Investing in Private Real Estate During Times of Volatility

Volatility chart with building background

For those looking to invest money during times of volatility and in uncertain markets, the real estate sector has historically been one of the most stable and consistent performers in terms of long-term growth and return on investment. When properly researched and planned, investing in private real estate can be an attractive way to make money in any market.

If you’re a high net worth individual, accredited investor, or anyone interested in learning more about profiting from volatility through private real estate investment opportunities, keep reading. This article will explore key points related to the current market conditions and how they impact the potential for success with private real estate investments.

Key Takeaways

  • Private real estate is a play for the long term – while other investments may be more volatile in the short term, over the long haul, private real estate has proven to be a more reliable investment. Real estate’s inherent illiquidity, while a trade-off to more liquid investing options, can eliminate short-term emotion-driven investment decisions in turbulent times.
  • This point in the current economic cycle presents an opportunity for those with dry powder (cash on the sidelines) to seek yield in the short term and growth in the medium and longer term.
  • Rent growth and net operating income expansion in multifamily have been robust and are projected to continue. This provides stability for investors looking to weather any potential storms on the horizon.
  • While recession fears may be causing some market volatility, there are several reasons why these fears may be overblown for certain types of real estate investments.
  • Well-located, high-quality real estate has the potential to succeed even if inflation remains stubbornly high.
  • Real estate can be used as a hedge against other more volatile investments, providing stability and a potential source of cash flow even when the markets are down.
  • By investing in private real estate in the current environment, you can take advantage of market volatility to buy low and sell high when markets have recovered, profiting from the market’s cyclical nature.

Why Private Real Estate is a Play for the Long Term

Private Real estate investing offers many benefits that make it an attractive option for those looking to invest for the longer term. One of the most appealing aspects of investing in private real estate is its potential for appreciation. Additionally, private real estate offers a high degree of stability and security. Unlike stocks and other investments such as public REITs that can fluctuate wildly in value, private real estate is typically less volatile, making it a more predictable investment.

Ironically, in times of economic uncertainty, many investors become skittish and pull back from private real estate investing. Historically, however, those who continued to invest in real estate found themselves in a position to capitalize on some great deals.

RealtyMogul, a leading online platform for real estate investing, offered its members opportunities to invest in a wide variety of properties during the height of Covid. Three of these deals have already gone full cycle, producing returns well above proforma targets:

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$5 Trillion in Cash is Sitting on the Sidelines, but for How Long?

The Walker Webcast recently featured The Best Hour in CRE with Dr. Peter Linneman,1 a leading economist and former Wharton professor. He is the principal of Linneman Associates, KL Realty, and American Land Fund. He is cited as one of the 25 Most Influential People in Real Estate by Realtor Magazine and one of the 100 Most Powerful People in New York Real estate by the New York Observer.

According to Dr. Linneman, even if the Fed reduces the size of its balance sheet by as much as five trillion dollars over the next five years, there would still be plenty of liquidity in the market to absorb that loss of liquidity without creating a financial shock.

Using changes in the M2 money stock as a measure of the impact of the Fed’s monetary policy actions during COVID, there are more than five trillion dollars in additional cash sitting on the sidelines available to be deployed by consumers and corporations. This represents paper wealth that was added to the money supply that currently is not currently in circulation.

Multifamily Investors Seeing Robust Returns

For many years now, investors in multifamily properties have continued to experience consistently strong cash flow and capital appreciation. Rent growth has outpaced inflation in recent years and is expected to continue to do so in the coming years.

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Source: Arbor2

As a multifamily lender, Arbor, recently reported, “These national NOI growth data shed light on the ability of apartment assets to absorb the effects of inflation, thanks in part to the regular re-setting of rents as lease terms are typically only one year in length.” The best multifamily markets for investment are generally those that have strong job growth and population growth, as these factors drive demand for rental housing and also increase incomes to support higher rents.

Could Fears of an Impending Recession be Overblown?

Whether the US or at risk of a recession is debatable. Some experts believe the Fed may be able to successfully engineer a soft landing, while others believe the data may be sending mixed signals or that a recession is inevitable. Persistent inflation will force the Fed to continue making aggressive interest rate hikes, with the Fed having implemented another 75-bp increase expected earlier this month. The possibility of the Fed achieving a “soft landing” for the economy is becoming more difficult while inflation persists. However, most economists believe inflation should subside as higher interest rates weigh on demand and supply chain pressures continue to ease.

At the same time, multifamily fundamentals benefit from lack of affordability of single-family housing due to higher borrowing costs, and the labor market continues to exhibit resiliency. While no one has the perfect crystal ball to time the market, private real estate investing has the benefit of focusing on the long-term, and ignoring day-to-day volatility and stock price fluctuations. The illiquid, long-term nature of private real estate as an investment inherently can also remove short-term emotional investment decisions in public or more liquid holdings.

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Source: Atlanta Fed3

A Localized View when Investing is Becoming even More Critical.

Deglobalization may also help reduce the risk of a recession in the U.S. and be a key factor to evaluate when investing in alternative asset classes such as private real estate. Many manufacturers are finding that it makes more sense to move their operations closer to home, helping to solve several supply chain issues.

According to a recent report from Business Insider,4 nearly four out of five corporations have already shifted production to the U.S., and many more plan to do so over the next three years. General Motors, Intel, and US Steel are among the companies opening new factories in the U.S.

Deglobalization also helps to create jobs. When factories move back to the U.S., they often bring with them a need for new employees. This helps drive strong regional growth.

A recession also does not impact all industries the same. Oil and gas companies generated outsized profits during recent months and farmers in the midwest may also see a boost in their earnings as food prices rise. And re-shoring the supply chain to the U.S. can help to create jobs in middle America and increase employment for blue-collar workers, which tend to represent a higher percentage of the renter population.

These regional trends impact housing prices, rent growth and returns on these investments.

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Investing with RealtyMogul

Real estate crowdfunding is a type of investing that allows investors to join forces and pool their money to invest passively in specific institutional quality real estate projects, as well as diversified investment vehicles like non-traded REITs and funds. RealtyMogul is one of the most popular real estate crowdfunding platforms, with opportunities for investments in multifamily properties, industrial properties, office buildings, shopping centers, two non-traded REITs and more.

A benefit of investing through RealtyMogul is that it can help investors take advantage of opportunities created during uncertain economic times through access to a wide range of commercial real estate offerings. Investors are empowered to build real estate portfolios that meet their personal risk profile. Members can passively invest in high-quality, large-scale commercial projects at investment minimums that allow for diversification.

RealtyMogul lists offerings from project sponsors that have met rigorous minimum qualifications. Sponsors provide thorough due diligence materials to help investors make informed investment decisions. In addition, RealtyMogul monitors the performance of each asset throughout the entire investment cycle, from acquisition to disposition, helping investors stay informed on the progress of their investments.

This article is for informational purposes only, and is not a recommendation or offer to buy or sell securities. This content is intended for accredited investors only. Information herein may include forward looking statements and is for informational purposes only. Forward-looking statements, hypothetical information, or calculations, financial estimates and targeted returns are inherently uncertain. Past performance is never indicative of future performance. None of the opinions expressed are the opinions of RealtyMogul. Advice from a securities professional is strongly advised, and we recommend that you consult with a financial advisor, attorney, accountant, and any other professional that can help you to understand and assess the risks and tax consequences associated with any real estate investment.

1 https://www.youtube.com/watch?v=H3UnQm3eWFs&ab_channel=Walker%26Dunlop

2https://arbor.com/blog/apartment-net-operating-incomes-up-20-year-over-year/

3https://www.atlantafed.org/cqer/research/gdpnow

4https://www.businessinsider.com/made-in-america-companies-bringing-manufacturing-back-to-us-2022-7

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