4 Reasons Why Multifamily Investing Withstands Inflation
Investing in multifamily properties is not new. For many years it has been a popular choice for investors seeking investments that can withstand the impact of inflation and provide returns. Savvy investors have chosen multifamily investing not only to diversify their portfolio but more importantly to uniquely position investments to withstand inflationary pressures and the impact of inflation.
Inflation and Its Impact on Investments
Inflation is a sustained increase in the general price level of goods and services over time. When inflation occurs, the purchasing power of money decreases, and prices for goods and services rise. Inflation can have a significant impact on investments, especially those that are not designed to withstand the effects of inflation.
One of the most significant impacts of inflation on investments is that it reduces the real ROI. For example, if an investor earns a 5% return on their investment, but the inflation rate is 3%, their real return is only 2%. This means that the investor’s purchasing power is reduced, and they can buy fewer goods and services than before.
Another impact of inflation on investments is that it can increase the cost of borrowing. As inflation rises, interest rates also tend to rise, making it more expensive for borrowers to borrow money. This can have a significant impact on investments that rely on borrowed funds, such as real estate investing.
4 Reasons Why Multifamily Investing is Uniquely Positioned to Withstand Inflation
- Multifamily properties can generate steady cash flow, which can increase over time. As inflation increases, rents also tend to rise, allowing investors to increase their cash flow from their multifamily properties. This means that multifamily investors can enjoy an increasing income stream that keeps pace with inflation.
- Multifamily properties can appreciate over time, which can also help protect against inflation. When inflation occurs, asset prices tend to rise, including real estate. This means that multifamily properties can appreciate in value, allowing investors to benefit from both cash flow and capital appreciation.
- Multifamily properties can be a hedge against inflation because they are tangible assets. Tangible assets, such as real estate, tend to hold their value over time, unlike other investments such as stocks or bonds. This means that multifamily properties can provide a stable store of value, even during times of inflation.
- Multifamily properties can benefit from leverage, which can help investors increase their returns. Although borrowing can become more expensive during times of inflation, it can still be an effective way to increase returns. As the value of multifamily properties increases, investors can use the equity in their properties to borrow more money, which can be used to purchase additional properties or to improve existing ones. This can help investors increase their cash flow and capital appreciation, which can help protect against the impact of inflation.
By investing in multifamily properties, investors can enjoy:
- steady cash flow
- long-term appreciation
- diversification benefits
However, as with any investment, there are risks associated with multifamily investing, including vacancy rates, property maintenance costs, and fluctuations in demand.
As such, it’s essential to do your due diligence and work with experienced professionals, like REEP Equity, who is vertically integrated with our sister company, REEP Residential, working together to provide incomparable commitment and service to both our investors and our residents.
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