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176: Should You Invest in Multifamily Real Estate NOW?

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There is clearly fear in the heart of investors in the equity markets and real estate alike as talk of trade wars and recessions abound.

Meanwhile, I’m investing more in multifamily real estate this year than I ever have. In fact, I’m investing my 80 year old dad’s money in the same offerings—the opportunities everyone sees in Investor Club!

So why would I do this? Well, lots of reasons. Here are just a few:

1. I can’t time the market. The podcast echo chamber has been warning of the impending zombie apocalypse for at least 4 years now. Since then, I have been in and out of multiple deals creating permanent wealth. If we do have a recession (which I don’t doubt), does it have to be a blood bath? Remember, the average length between recessions is 5.5 years. If you enter an investment today, you could very well be back at the top of the cycle by the time you are ready to sell. 

2. I only invest in quality assets that are in quality markets. What does that mean? Well, I like multifamily real estate located in high growth areas. If there is strong growth in population and in jobs organically today, then there is no reason that demographic trend shouldn’t continue with or without a recession over the long term. That means a lot of people needing to live somewhere and multifamily real estate solves that problem. While it may be the case that my returns slow down for a year or two if rent growth slows, if I invest in quality assets in quality areas, I don’t worry too much about it. I don’t believe I will lose money.

3. What makes me so confident that I won’t lose money? Well, the basic thesis of my investing is to not buy and hope. For those in INVESTOR CLUB, you know that I am a believer in forcing equity through value-add strategies. That means we are dynamically decompressing our own property cap rates and giving ourselves a bigger cushion in the event of any slow-down. We create value from day one and that’s why our multifamily investment returns have averaged 30 percent annualized over the last 6 years—way above proforma’s. If a downturn happens, we have a big cushion!

4. I believe in the volume averaging approach. This goes back to the fact that I cannot predict market cycles. I prefer potentially less growth and capital preservation during a recession (real estate) over negative growth or losing money (money in the bank or stock market). As long as I invest in the right deals with the right operators, I just keep deploying capital on a regular basis. The ups and downs of the market cycles will take care of themselves.

5. The longer I’m in the investing game, the more I’m convinced it has more to do with the team than the asset itself. Right now, I have operators that I trust that make it very easy for me to deploy capital and that is the BIGGEST reason I am investing so much in real estate NOW. Even if there is an economic downturn, I’m in a very safe position with an extremely competent team. In fact, we will continue to buy through any potential downturn and follow it all the way back up!

Do I sound too optimistic? I would say I’m being realistic. Understand that, although I won’t be surprised to see a downturn in the next 12 months or so, I believe the next decade will be the “roaring 20s”—just like the ITR economics guys told us in a previous podcast. I don’t want to miss any of that!

That said, I’m always listening to what economists and other experts have to say. In fact, on this week’s Wealth Formula Podcast, I have a highly respected economist who specializes in multifamily real estate. His name is Ryan Davis and he definitely knows what he’s talking about so make sure to tune in!

Ryan received a Ph.D. degree in Economics from The University of Texas at Dallas and graduated summa cum laude from Sewanee: The University of the South.
After completing his Ph.D. program, Ryan joined Witten Advisors as a Senior Economist. Previously, Ryan was Vice President of Royal Bank of Canada’s Capital Markets division where he was responsible for originating, underwriting and closing multifamily and commercial mortgages for inclusion in CMBS pools and for sale to Fannie and Freddie. Before RBC, Ryan was a Director at BMC Capital, a multifamily and commercial mortgage-banking firm.
Ryan has been a keynote speaker at industry conferences and co-presents all client updates with Ron Witten. He is a member of Urban Land Institute’s (ULI) Multifamily Gold Council, ULI North Texas’ Multifamily Council, ULI North Texas’ Center for Leadership Program, and the National Multifamily Housing Council. Ryan currently serves on the board of the DFW Association for Business Economics, elected President for 2018.
He serves as Director of Research and Client Services at Witten Advisors. In this role, Ryan provides fact-based research, analysis and discussion to help clients formulate their apartment market strategies. This insight informs investment decisions for multifamily development and buy/sell opportunities.

Shownotes:

  • Ryan’s background
  • The recession does NOT necessarily mean zombie apocalypse
  • http://www.wittenadvisors.com/the-witten-advisory/
  • http://www.wittenadvisors.com