As an investor, you’ve probably heard all the reasons why it’s important to spread your wealth across different asset classes. Besides stocks, bonds and cash equivalents like treasury bills and certificates of deposit, many investment professionals also recommend real estate as a viable option.
Here are a few reasons why diversifying your portfolio with multifamily real estate is worth considering:
Real estate tends to fare well, even when the stock market fluctuates. Unlike stocks, which can be driven by everything from market sentiment to politics, real estate is less affected by day-to-day changes. An economic downturn also doesn’t typically send the multifamily real estate market into a downward spiral because people still need a place to live. In the long run, a recession could actually diversify interest in all types of rental properties, with more people opting for affordable class B and C properties.
Appreciation is one of the primary reasons why real estate builds wealth over time. Unlike many things we invest in — like cars or cellphones — real estate gains value over time. Inflation plays a role in this because goods and services cost more today than they did several decades ago. In addition to inflation, demand plays a huge role in appreciation. For instance, if everyone wants a house in a specific neighborhood, but those homes are in short supply, the value of those properties increases. As an investor, appreciation provides peace of mind because market fluctuations aren’t likely to make or break your investment.
Hedge Against Inflation
While inflation is typically perceived as a negative, that’s not the case for multifamily real estate investments. Inflation can make the initial cost of a property higher, but once it’s acquired, the mortgage payment will not change. However, inflation will increase the cost of rent, which is good news for multifamily real estate investors. As rental rates rise, the net operating income — or the total revenue from a property minus the operating expenses — will improve. For investors, this means positive cash flow returns. So, while your investments in other asset classes – like CDs or bonds, which have fixed rates, – get devalued because of inflation, your multifamily real estate investment will be growing.
Like anything else, real estate investment isn’t risk-free, but it can diversify your portfolio, mitigate risk and often builds long-term wealth. At Timberland Partners Investments, our diligent team seeks out properties with hidden value across different property classes to make sure the funds we offer are diverse.
If you would like to learn more about how multifamily real estate can help diversify your portfolio, contact a member of our investor relations team.