It's the beginning of a new year and a natural time for us to reflect on the past and resolve to do better and be better. For most, the list looks like:
Get more exercise
Learn to play the guitar
…and the list goes on. Here's a few reasons why investing in apartments should be on your list for 2021. Best part is, we do all of the work and our investors receive passive income - set up a call to find out more.
Apartments are tangible assets and therefore not nearly as volatile as many other investments. Investing in apartments can bring solid returns with relatively low risk and provide a hedge against stock market downturns and inflation.
Apartments provide a basic human need. Everyone needs shelter - therefore, there will always be a high demand for good, clean, safe housing.
Apartments tend to be the most resilient asset class during recessions and the first to fully recover. Translate into dollars and cents, apartments lose less value during recessions and recover any losses rather quickly after.
Even through COVID, rent collections and apartment values have held steady in most areas (urban centers are the main exception). With a new government stimulus plan that provides rental assistance and extends unemployment benefits, collections should continue to be strong as the economy continues to strengthen. Additionally, with new vaccines rolling out, many experts are predicting the nation and its economy to be back on track soon, which bodes well for apartment investors.
More Americans are choosing to live in apartments. Millennials tend to delay home ownership compared to previous generations and many baby boomers are downsizing and moving in to apartments. This trend is exacerbated by the fact the homes are less and less affordable. Once again, this keeps heavy demand on existing apartments.
Construction costs are at an all-time high for apartments. This reduces actual construction and also means that new construction tends to be tailored to high-income renters. This has led to an inadequate housing supply in many markets, especially for work force housing.
Migration: Many cities in the country have a positive net migration as people are moving away from big cities and high cost-of-living areas. Regions like the south and southeast are the big winners in population growth, which increases demand on existing housing in those regions. Four Oaks Capital specializes in acquiring assets in fast-growing southeastern markets.
Inflation: The U.S. has printed more money in 2020 than in the previous 2 centuries. The US government is facing a $3+ trillion deficit and the extra money in circulation will likely lead to increased inflation. Over the years, real estate values and rents tend to keep pace with inflation, meaning your investment will be about as inflation-proof as possible.
Leverage: banks will typically lend upwards of 75% of the value of an apartment building. This leverage amplifies your investment dollars significantly. For example, in the case of a 75% loan-to-value ratio, if the property value goes up by 5%, the return on your investment will be 20% because of the leverage created by the loan. Just with natural inflation, you can expect property values to rise by about 2% per year.
Interest rates are at historic lows which reduces the cost of debt service on a property, leaving more profit to be distributed to the investors. Additionally, just like a home mortgage, the loan for an apartment building is paid monthly from the rents received, which reduces the principal and increases the equity in the property and increasing returns when the property is sold.
At Four Oaks Capital, we do all the heavy lifting, so you don't have to. We find investment opportunities for those in our network, complete the purchase, manage the property, and pay our investors on a quarterly basis from the cash flow. Best of all, investors can participate in the upside when we sell. Interested in potentially investing with us in 2021? Let's set up a call.