Apartment and high-rise multi-family real estate investments offer a very effective buffer against stock market volatility, low savings account rates, inverted yield curves, and other challenges you face while investing money to make money.

We’ve all heard folks claim that their real estate assets have been their primary source of wealth. This could be a personal residence, a few rental properties, or more severe investments in apartment buildings and high rises. What is less frequently discussed is their approach to investing, borrowing, and reinvesting. No one likes to divulge their success formula unless they are penning a book. Who wants more rivalry?

Continue reading to see why multi-family real estate investing, particularly in apartment complexes and high-rise structures, is an excellent method to create and maintain significant net worth.

Real estate with several dwellings has historically had low volatility.

Owning multi-family real estate is a lower-volatility strategy to generate more stable returns than investing in the stock market and other securities. After all, if your investment consists of 200 apartments, your risk has been distributed among 200 residences.

Multi-family investments have the lowest real estate asset class volatility compared to other types.

It is simple to understand why this is the case. What matters more to people in the event of a severe economic downturn? Keeping a roof over their heads or investing in a new car?

Two primary needs are clothing and a place to live. A place to live is more fundamental than a store. People are willing to make significant sacrifices to avoid homelessness, especially if they have children. Therefore, apartments and other multi-tenant real estate are the least likely to mirror stock market falls. People may lose their wealth and even their homes, but renting an apartment is always an option.

In addition, multi-family assets typically lag recessions and other times of economic collapse, even if real estate does eventually follow them. This implies that decreases in this asset class may occur for six months or more after other economic indices decline. Real estate investors now have time to prepare for their subsequent action. How about a rent break of one or two months?

Lease turnovers that are predictable work to your advantage

If you invest in single-unit real estate and the tenant moves out, one of the most significant barriers to more consistent wealth generation will appear. So let’s draw a brief image to show the contrasts between an apartment or high-rise strategy for investment and a single-unit method in terms of turnover.

We’ll assume a buddy purchased a single-family home and rented it to someone who answered an online advertisement. At the same time, you decided to invest in a 40-unit multi-family building. You run into your friend again a year later and swap notes on your two strategies. The distinctions can be astounding.

The two of you did well during the past year, and you received two significant advantages that your friend did not:

Multiple Tenancies. 

The tenant of your friend’s one-unit rental has been unsatisfactory: routinely late with the rent, persistently vocal about maintenance issues, etc. Even though the event was not severe enough to warrant an eviction, he is still uncomfortable. On the other side, you have benefited from the diversity of 40 tenants and their shorter, more dependable lease cycles. By diversifying your tenants, you can have greater security, better defense against problematic tenants, and a more consistent income stream.

Low Exposure to Vacancies. 

If your friend’s renter vacates, all of his rental revenue is lost, and he might need to make modifications before he can rent out his home again. Ideally, each tenant would contribute 2.5% of your rental income. Therefore, a few openings are not the end of the world.

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Multi-Family Homes Provide a More Powerful Inflation Hedge

It would help if you considered how inflation is eroding the purchasing power of money now more than ever. This explains why even the slightest inflation suggestion causes the stock market to respond negatively. Costs rise despite declining profitability and purchasing power. An investment in a multi-family building that raises rental prices during inflationary periods is one of the finest hedges against inflation.

If single-family and multi-family homes are both real estate asset classes, how can one serve as a better hedge against inflation than the other? That is a good question. This is how it goes.

If you choose to invest in real estate as a single unit, your rental revenue is based on how much one tenant is willing to pay. Since your single-tenant strategy allows you little flexibility to adjust your rental rates during the current lease, if a period of significant inflation occurs, your real estate investment returns will be directly impacted in proportion to inflation rates.

But as we just indicated, high-rises and apartments provide you with a diverse cross-section of renters whose leases expire at various intervals. If necessary, this offers you the chance to increase your rental rates in lockstep with inflation rates.

Multi-family real estate is unquestionably one of the most vital asset types available when protecting against inflation because you have control over rental rates. This is crucial now more than ever because inflation is becoming a more probable economic occurrence due to the growing complexity of our global economy.

Conclusion

If a person has a fundamental financial understanding, operating capital, and rainy-day reserves, they can invest in real estate.

However, if you qualify as an accredited investor and want to increase the impact of your investment, you can work with professionals who will handle all the grunt work. They put in the labor, and you benefit financially.

In this situation, it pays to research to ensure that the real estate professional you choose puts your financial interests above his own. Therefore, we strongly advise selecting a professional knowledgeable in multi-family real estate investing.