Last week, I wrote about a potential credit crunch that would potentially reduce liquidity. It would therefore make mortgages, lines of credit, car loans more difficult to get and potentially more expensive.
With all the macro economic factors specifically, the rising cost of goods and services, rising interest rates and wage inflation and let us not to forget the carnage that left First Republic Bank on life support, investors should consider diversifying their portfolio by exploring alternative asset classes.
One such investment opportunity lies in the multi-family real estate market. This week I will explore the multi-family real estate market. I’ll explain its unique features, and how investors can benefit from adding this non-correlated asset class to their investment portfolio.
You know my style of writing by now so let’s start with basics.
What is the Multi-Family Real Estate Market?
The multi-family real estate market refers to a category of properties specifically designed for residential use that consists of multiple, separate housing units within a single building or complex. These properties typically include apartment buildings, townhomes, condominiums, and other similar structures. Multi-family real estate provides housing for multiple families or individuals, offering a popular choice for renters across various demographics.
Multi-family real estate differs from other types of real estate in several ways:
Stability
Due to the ever-present demand for housing, multi-family real estate tends to provide a stable source of income for investors. In contrast, commercial properties may experience fluctuations in demand based on economic trends and the health of specific industries. Our own office building in Montreal, at best guess, is currently 40% occupied. In 2019, that number was probably closer to 90%.
Tenant Diversification
Multi-family properties host multiple tenants, which reduces the risk associated with tenant turnover and vacancies. If one tenant leaves, the impact on the overall income is less significant than with single-family or commercial properties. In Canada, where rent controls are in place, a tenant leaving could represent a higher rental income in replacement.
Economies of Scale
Multi-family properties often benefit from economies of scale. This is because multiple units share common areas, amenities, and maintenance costs. This can result in cost savings and increased operational efficiency.
Financing Options
Multi-family properties often have more favorable financing options compared to other types of real estate. This includes lower interest rates and longer amortization periods.
So, what does all this mean?
First, there are benefits of investing in Multi-Family Real Estate for investors seeking income from their portfolio. Ideally, these investors are looking to draw an income from their portfolio while persevering their capital. Alternatively, investors with a longer time horizon and with no income requirements can benefit by injecting non-correlated investments to traditional markets into their portfolio.
Multi-family real estate has historically shown low correlation to the stock market, providing a valuable diversification tool for investors. When the stock market is experiencing volatility or underperforming, multi-family real estate investments may continue to provide stable returns.
Recession-Resistant
In periods of economic downturn, demand for rental properties tends to increase as people may not be able to afford to purchase homes. Multi-family real estate investments may, therefore, provide a hedge against recessionary pressures.
Passive Income
Investing in multi-family real estate can generate a steady stream of passive income through rental payments. This can be used to supplement other income sources or reinvested to grow your investment portfolio.
Appreciation
Over time, well-maintained multi-family properties generally appreciate in value, offering potential capital gains in addition to rental income.
Tax Benefits
Multi-family real estate investments often come with tax benefits, such as depreciation, which can offset income and lower your overall tax liability. Certain funds provide investors with a return of capital income stream where the income is tax free but with the trade off is larger deferred capital gains in the future.
What is this week’s takeaway?
The multi-family real estate market offers unique investment opportunities that can provide investors with stable, passive income, and the potential for capital appreciation. Multi-family real estate can be an essential component of a well-diversified investment portfolio. This is because of its low correlation to the stock market and recession-resistant nature
As with any investment, it’s crucial to conduct thorough research and consult with our team or your a financial advisor to determine if multi-family real estate investments align with your financial goals and risk tolerance.
Have a great weekend everyone!
Talk soon,
Michael
Disclaimer:
Nothing on the website shall be construed as an offer to buy or a solicitation of an offer to buy any services or products. Commissions, trailing commissions, management fees and expenses may be associated with investments. Products are not guaranteed, their values change frequently, and past performance may not be repeated. Mandeville Private Client Inc. is a member of the Investment Industry Regulatory Organization of Canada and a member of the Canadian Investor Protection Fund.
This publication contains the opinion of the writer. The information contained herein was obtained from sources believed to be reliable, but no representation or warranty, express or implied, is made by the writer, Mandeville, or any other person as to its accuracy, completeness, or correctness. This publication is not an offer to sell or a solicitation of an offer to buy any securities. The information in this publication is intended for informational purposes only and is not intended to constitute investment, financial, legal, tax or accounting advice.
Unlocking the Potential of Multi-Family Real Estate: A Non-Correlated Investment Alternative
Last week, I wrote about a potential credit crunch that would potentially reduce liquidity. It would therefore make mortgages, lines of credit, car loans more difficult to get and potentially more expensive.
With all the macro economic factors specifically, the rising cost of goods and services, rising interest rates and wage inflation and let us not to forget the carnage that left First Republic Bank on life support, investors should consider diversifying their portfolio by exploring alternative asset classes.
One such investment opportunity lies in the multi-family real estate market. This week I will explore the multi-family real estate market. I’ll explain its unique features, and how investors can benefit from adding this non-correlated asset class to their investment portfolio.
You know my style of writing by now so let’s start with basics.
What is the Multi-Family Real Estate Market?
The multi-family real estate market refers to a category of properties specifically designed for residential use that consists of multiple, separate housing units within a single building or complex. These properties typically include apartment buildings, townhomes, condominiums, and other similar structures. Multi-family real estate provides housing for multiple families or individuals, offering a popular choice for renters across various demographics.
Multi-family real estate differs from other types of real estate in several ways:
Stability
Due to the ever-present demand for housing, multi-family real estate tends to provide a stable source of income for investors. In contrast, commercial properties may experience fluctuations in demand based on economic trends and the health of specific industries. Our own office building in Montreal, at best guess, is currently 40% occupied. In 2019, that number was probably closer to 90%.
Tenant Diversification
Multi-family properties host multiple tenants, which reduces the risk associated with tenant turnover and vacancies. If one tenant leaves, the impact on the overall income is less significant than with single-family or commercial properties. In Canada, where rent controls are in place, a tenant leaving could represent a higher rental income in replacement.
Economies of Scale
Multi-family properties often benefit from economies of scale. This is because multiple units share common areas, amenities, and maintenance costs. This can result in cost savings and increased operational efficiency.
Financing Options
Multi-family properties often have more favorable financing options compared to other types of real estate. This includes lower interest rates and longer amortization periods.
So, what does all this mean?
First, there are benefits of investing in Multi-Family Real Estate for investors seeking income from their portfolio. Ideally, these investors are looking to draw an income from their portfolio while persevering their capital. Alternatively, investors with a longer time horizon and with no income requirements can benefit by injecting non-correlated investments to traditional markets into their portfolio.
Multi-family real estate has historically shown low correlation to the stock market, providing a valuable diversification tool for investors. When the stock market is experiencing volatility or underperforming, multi-family real estate investments may continue to provide stable returns.
Recession-Resistant
In periods of economic downturn, demand for rental properties tends to increase as people may not be able to afford to purchase homes. Multi-family real estate investments may, therefore, provide a hedge against recessionary pressures.
Passive Income
Investing in multi-family real estate can generate a steady stream of passive income through rental payments. This can be used to supplement other income sources or reinvested to grow your investment portfolio.
Appreciation
Over time, well-maintained multi-family properties generally appreciate in value, offering potential capital gains in addition to rental income.
Tax Benefits
Multi-family real estate investments often come with tax benefits, such as depreciation, which can offset income and lower your overall tax liability. Certain funds provide investors with a return of capital income stream where the income is tax free but with the trade off is larger deferred capital gains in the future.
What is this week’s takeaway?
The multi-family real estate market offers unique investment opportunities that can provide investors with stable, passive income, and the potential for capital appreciation. Multi-family real estate can be an essential component of a well-diversified investment portfolio. This is because of its low correlation to the stock market and recession-resistant nature
As with any investment, it’s crucial to conduct thorough research and consult with our team or your a financial advisor to determine if multi-family real estate investments align with your financial goals and risk tolerance.
Have a great weekend everyone!
Talk soon,
Michael
Disclaimer:
Nothing on the website shall be construed as an offer to buy or a solicitation of an offer to buy any services or products. Commissions, trailing commissions, management fees and expenses may be associated with investments. Products are not guaranteed, their values change frequently, and past performance may not be repeated. Mandeville Private Client Inc. is a member of the Investment Industry Regulatory Organization of Canada and a member of the Canadian Investor Protection Fund.
This publication contains the opinion of the writer. The information contained herein was obtained from sources believed to be reliable, but no representation or warranty, express or implied, is made by the writer, Mandeville, or any other person as to its accuracy, completeness, or correctness. This publication is not an offer to sell or a solicitation of an offer to buy any securities. The information in this publication is intended for informational purposes only and is not intended to constitute investment, financial, legal, tax or accounting advice.
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