Benefits of Investing in Apartments during a Recession
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Multifamily investing offers a wide range of benefits. Apartment buildings, for example, are able to generate a strong and consistent cash flow. Unlike single family rental assets, apartment complexes can generate income from multiple units, meaning investors do not have to worry about vacancies affecting their cash flow.
A well-located and well-maintained property can easily find tenants and maximize its profits. The benefits don’t end there. Residential real estate properties get a lot of leverage plus plenty of tax benefits, making it the ideal investment for high net worth individuals (HNWIs) and accredited investors alike. They can take substantial deductions via mortgage interest and depreciation. Even utility and travel costs can be deducted.
However, investors may be concerned about the effects of recession on rental properties. Recession usually has an effect on investments. For example, the stock market is typically affected by recession, during which stock prices often plummet. You may be worried about the same thing happening when you buy a rental property during an economic downturn.
A recession is a period of economic decline that usually combines two damaging phenomena: inflation and a slowing economy. This is a regularly occurring economic slowdown that is characterized by a fall in Gross Domestic Product (GDP) for two successive quarters.
Whether you have a commercial real estate investment, a residential real estate property, or simply own real estate stocks, you may be wondering how recession may affect your investment.
Apartment Complex Investing During a Recession
Even in a recession, not all rental properties are affected the same way. Some are hit harder than others, but the majority of multifamily investors typically fare well during this economic downturn. Luxury apartment investors are the ones that are usually hit harder, for example. [1]
During a recession, rents tend to increase so tenants are less drawn towards luxury apartments. Tenants will use less money on housing by going for rental properties with lower rent. During this time, Class B and C buildings have their moment to shine, as fewer tenants go for Class A apartments. Investors who deploy capital during a recession may see greater returns from investing in this asset class. [1]
That said, interest rates rise during a recession so multifamily investing returns remain healthy across all asset classes. We can say that apartment complex investing is one of the recession resistant investments HNWIs should look into.
Is it a Good Idea to Own Apartments in the Real Estate Market during a Recession?
To answer the question: yes, apartments are historically sound regardless of the economic winds and that is because people always need a place to live. [1]
In fact, multifamily investors are even at an advantage during an economic downturn because the demand for apartments increases as the economy slows. We can say that there are advantages to multifamily investing even during a recession.
Layoffs and inflationary pressures limit people’s disposable income, which means they have to spend wisely on housing. People who would normally look into buying a home would have to continue renting in this economy instead. Even those who own starter homes may have to sell their property and return to renting due to the recession. [2]
Recession tends to increase the demand for multifamily rental properties. Apartment buildings therefore serve as a countercyclical hedge during times of economic downturn. They are the opposite of stocks that generally track the economy up and down. Apartment buildings remain strong even while the economy sinks. [2]
Potential Concerns for Your Real Estate Investment during a Recession
Despite being somewhat resistant to the effects of recession, there are still certain things investors need to be wary about when it comes to investing in multifamily real estate during a recession.
For example, there may be rising interest rates during a recession. This is done by the Federal Reserve to combat rising prices caused by inflation and a stagnating economy. While increased borrowing costs should slow down the economy—and in the process, inflation—it forces mortgage interest rates up instead. [2]
Recession may also bring about increased costs of construction. Inflation drives up construction costs, which means multifamily projects will generally become more expensive as these costs pile up. If you are planning on building an apartment complex from scratch, a recession is not the ideal time to do it. [2]
What is Real Estate Syndication?
One way investors can invest in real estate without worrying too much about recession and construction costs is by participating in real estate syndication. This is a group investment wherein multiple investors pool their resources together in order to buy a real estate property. [3]
This deal can be done with almost any type of real estate property, but multifamily syndication is the most popular due to the strong and consistent cash flow created by apartment complexes and condominiums.
Thanks to a multifamily syndication deal, investors are able to invest in large real estate properties that they normally wouldn’t invest in on their own. Even if some investors are able to buy a $3 million apartment building on their own, this is not necessarily an investment strategy people want to pursue due to the increased risk. [3]
Syndicators arrange the real estate syndication deals, acting as General Partners and locating the real estate investment property for the deal. They will arrange the deal, secure the loan, and locate investors who will participate in the syndication by providing most of the capital needed for it. These are passive investors who will act as Limited Partners and would have no responsibility over the property.
As passive investors, they do not have to worry about becoming a landlord or managing a large apartment building. They do not have to collect rent, deal with tenants, handle emergencies, pay for repairs, etc. This is all handled by the syndicator. It is the perfect investment opportunity for anyone who just wants to participate in real estate investing without the hassle of becoming a landlord. [3]
Some syndicators hire a property management company to run the apartment complex. Others, such as the vertically-integrated BAM Capital, are able to handle property management themselves. Syndicators make sure that the investment property is in great condition so that tenants are satisfied and the apartment continues to bring in large amounts of cash flow through rental income.
Multifamily syndications are legally formed as LLCs (Limited Liability Companies) or LPs (Limited Partnerships).
Benefits of a Syndication Deal
Normally if you purchased an apartment building by yourself, you would have to play the role of landlord and manage the entire property to make sure your investment stays profitable. You will have to develop relationships with your tenants, keeping them happy, handling emergencies around the apartment complex, collecting rent, maintaining the building, and investing in services such as laundry rooms or parking spaces. All of this comes with the headache of dealing with increased construction costs and interest rates due to the recession.
With a syndication deal, you don’t have to do any of that. Joining a syndication deal means you can basically sit back, relax, and enjoy the benefits of your investment. You can let the professionals run the apartment for you. [3]
Investors can spend more time managing their other investments or running their business while letting the investment property generate income on its own. You can earn a share of the monthly cash flow plus a percentage of the interest once the deal is done and the property is resold. This depends on the syndication’s deal structure.
Multifamily syndication is a much less time-consuming investment compared to other investments.
Syndication deals also tend to be associated with lowered risk. Since you are pooling money with other investors, you will only be liable for losses that are equivalent to what you invested. Unlike investors who are sole owners of an entire property, you do not have to bear the load of all losses. If you are looking into real estate investments, multifamily syndication should definitely be one of your top choices.
Why Investors Choose BAM Capital for Multifamily Real Estate Syndication
Accredited investors who want to invest in real estate without the headache of running an entire apartment complex themselves choose BAM Capital. Multifamily syndication deals are the perfect source of passive income for HNWIs and accredited investors alike.
BAM Capital is an Indianapolis-based syndicator that prioritizes Class A, Class A-, and Class B++ multifamily properties in the Midwest. This vertically-integrated company will work with you every step of the way to help you grow your wealth through syndication. [4]
A vertically-integrated company is one that has taken direct ownership of the various stages of its production. This means the company no longer has to rely on external suppliers and contractors, streamlining their operations.
In the world of real estate investing, this means BAM Capital handles all steps of the investment life cycle, from purchasing to remodeling, to management.
BAM Capital operates under The BAM Companies, which also includes BAM Construction and BAM Management. This means BAM Capital doesn’t just set up syndication deals, but they also have their own builders. They can easily implement repairs and renovations to increase property value. [4]
Plus, with BAM Management, the company is also able to manage any multifamily property themselves.
BAM Capital uses an award-winning multifamily syndication strategy to mitigate risk and create forced appreciation for their investors. This syndicator has unmatched knowledge and local expertise allowing them to find the best multifamily properties for syndication. They will then negotiate the purchasing and financing of the property on your behalf. [4]
BAM Capital’s track record speaks for itself. They now have $700 million AUM and 5,000+ units.
No investment is without risk. Make sure to consult your investment advisor or speak to a BAM Capital investment team member before making any financial decisions.
Accredited investors can work with BAM Capital and start investing today. [4]
BAM Multifamily Growth & Income Fund III
BAM Capital created this fund in order to yield consistent and reliable cash flow, long-term appreciation, and accelerated tax benefits. The fund aligns with BAM Capital’s demonstrated track record of successful multifamily investing by continuing to implement our signature investment thesis, now in fund format. The fund aims for greater overall returns and lower risk through a multi-asset diversification strategy.
- Consistent passive income
Lower-risk assets with in-place cash flows with the ability to distribute preferred return after acquisition.
- Significant tax benefits
A cost segregation analysis allows for accelerated deprecation to years of ownership. This large passive loss gets passed onto investors through a K1.
- Vertically integrated company
In-house property management and construction allow for predictable cost reduction and value add.
The post Benefits of Investing in Apartments during a Recession appeared first on BAM Capital.
source https://capital.thebamcompanies.com/2022/12/benefits-investing-apartments-recession/
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