores says this encourages a liquid loan market making it easier to acquire and disposition multifamily properties.
Sean Reger-Flores says when looking at the investor benefits of multifamily investing any rational investor would strongly consider making this alternative investment. First, passive income from a multifamily property produces positive cash flow that is higher than typical stock dividend yields. Secondly, the properties net operating income will fund the debt payments thus over time reduces the debt balance and creates equity. Sean Reger-Flores says the returns here are compounded in a value-add strategy where after the property is acquired the units are rehabbed. This unlocks higher monthly revenue as market rents for the property are adjusted up to accommodate for the upgraded living space. This paired with effective management and optimization of operating costs can significantly boost the value of the property creating a real opportunity to achieve outsized returns.
According to Sean Reger-Flores investors must also account for benefits beyond cash flow driven metrics. Depreciation for one is a non-cash expense tied to the physical structure amongst other physical assets at the property. Taking this a step further, in some cases a cost segregation analysis can be performed which has a net result of accelerating the allowable depreciation within a year, yielding additional tax savings. Sean Reger-Flores says these are just a couple of examples and investors should familiarize themselves with opportunity zones and 1031 exchanges as well.
Investor benefits paired with the current multifamily loan landscape will continue to increase demand for multifamily property investing. Sean Reger-Flores wants to remind investors, no investment is without risk. The best real estate investment companies out there understand risk and through their experience substantially reduce the investment risk to achieve outsized returns.
Sean Reger-Flores says real estate, particularly multifamily is one of the best investment vehicles to build and preserve generational wealth. Sean Reger-Flores encourages investors to take the next step to learn more about how multifamily deals are structured and which structures could be right for them.
Sean Reger-Flores is a Managing Partner at Asher Chaim Capital Ventures.