|John Beuerlein |
The Federal Reserve’s declaration of war on inflation has increased market volatility as investors position themselves for the anticipated economic slowdown resulting from the Fed’s tighter monetary policy. Except in a few instances, it is too soon to see the impact in economic data; however, consumer spending indicates an imbalance between supply and demand. The Fed’s actions are focused on slowing demand for products and services, but the supply side of the economic equation also continues to aggravate inflationary pressures.
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Why Multifamily Real Estate is a Good Hedge Against Inflation?
With inflation already a major concern, investors are looking for ways to protect their portfolios or even benefit from rising costs. One asset class that is becoming increasingly popular as an inflation hedge is multifamily real estate. The multifamily sector has some unique benefits, making it an exceptionally attractive investment.
Ability to Adjust Rents: The leases in multifamily properties typically last only one year, which allows property owners to respond quickly to inflationary pressures and adjust rents accordingly.
Necessity-Based Asset Class: Multifamily real estate is a necessity-based asset and hence it is less likely to lose value during an economic downturn than other types of assets. Most people will pay their rent before paying for other expenses
Maximizing Returns Through Value-add: The value of multifamily real estate is soaring, but investors can still find great opportunities by using a value-add strategy. This strategy allows an investor to purchase an underperforming property at a discounted price and significantly increase its value through renovations, improved management efficiencies, and rising rents.
Growing Demand: Home prices have increased dramatically over the past 18 months, and many signs point to this trend continuing. This is great for homeowners but bad for buyers, many of whom cannot afford to purchase a home. Since owning a home has become increasingly unattainable for many people, demand for rental units in multifamily properties has increased.