There comes a moment when you realize that your relationship with money has permanently changed, and for the better.
It’s when you start spending as much effort to have your money grow for you as you do earning it.
When you reach that level, preserving your wealth means investing more wisely – not because you’re afraid of unnecessary risk, but because you’ve transcended it.
Why chance it when you don’t have to?
Leave the speculative investments to the less established crowd.
Concentrate on finding steady and consistent returns with limited exposure, which can often be in the last place you’d expect.
Plenty of Stories to Share
Apartment buildings are not on the radar of many investors with traditional portfolios of stocks and bonds. But they can offer many benefits like cash flow, tax benefits, appreciation and inflation protection. Investing with a professional real estate investment firm can help investors achieve their goals while offering maximum discretion for the investor who likes to keep things private.
Multifamily properties are more plentiful than you might think. For one thing, there are 2.3 million such properties in the United States. Their median price is less than half a million dollars. Which means that hundreds of thousands of those properties are suitable for the entry-level investor. At Praxis Capital, we look beyond that.
When you’re in that select subclass of people who’ve evolved from working hard for your money to the other way around, a corollary follows. As you probably know, keeping those dollars employed at maximum efficiency can be a job unto itself. In fact, it’s much more than a job. It’s really an enterprise, necessitating the work of many people. Accountants, investment advisers, and more, all on the payroll to help your net worth grow. The professionals who offer multifamily investments for a living can be a smart addition to that list.
Multifamily properties are so ubiquitous yet not so simple, although the vast majority of them generate clear and constant revenue every month, assuming the right team is at the helm. They almost hide in plain sight, both visually and within the structure of an investment portfolio. Alice Cooper famously tells the story of visiting an ATM during a dark period in his life, and thinking he was down to his last few dollars. Only to call his business manager, who said “You aren’t. Good thing I bought you that apartment building in Minneapolis ten years ago instead of the Ferrari you wanted. It’s been returning 20% cash-on-cash ever since. Let me transfer some money to your account.”
With so many multifamily properties in existence, there can’t help but be plenty for sale at any given time. But, as properties age, they require more and more work to drive the value. Calculating how much you’re willing to pay at the onset is the largest determinant of an investment’s eventual success. We could find no documented instance of someone getting rich by going long on a stock that trades at 1000 times earnings, but plenty of people have lost their shirts that way.
A Self-Directed Investment
One of the advantages of investing in multifamily properties is that often the buyer provides much of the impetus behind how successful the property will be. So much of the multifamily property business revolves around added value. A structurally sound property in a good area is really the only absolute minimum requirement to start with. Beyond that, a buyer can make immediate obvious improvements such as rehabilitating outdated façades and hiring competent management, to more dramatic ploys such as putting in more money to move a property to a higher investment class. Given that those 2.3 million multifamily properties are supremely eclectic, in every corner of the country, at every level from student housing to wealthy retirement community, there really is a property for every investor.
If You’re Going to Spread the Risk, Do it Right
So why not just buy shares of stock in a real estate investment trust (REIT), then? Of course you can, but a primary purpose of investing at this level is to diversify. And one often overlooked feature of REITs is that they often swing in tandem with the stock market at large.
For an investor with sufficient principal that one’s portfolio is large enough to include its own real estate allocation, it’s tempting to place money in REITs and think that that offers a sufficient hedge against the volatility of more traditional securities. But in reality, when the market moves, the REIT submarket usually moves with it. As committed as your friendly neighborhood licensed investment advisor and REIT salesperson might be to your financial well-being, such advisors can’t sell every product under the sun to their clients. They won’t offer you full nor fractional ownership in individual multifamily properties. The good news is that certain real estate private equity firms can.
Where the Right Firm Comes In
While multifamily properties are ubiquitous, the mechanism for investing in them is not. There are precious few intermediaries that can not only facilitate the transaction, but work to keep your new multifamily property at the top of its class and continuously cash-flowing. The shrewd multifamily investor knows that hiring such a firm can maximize value – via remodeling, rebranding, and the other necessary work that a busy investor might have little time nor inclination for. The same goes for the young but promising investor looking to do something beyond examining a 401(k) balance every quarter. The right multifamily property can provide excellent risk-adjusted returns for investors.
For the investor looking to buy into multifamily properties, finding a firm that can handle the entire process is part of the work. Some firms are too small to know where the opportunities are: others are too large to treat any particular investor with the necessary care and diligence. The right place to look for your first multifamily transaction – or in the case of many Praxis Capital customers, your seventh or tenth – is one that can accurately assess a property’s potential, then accept or reject it as an investment, thus starting the purposeful and rewarding prospect of creating additional value.
The Bottom Line
Investing in multifamily properties can be a safe and prudent way to keep your money working for you. But, such investing is subject to a steep learning curve, one that you’re probably going to be better off leaving in the hands of a professional. Or better yet, a team of them; via a real estate private equity firm that specializes in realizing and exploiting the potential of multifamily properties for their investors.