Investors Eye Multi-Family Commercial Real Estate
Stocks and bonds have always been the main source of investment in the United States. In fact, the 60/40 stock/bond portfolio is a standard that most investors follow.
However, following this trend eliminates one of the most stable investments in today’s market: real estate.
Over the past 12 months, ending June 30, 2022, the S&P 500 is down 11%, the Dow Jones Index is down 14%, and the Nasdaq is down 22%. Volatile Bitcoin is down 68%.
Meanwhile, multi-family real estate rent amounts have continued to rise over the same period, and the value of homes for sale continues to rise, which means profits have continued to rise for investors.
Real estate investors find value in multifamily real estate. The annual rent for multifamily properties increased by an average of 13.5% in 2021. In fact, multifamily properties continued to generate the highest average returns among real estate categories in 2021, a trend that has continued for 40 years.
Another point to consider is that real estate does not follow typical stock market fluctuations. While stocks and bonds follow the fluctuations of the stock market, multifamily properties are independent of these fluctuations. While this may mean that real estate doesn’t experience wild swings in returns and losses like some stocks do, it does mean that return earnings are more stable and consistent.
For example, in 2021, a portfolio of 50% stocks, 30% bonds, and 20% multi-family real estate had an annualized return of 18.5%, compared to a portfolio of 60% stocks. and 40% bonds, which had an annualized return of 15.9%.
Although multifamily properties may yield the highest average total return, according to a 2017 report from CBRE Research, there are other types of properties that also yield average total returns above nine percent. Multi-family buildings (9.75%), hotels (9.61%), industrial sectors (9.57%) and retail (9.44%) are all generating strong returns, with office properties posting on average a total return of 8.38%.
The reason why multi-family properties are at the top of the list? Millennials have a strong desire for rental properties, while baby boomers have also started to rent more.
Lease agreements for multi-family rentals typically only last for one year, allowing for faster increases compared to office, industrial, and commercial leases, which are typically five years or longer.
Mike Ballard is the co-founder of Camino Verde Group, a Las Vegas real estate investment and development firm, and is involved in the development of over $200 million in multi-family or mixed-use real estate in California, Nevada, in Texas and South Carolina. and Utah.