Apartment Building Investments Are a Profitable and Easy Inflation Buster

Why Buy an Apartment Building?

Buying an apartment building for your portfolio is a great way to beat the ravaging effects of inflation. Prices of goods and services are skyrocketing around the world. Soybean prices have tripled in the past 3 years. Oil is at record highs. Gold is making a comeback. This startling escalation in core commodity prices, combined with a US Dollar in the doldrums makes a perfect storm for out of control inflation. What makes inflation hurt so much for the individual investor is the fact that prices are rising while the value of the dollar is actually dropping. In other words, people are paying more for goods and services even while the value of their assets is decreasing. The value of an apartment building, however, is determined by the Net Operating Income of the property. Therefore, as rents continue to rise along with other consumer prices, the value of a multifamily investment should continue to appreciate even during an economic downturn.

Multi-family Gaining in Value

Paper assets such as stocks and bonds are extremely vulnerable to inflation because even if an investor is fortunate enough to own stocks that are rising in price, the value of the paper asset is actually dropping because of the falling dollar and rising prices. Most stocks however are declining in price even while the value of the dollar is plunging. What this means is that your stock portfolio is like a large ship, slowly filling up with water from a small leak while the binges can’t keep up with pumping out the water. Unfortunately, this financial melee is happening at the same time as the worst residential real estate crisis the US has ever seen. Apartment Buildings are poised to gain in value as rents rise.

Smart Investors Heading to Commercial Real Estate

Smart investors can protect their net worth right now by investing in hard assets like real estate. I don’t recommend buying residential real estate right now because it could take years to fix the home mortgage mess created by sloppy underwriting and speculation. What investors need are hard assets that produce a steady stream of monthly income. Investors need a place to put their money that has price flexibility. This is why many intelligent individual investors and institutions are flocking to the multi-family sector of real estate. A strong stream of income and low vacancies are the keys to a successful apartment building investment.

Multi-family properties are an Investment Bulwark

Multi-family buildings are a bulwark in a recessionary economy because people will always need a place to live. Multifamily properties have a distinct economic advantage over paper assets, residential real estate and even most other commercial real estate investments. For example, a triple net lease income property may not be equally insulated against economic downturns as an apartment building because the tenant, a corporate retailer such as Tire Kingdon or a restaurant like Applebees may be forced to scale back operations in a recession. Meanwhile, the average consumer will be going out to eat a lot less and they may not buy a new set of tires for another few thousand miles but they will certainly not chose to live in the streets. The first bill people will pay at the beginning of the month is their mortgage payment or their rent check. This fact leaves the apartment building investor in a good position.

Foreclosures Drive a Drop in Apartment Building Vacancy

Foreclosures around the country are at a record level. Families are abandoning their homes. They still need a place to live and apartments offer an excellent alternative. Another bonus for the apartment building buyer in today’s market is the fact that banks are not easily lending money for the construction of new multi-family properties. Banks are hurting from their bad residential loan underwriting during the past five years and they are not very willing to lend money on the speculation of a brand new apartment building. This creates a potential shortage of affordable housing in major cities and it could have an upward impact on the long term value of multifamily real estate.

If you are worried about the effects of an eroding US Dollar and climbing inflation on the returns in your portfolio, now is an excellent time to consider the many benefits of a strategic investment in the apartment building sector.

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