2023-10-18 19:22:00
My investment journey has not been typical. I started investing in my own companies, since I always heard at home that it is better to invest in something that you have control over. Then, I started investing in venture capital funds (Venture Capital) because I was always frustrated by the fact that access to capital was so difficult in Latin America if you were not born into a family with the necessary resources or contacts.
However, as much as I love VC, my portfolio had too much risk and the returns are very long-term. That’s when I discovered the greatness of investing in real estate in the United States, specifically in the multifamily sector.
Why in the United States? Diversification is key to investments, and one way to diversify is the type of currency in which the investments are held. In addition to the stability that the dollar offers and long-term security, there are 3 tangible benefits that are not found in all markets in the world.
First of all: investor protection. For example, in the United States, if your tenant does not pay you, there is certainty that you can carry out an eviction process in a simple way and without major headaches.
Second, access to credits. Even in these times of high interest rates, access to residential and commercial loans with or without credit history is enormous. To cite just one example, we have innovative programs such as the DSCR Loan that allow you to obtain credit based on the flows that the property will generate.
Third, tax benefits such as the 1031 exchange and the homestead exemption. Both strategies, carried out by an expert and properly, allow you to defer paying taxes on capital gains and “kick the can down the road” as we crudely say in Mexico, to increase your purchasing power and generational wealth in the long term.
Within the broad spectrum of real estate investments in the United States, my personal favorite is investing in multifamily properties, especially for investors looking for stability and passive income, and a relatively small entry ticket.
Especially in the economy we live in today, the increase in interest rates for home loans and their shortage are leading many families to opt for renting instead of buying. This change increases the demand for multifamily units.
Today, there is a very particular opportunity since just a couple of years ago, there was very strong competition among potential buyers, which raised the prices of multifamily properties and the vast majority of transactions were carried out with short-term loans and with variable rate.
Today we find owners who are being forced to sell their multifamily properties at a discount because their credit rate went up in a way they did not expect and who are also facing a loan maturity and so they are forced to sell at a price lower than the of your initial purchase.
These market conditions have created a unique opportunity in which some real estate properties are available at prices below their potential value. In addition to this, the current market slowdown and reduced competition has opened opportunities for investors to consider alternatives such as owner financing, while giving them greater negotiating power.
As with any type of investment, investing in Multifamily carries risks that must be considered, such as: market fluctuations, increased property tax and insurance costs, the low liquidity that any investment in real estate means in comparison. to investments in the stock market, etc.
In summary, with favorable market conditions, solid fundamentals and the potential for sustained growth, multifamily properties should be considered as a means of diversification in any investment portfolio, always with their risks and best practices.
Inflation and recession favor investment in apartments. During periods of inflation or economic recession, I have found that multifamily properties tend to be resilient. The continued demand for rental housing, even in challenging economic environments, can make multifamily real estate an attractive hedge against inflation and a potential cushion during economic downturns.
What are the risks? As with any type of investment, investing in multifamily real estate comes with risks that you should consider.
Some of these risks include market fluctuations that affect rental income and property value; complex property management tasks; possible financing challenges; compliance with housing regulations; tenant-related issues; and market saturation.
You should also consider ongoing maintenance costs and the need for adequate insurance and liability protection.
Finally, make sure you have a clear exit strategy, understand location-specific risks, and pay attention to changes in interest rates. These risks must be carefully evaluated and managed to achieve success in multifamily property investments.
I think in these times, the equipment or operator you choose to invest in is as important or more important than the property itself. Be sure to check their track record, personal liquidity, and whether your partner has solid business experience.
It is essential to recognize that in such investments, although they may offer cash flow, your funds will not be as liquid as they would be in a savings account or certificates of deposit. Therefore, it is crucial to evaluate the amount that you are comfortable leaving alone and waiting patiently for it to generate returns.
In summary, the multifamily real estate sector offers numerous compelling reasons for investors to take action, although there are also risks and best practices that should be considered. With favorable market conditions, strong fundamentals, and the potential for sustained growth, multifamily properties could offer a combination of stability and financial success for investors considering dipping their toes into the real estate investment landscape.
The author is Managing Partner of Tule Capital, a fund specialized in the acquisition of Commercial Real Estate projects in the United States, and also specializes in representing investors in the purchase of commercial properties, providing advice for investors.
Twitter/IG: @lalaelizondo @tulecapital
Mail: [email protected]
#Investment #Multifamily #housing #Financiero