By Patrick Grimes
Compared with previous financial crises, the current COVID-19 crisis’s underlying issues are more nuanced and complex. Containment of the virus has resulted in the slowing of the world’s economic environments.
Uncertainty about the virus and when it might be contained has caused investors to seek safe havens for their money. Even large institutions gravitate toward hard assets because of their low correlation with stocks and bonds and relative stability.
So, what assets are most attractive to investors in a time of crisis? I’m not an investment advisor or financial guru, but I have noticed an explosion of tangible or “real asset” investing strategies. Popular options for real asset investing include investments in farmland, energy pipelines, critical infrastructure, storage, flexible industrial space, and multifamily real estate.
If you’ve been interacting with me for any length of time, you know that I prefer multifamily real estate of all the hard asset strategies out there.
The reasons I choose multifamily real estate as my wealth-creation vehicle are numerous. For one thing, according to the NCREF index, an industry-standard benchmark for institutional real estate investment, commercial real estate assets have had annual returns of around 9.3%, based on a 20-year average.
Also, a commercial real estate property, such as an apartment building, has intrinsic value. This value will generally never fall to zero. Even when a building loses tenants, there is a value that continues to exist in the land on which the building sits, the physical structure, and the location itself.
There are also multiple tax advantages to commercial real estate investing that don’t apply to other hard assets. This tax-preferred treatment can contribute thousands, perhaps hundreds of thousands of dollars to your bottom line over time.
However, it is crucial to note that there are some downsides to investing in hard assets, whether those assets are gold bars, collectibles, or real estate.
One downside is there is a lack of liquidity. The valuation of many hard assets is challenging. It can be difficult to sell tangible assets quickly if you need cash quickly. Unless you have a solid LONG TERM mindset when it comes to investing, having your money tied up in hard assets may cause you stress and anxiety.
Another risk is the potential for hard assets to experience a decline in value. Such a decline is likely if you purchase the asset at an inflated price, or the investment is highly subject to market forces.
Market forces such as abrupt or dramatic changes in supply and demand can create negative price shifts.
Even factoring in potential risks, I believe, long-term investors can benefit from the potential higher yields, cash-flow, appreciation, leverage afforded by investing in multifamily real estate.
If you’d like to discover more about this great asset class, be sure to reach out to us at Invest on Main Street.
Schedule a free strategy call with us if you’d like to learn more about Invest on Main Street or our future investment opportunity.
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Patrick Grimes is a design engineer and CEO and Founder of Invest on Main Street, LLC. His real estate holdings include general partner ownership of a multifamily and single-family real estate portfolio valued over $146M, including 1,950+ units across the southeastern United States and Texas.
He has been active in real estate investment since 2007, including purchasing land and distressed assets, renovating them, and stabilizing them for long-term cash flow. To scale his real estate portfolio, Patrick moved from single-family to multifamily investing and founded Invest on Main Street, a private equity firm specializing in multifamily value-add projects in emerging markets.