Stocks & Bonds or Apartment & Multifamily Investments?

Stocks & Bonds or Apartment & Multifamily Investments? http://karenhanover.com/ “It takes money to make money.” It's a popular saying that's been around a long long time. And, as regards investing, it's generally true; not for apartment & multifamily investment, but that's coming later in this article. Since the first day there was a stock market, to get those shares into an account, the investor had to buy them, so it took money. Then, with margin and leverage, more could be bought with less, but it still took money.

The thing about stock and bond markets is that the money used to purchase can be borrowed or margined, but it's still going to be a ratio that doesn't allow a whole lot of leverage without a whole lot of risk. How does apartment & multifamily investment differ?

Patience.

Investing in Stocks Using an example investor, call her Donna, with $250,000 to invest somewhere. She wants the best return possible, but with minimal risk, as that's her tolerance level. She's at an age where losing her capital would ruin a chance at a decent retirement. Bank savings or CDs are out of the question, with their tiny returns. Even the risk trade-off isn't worth it. So, the stock market is her next target for research.

Dividends usually come with less volatile stocks, with lower value appreciation potential. So, those closer to retirement will trade off growth for dividends. But, the many stock market “crashes” in the 90's till now make Donna wary about just dumping the money into a portfolio, diversified or not. The long term outlook is far from predictable.

Bonds Bonds could pay nice interest returns with low risk, but again, not really earth-shaking in the scheme of things. And, like stocks, interest rates and other factors can dramatically influence returns and value. Inflation is a big unknown influencer of bond returns as well. So, what else is there?

Apartment & Multifamily Investment Unlike stocks and bonds, inflation can be the friend of the apartment & multifamily investor.

The mortgage and cost of the investment is locked in, and inflation can mean higher rents as well, increasing cash flows. Since cash flow and cap rate are the valuation factors, the appreciation piece can include better cash flows as well as inflationary increases in the value of the land & structures. While Donna's $250,000 might control somewhat more in stock or bond value in a margin account, it could just as well purchase a $2 million apartment or multifamily property with amazing cash flows. So, huge cash flows, appreciation potential, and inflation & interest rate increases can be the apartment & multifamily investor's friend. Where should Donna invest?

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