Many investors have traditionally turned to the stock market as a place to put their investing dollars. While stocks are a well-known investment option, not everyone knows that buying multifamily apartment real estate is also an option. Under the right circumstances, real estate can be an alternative to stocks, offering lower risk, yielding better returns, and providing greater diversification.
Whether it’s adding to your retirement fund or earning residual income, you need an investment strategy that fits your budget and needs. As with any investment, there’s an element of risk. Unexpected things come up in life, in the stock market, and in real estate.
The key is not to look for investments that are risk-free (that doesn’t exist), but to understand the risks, determine your threshold for risk, and ensure you’re doing what you can to mitigate risk.
Risk: Consumer Behavior Could Change
Stock Market: Stock market investors bet on the success of companies who create products and services for people to use. Nike, Starbuck, Airbnb and Shopify are all hot companies to invest in now.
However, it’s impossible to predict the length those products and services will remain in favor, and a companies’ popularity. Blockbuster had a long reign, but when technology and consumer behavior changed, the company stagnated, dragging investors down with it.
Apartment Investing: When you invest in real estate, you’re investing in a basic human need that will never go away: the need for shelter. As long as humans have existed, we’ve required a roof over our heads, and that need has only strengthened over time, especially with rising population trends.
Since this basic need is always in demand, real estate investments are a great way to preserve and grow wealth using tangible assets exhibiting security over the long-haul.
Risk: The Market Could Turn
Stock Market: One of the most common fears and possibly the biggest reason would-be investors remain on the sidelines is for fear of a sudden market correction or crash. The stock market is at the mercy of nation or global economies, politic and trends.
During a downturn, investors may exit quickly (which only solidifies their losses). Others aim to accept short-term losses in exchange for long-term gains. Historically, the market bounces back, but it typically takes years to earn back your lost money.
Apartment Investing: Recessions are actually good for apartment real estate investments, especially for workforce housing. In good times, incomes and savings rates are higher, which means more people tend to move up to class A (luxury) apartments.
When faced with layoffs or pay cuts, homeowners may sell, and renters of class A apartments may downgrade to more affordable apartments (class B or C). Hence, during a recession, demand for apartments actually tends to go up, thereby decreasing the risk and exhibiting stability.
This is why we only purchase class B or C apartments in desirable areas with larger populations to act as a hedge against inflation.
Risk: Competitors Could Come on the Market
Stock Market: When Netflix stormed the scene, they beat out Blockbuster because not only did they target the same audience, but they also got ahead of the technology and consumer trends.
Consumers don’t have insight into technology development or companies’ operations. Thus, new competitors can have a significant impact on investment returns.
Apartment Investing: Apartment competitors don’t just spring up out of nowhere, because space, zoning, and permits are limited. When new apartments are built, they’re always class A (i.e. newer luxury tier) apartment buildings.
Since the demand for workforce and affordable housing is on the rise, the risk of having high vacancy in well-maintained class B and C apartment buildings is fairly low.
Stock Market: It’s hard to keep your cool when you watch your life savings plummet by 20% in a matter of days. Such movements lead many investors to make rash, irrational investing decisions that hurt them later.
But beyond the risk of emotional investing, stocks’ volatility creates some very real risk for retirees. A stock market crash early in your retirement can cripple your portfolio, leaving it unable to recover even after the stock market turns upward again.
Apartment Investing: Apartment investing is not as flashy as that new tech stock but it certainly is less volatile. It is tangible with growing demand. The daily changes in real estate values are few and often minuscule. In fact, real estate historically appreciates over time and outpaces inflation.
That is why it is attractive as a long-term investment. While stock markets will plunge during war, trade issues, disease and foreign affairs, real estate is generally not as affected.
Stock Market: Let’s face it, the financial statements of some companies are designed to hide rather than reveal information. When financial statements are not transparent, investors can never be sure about a company’s real fundamentals and true risk.
When was the last time you spoke with the CEO or any leader of the company you own stocks in? When the market is sailing upward all is good. But during a correction, the stewards of your money are unreachable and you’re on your own.
Apartment Investing: When you invest in a real estate syndication, you know exactly who is running the show (Hansen Holdings and team), and you can reach out directly to ask questions and provide feedback.
When you invest in a solid syndication, you can be assured that there are multiple buffers in place to protect investor capital, such as reserves, insurance, and experienced professionals to handle the unexpected.
Plus, with monthly and quarterly updates, you have ongoing transparency into each deal. So even though it’s a hands-off investment and you aren’t visiting the property for repairs, you still have all the information and connection you need to feel confident in your investment decision.
To Sum it Up
There’s certainly no one “right” way to invest. But I think you can agree, you can’t have a diverse portfolio if everything you invest in is in the stock market. I learned this lesson the hard way. This is why you should consider investing in apartments, particularly with your retirement funds.
The key is to assess your own goals and risk tolerance, then choose the path that will best help you meet those goals. If you’re looking for a way to scale your investments via steady, inflation resistant and tangible assets then apartment syndications are a good fit for you. We are here to provide you the information to make an educated decision.
When you are ready, we are here to walk you through the investing process with white glove treatment. To get started, join the Investor Circle.