We know and live multifamily investing. It is not difficult to grasp, as most can quickly see there is a value proposition in providing someone a home to live in exchange for rent. It is not overly complicated or subject to huge volatility and market swings such as the oil and gas industry, which in recent years has been over $100 a barrel and and below $30 per barrel. We have been focused in the multifamily industry since 2006, so we have years of focused experience. We can touch it and feel it. We can usually understand and learn why a multifamily investment performs well or not, as we can glean feedback from each investing experience. We choose to invest in what we know, and we want to intimately know what we invest in.
It meets the second most basic human need: shelter. The U.S. MultiFamily industry is a growing antiquated 100 year-old legacy $1 Trillion industry, ripe for disruption. According to a Harvard 2015 report there are 43M renter households, or 37% of the households in America. The homeownership rate among the U.S. has dropped for the past ten years since hitting a high of almost 70% in 2005. Today, the homeownership rate is under 63%, the lowest since 1945, at the end of WWII. The result is an increase of 500K-1M renter households annually. Multifamily is real and tangible. In an economic crash such as 2008, apartments do well in relation to other industries, as everyone needs a place to live.
Multifamily offers the opportunity for regular (monthly), reliable cash flow, which is what is left over after paying all expenses and investing cash in property improvements.
We can take depreciation to offset all or much of our gains in the first 5-7 years of ownership. We are also able to write off the mortgage interest against gains.
We see debt leverage as a tool. By leveraging the bank's money we are able to acquire more multifamily real estate and generate higher returns than if we only paid cash (which is the “Unlevered Return” or “Cap Rate”). We hold most of our properties in long-term, fixed, low rate, non-recourse debt, at reasonable loan-to-value ratios.
In the publicly traded securities world, you can go to prison for acting on knowledge not otherwise known to the general public. It Is called insider trading. It is what sent Martha Stewart to prison. In our business, however, we practice insider trading on a daily basis. In fact, most of what we invest in could be called insider trading in that it may only be known to a small group of people. For example, when we find out about an apartment investment, we can sometimes offer and buy it before anyone else or only a limited number of people become aware of it. We like that we may be the only or one of only a few people aware of an investment opportunity.
We like that we, along with our investors, at the time we choose to sell, can defer taxable gains by exchanging into another investment. We can do this indefinitely.
We like that we can joint venture with other investors and professionals. For example, we typically fund investments by helping others invest with us.
Each time we make a mortgage payment, we pay down a little of the principal loan balance, raising our equity accordingly. At last check the company’s portion of its partnerships were generating over $30,000 in monthly principal paydown.