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 (which was probably the same list from 2021):
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 2022.
By the way, whether you're interested in passively investing in apartments or finding one to purchase yourself, click here to set up a call.
Inflation: Probably the one on the top of everyone's mind. We've seen inflation rates climb to 6% and there's no real stop in sight. The Fed has indicated that they would raise rates to keep inflation in check; however, there are still more reasons for the Fed to keep inflation running high, to include the $5.9 trillion budget deficit from 2020-2021 combined. 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.
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.
Apartments provide a basic human need. Everyone needs shelter - therefore, there will always be a high demand for good, clean, safe housing.
The U.S. is roughly 5 million housing units short of the current demand according to a recent study by realtor.com. This housing shortage will continue to push real estate prices upward, even if the Fed makes moderate increases to the interest rates.
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.
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.
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 still near 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 2022? Let's set up a call.