• We’ve all seen the commercials, heard the stories. “I saved for my retirement, with the assistance of (fill in the blank – advisor, broker, planner), and now I can fulfill my lifelong desire to (again, fill in the blank – travel, spend time with my grandkids, cook, paint).
  • Have you ever felt like “that’s great, but I don’t have large sums of money to invest and the process of growing an investment portfolio will take forever”?
  • Rather than staring up that mountain in dismay, consider acting in the form of conservative investments. What many people don’t realize is the hardest part about investing is making that first decision about placing capital and living through it. Everyone wishes they could have a large fortune, allowing them to experience the better parts of life. But taking a small sum of money and turning it into a successful investment is, arguably, just as gratifying, if not more! This is because you took YOUR money and made YOUR OWN decisions with it. Then you saw the fruits of your labor.
  • There are a couple of big mistakes to avoid. One is being so conservative that you never place any money in some type of growth instrument. The other one is to seek very high returns, only to see your hard-earned money disappear.
  • Any type of conservative investing can deliver these types of results, but we are here to discuss real estate and, specifically, multifamily real estate.
  • Placing your money in multifamily real estate puts you in an asset class that delivers the best of both worlds – high returns with low volatility. By its very nature, real estate is illiquid, which will remove the daily temptation to sell your assets based upon the news headlines. You will choose to own in an area where rentals are always in demand. Therefore, your income stream will be secure. As your tenants pay rent, the loan that you have taken out against your property will be paid down. There will even be positive cash flow for you to collect every month! When it comes to tax time, at least in the early years of ownership, you won’t owe any taxes on the income due to depreciation, mortgage interest and other write offs. About 2-5 years after purchase, you will likely see that your property has gone up in value by 20% or more. You have a tax efficient, leveraged investment with low volatility and great capital appreciation!
  • But you ask, who will manage this building? What about evictions? How will I know that I didn’t overpay for the asset?
  • The good news is you can easily evaluate your own real estate investments. Historical property expenses are readily available and easy to understand. If you have a mortgage, the terms are almost identical to the debt on a primary residence. Hiring a professional management company will alleviate the burden of managing the property yourself.
  • Or you can team up with partners, pooling your money (and expertise) together to buy a larger property. Yet another option is to utilize a syndicator to place your capital, in which case you will be a passive investor with limited liability and no involvement in daily property operations.
  • The question is, how much work do you wish to do? If you outsource management, you will need to thoroughly evaluate the management company. Our recommendation would be to check reviews and talk to client references, before hiring a management company. Furthermore, you should check up on your manager by insisting upon, and reviewing, regular financial reports. If you choose to use a syndicator, then you will need to perform due diligence on the syndicator. Check their track record, talk to other investors, and have a conversation where you ask questions about how they operate.
  • Is this harder than buying stocks through an online brokerage, or using a financial planner? Yes, there is more up-front work, but owning real estate puts you in control of the investment, at least to some degree. Buying stocks puts you at the mercy of a large corporation with armies of accountants, lawyers and executives who are experts in profiting from their own stock while avoiding any liabilities.
  • Real estate is just one of many options, but here we have illustrated why this asset class brings many advantages to investors.