Category: Property Investors

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Why You Should Be Thinking About Alternative Investments

In uncertain times, financial advisors often encourage investors to turn to low-risk, fixed-income investment options, such as CDs, money market funds, and high-yield savings accounts. They reason that these safe investments will preserve your assets as they provide positive returns. But do they?

Investing in the stock market and receiving a 60% loss is a no-no, so the financial advisors would rather you invest on a 10-year treasury yield, making 3.7%. While it may seem the investment is making you money, you have to consider that the annual inflation rate rose to 8.2% in September 2022. That means you are losing money (-4.5% annually).

While all investment options seem pointless at the moment, one criminally underutilized segment is viable during market downturns. Did you know you can make as much as 12% returns using alternative investing?

According to Prequin’s 2022 Global Alternatives Report, the alternatives AUM concluded at $13 trillion in 2021 and is projected to expand to 11.7% ($23 trillion) by 2026. This is a look at what alternative investing is all about.

What Are Alternative Investments?

Alternative investments have no basis on traditional financial products like stocks, bonds, or cash. Most alternative investments don’t receive as much regulation from the SEC and could be more illiquid.

Types Of Alternative Investments

As more and more alternatives become available to retail or individual investors, it pays for investors to have a solid understanding of these options. The following are some examples of alternative investments:

1. Private Equity

Private equity is a term that describes investments in businesses not traded on a public market like the New York Stock Exchange or NASDAQ.

The goal of private equity firms is to generate returns for their investors by making strategic investments in private companies with the assumption that the value of those investments will increase by a certain time. You can further break private equity down into these categories:

  • Venture capital
  • Buyouts
  • Growth equity

These asset classes typically require long-term investments of substantial capital, so only institutions and wealthy individuals can participate.

2. Hedge Funds

A hedge fund is a type of pooled investment partnership that trades liquid assets using various investment strategies to generate a high rate of return for its investors. Entrepreneurs can invest in a wider variety of securities, as hedge funds are not subject to the same regulations as mutual funds.

Compared to other alternative investments, hedge funds are notable for their high liquidity ratio. Because they have a higher concentration of liquid securities, you can liquidate the funds in minutes. Due to the high costs and risks involved, only wealthy individuals and institutional investors, like pension funds, typically invest in hedge funds.

3. Structured Products

Structured products are a type of investment that involves pairing a debt instrument (such as a bond or CDs) with one or more derivative instruments tied to an underlying asset class or a collection of assets such as stocks, market indices, currencies, or interest rates.

Despite their complexity and potential for loss, structured products allow investors to create a uniquely tailored portfolio to their needs. Typically, investment banks produce them and offer them to institutional, corporate, and individual clients.

4. Private Debt

Private debt consists of loans from sources other than traditional banks. Businesses often use private debt for expansion, working capital increases, or real estate construction and development.

Given the historically low returns on government bonds, direct lending to businesses can provide a sizable premium over the cash flows accessible from liquid fixed-income products. Private debt funds, the firms that provide the funding, make money through two main channels: interest payments and the eventual repayment of the loan.

A private debt fund may also focus on senior, junior, or mezzanine debt, among other strategies, such as direct lending, venture debt, and exceptional situations.

5. Real Estate

Many Americans already have a stake in this asset class because they are homeowners, making real estate the most viable alternative investment. Real estate investments can take the form of direct property ownership or indirect investments.

Properties like apartment buildings and shopping centers provide regular rental income to their owners, and they hope for price increases over time.

Investors who want a more hands-off approach might buy shares of private real estate investment trusts (REITs) through a broker. REITs that trade publicly do so through the stock market.

In addition to its diversification benefits, real estate offers investors a hedge against inflation and favorable tax advantages.

6. Commodities

Commodities are tradable items that have both direct and indirect economic uses. Examples of commonly traded commodities include gold, farm animals, precious metals, wool, oil, gas, wood, and uranium.

Given their relative immunity to fluctuations in the public equity market, investors often use commodities as a hedge against inflation. Commodity prices fluctuate based on supply and demand market forces; increased demand will lead to higher prices and greater returns for investors. You can invest in commodities in several ways, including:

  • Futures Contract
  • Stock
  • Physical commodities

7. Collectibles

When you invest in collectibles, you aim to generate a return on your money through long-term appreciation of the items you own. Some of the common types of collectibles include:

  • Books
  • Rare wine
  • Stamps
  • Antiques
  • Trading coins
  • Art
  • Coins
  • Baseball cards
  • Toys

To succeed in this alternative investment strategy, you need an extensive understanding of the sector and the patience to hold on to your investment for a long time. It is not easy to predict how much a work of art, or a collection will increase in value because both can decline in worth or get destroyed.

Some collectors treat their collections as investments on par with their homes or cars, and their collections make up a significant portion of their net worth. Adding collectibles to a portfolio is a great way to diversify your investment base and spread your risk.

Final Word

Many investors are increasingly looking to alternative investments to diversify their portfolios, maximize their returns, and accomplish other financial objectives. That is why it is so important for investors to have a firm grasp of the options they have to adopt alternative investments into their portfolios successfully.

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Blogs Property Investors Real Estate

Why You Should Consider Buying Real Estate During A Recession

The inflation rate as of November 2022 is 8.202%, well above the long-term average of 3.26%. Mortgage rates are still rising, exceeding 7.44%, and there’s a good chance the Fed will increase lending rates by 50 to75 basis points in the December 14-15 FOMC meeting, and an additional 25 to 50 basis points in the January 31-Feb 2 2023 FOMC meeting. This could result in Mortgage rates close to 9% by February 2023.

All of these point to a intentional recession. If anything, TD securities think there’s a more than 50% chance the US will enter a recession within the next 18 months.

While a recession means people don’t have the money to purchase a home, it presents mouthwatering opportunities for a real estate buyer, as long as the buyer can maintain financial solvency through the 18 to 24 months of a recession. Keep reading to learn why buying real estate assets during a recession might be a good idea.

Advantages Of Buying A Real Estate During A Recession
Purchasing Real Estate during a recession has some benefits, such as:

A) Lower Prices
House prices usually fall dramatically during economic downturns. Such an economic environment means people can barely afford the bare essentials, so splashing hundreds of thousands of dollars on a home is out of the question. This has a trickle-down effect on the Multifamily real estate market and even other real estate asset classes.

A lack of interested purchasers can lead to prolonged selling times, so sellers may feel compelled to cut their asking prices to move the assets. Foreclosures also force homeowners to sell, increasing the supply of homes and further driving down prices.

While home prices have not dropped significantly as of August 2022, Moody’s Analytics forecasts that home prices in highly “overvalued” housing markets might fall by 15% to 20% should a recession hit, while nationwide home prices would decrease by roughly 5%.

B). Mortgage Is Cheaper
During a typical recession, business stagnates, so the Fed’s go-to solution to spur the economy and get people to spend is lowering interest rates. That typically leads to more affordable mortgage rates, which is your cue to hit the market in search of a home. This Fed pivot will not occur until we are firmly entrenched in a recession, and consumer confidence has severely been impacted, often seem as a reduction in the hyper liquid stock market open futures.

The National Bureau of Economic Research (NBER) still has not called this a recession despite two consecutive depressed financial quarters, which explains why the interest rates are still high.

If the economy does tip into a recession, expect mortgage rates to plummet, but only after the stock market capitulates and the average investor is running for the exits. That would be the perfect time to get a mortgage and grab a house.

C) Low Competition
In 2020 and 2021, homes were flying off the shelf, some site-unseen. Homes found buyers in as little as one week. A depressed economy, however, means people don’t have purchasing power, so expect little competition for home listings.

The high mortgage rates and exorbitant home prices also mean supply will increase, so you will have plenty of homes to pick from, if you can afford it.

Tips For Buying A Real Estate In A Recession

Here are some tips if you want to purchase a home during a recession:

1. Do Your Homework
Sure, property will generally be cheaper, but that doesn’t mean you can’t get a better deal. Scour the internet and visit local listings. You might net the bargain of the century and maximize profits if you decide to sell the home later.

2. Know When To Walk Away
Just because it’s your dream doesn’t mean you should compromise everything to get the deal over the line. If you find an asset that meets all your requirements but is too expensive, ask the seller to lower the price. If they can’t, walk away. There are plenty of gems like that waiting to be discovered. Take your time to negotiate.

3. Get Your Finances In Order
First, you need a budget, a limit of what you can afford to purchase any property. That will act as a guide whenever you’re conflicted about how much you should spend.

That also means ensuring you have a good credit score to secure a mortgage, pay all the taxes, and have enough savings to stump up the down payment.

4. Shop Around For A Mortgage Deal
Yes, mortgage rates are lower than usual, but you can still get a better deal than most people. Considering mortgages involve vast sums of money, you’d be surprised how much money a few changes in decimal numbers will save you.

Go around looking at the deals mortgage providers offer to find one that suits you best. That would also be a good time to enlist a mortgage broker as they know the best places you can land a mortgage deal after considering your financial circumstances.

5. Hire A Real Estate Agent
Hiring a real estate agent is a great way to expand your reach in the real estate market. Agents have access to more properties than you could find by yourself and know where to strike a deal. They can also provide valuable advice, offer guidance, and negotiate on your behalf.

6. Obtain Concessions
Due to the market downturn, you should take advantage of all the rebates and real estate deals that come your way. Owners are under pressure to sell their properties as quickly as possible due to the drop in prices. Consult with your real estate agent to request concessions from the seller, but keep in mind the agents goal is to generate a commission, their incentive is to generate a sale.

7. Avoid A Bidding War
One benefit of purchasing in a down market is obtaining a reasonable price. Don’t let your emotions get you into a bidding war, as that will mean spending more than you had anticipated. An excellent way to go about this is to set a budget and adhere to it.

8. Realign Your Investment Strategy
As you’ve probably noticed, it is a down market, so properties aren’t moving fast. Therefore, you should approach a purchase knowing that you may not offload for a long time. It would be best if you reassessed your investment strategy.

If your strategy is flipping property, that may not work in a down market, its akin to catching a falling knife. It would help if you thought of long-term strategies, such as renting the property. That entails gauging the viability of the property as a rental unit before deciding to purchase.

Therefore, don’t spend your last dollar on a property hoping to get instant returns. Since you’ll be holding onto the property for some time, you should also ensure you have the finances to take care of maintenance and taxes.

Final Words

For the right investor, purchasing real estate during a recession makes sense. While mortgage rates are forced up to control inflation and create unemployment, they typically fall during the recession; once unemployment skyrockets up and the stock market tanks. Further, there are a lot of listings to choose from as there’s little competition.

I recommend you use the stock market as an early indicator of economic duress, the housing market as a less volatile marker, and the multifamily market as a lagging indicator; unless of course, a black swan happens to swim by and we have major demographic changes.

If you have the financial liquidity, you can grab a once-in-a-lifetime deal, especially if you enlist the services of experienced guides who have navigated a few economic cycles. However, you may have to keep the asset for some time since it may be a prolonged down market.

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Blogs Property Investors Real Estate

How Real Estate Investors Can Prepare For Turbulent Economic Future

Investing in the future is the smartest thing you can do now, considering the economy contracted for two consecutive quarters, the typical textbook definition of a recession. Although, the US is still not technically in a recession, as the National Bureau of Economic Research is the only body allowed to make that call (and they haven’t, yet…), the warning signs are there.

What can’t be ignored is that the economy is contracting while productivity is declining, so it’s best to prepare for the harsh economic days ahead. Because of the unpredictable economic behavior, this article will discuss how to invest in your future so you can ride through the hard times.

1. Create An Investment Plan

The first step to building a financially secure future is to create an investment plan. With such a volatile market, you need a guiding star to help you commit to the master plan and avoid panicked decisions. An investment plan lays down a strategy after gauging all the market variables. That way, you can recognize and weigh all the risks when investing, enabling you to fulfill all your obligations still. The plan should help you realize the best investment vehicles.

The key to creating a plan is to be realistic about what you can achieve. Note that creating an entire financial strategy for the future in one sitting isn’t going to work. Instead, break down each piece into smaller steps that are manageable and achievable. Once you’ve figured out the steps, write them down, so they’re easy to refer back to when needed.

2. Diversify Your Investments

As is often said, never place all your eggs in one basket. Diversifying is an excellent way to get the most out of your money, even in the most troubling economic slumps. It means spreading the investments across different asset classes so that if one class tanks, another will likely thrive. Markets you can try your hand at include:

A) Invest In REITs

Real estate investment trusts (REITs) are a great way to invest in real estate without owning any property. They’re publicly traded on stock exchanges and often pay out dividends from their rental income. In a risk-off environment such as the current one, REITs are typically the oasis of hope, and it’s easy to see why. REITs offer relative inflation protection and high dividends but bear a low correlation to the stock market and have low transaction fees.

REITs are excellent investment vehicles for the long term, typically outperforming bonds and stocks in some periods. If anything, REIT’s average yield is over 3%, more than double what you would earn from S&P 500 stocks. What’s more, REITs are liquid, so you can get your cash as soon as the market opens.

B) Home Flipping 

You don’t have to own an entire rental property to reap the benefits of investing in properties. A neat trick to try is home flipping, which involves buying distressed properties at discounts, renovating them, and selling them for a profit.

C) Sandwich Lease

In this arrangement, you enter a rent-to-own agreement with a landlord, then lease it to a tenant. It’s one of the most cost-effective ways to enter into real estate, as the tenant will allow you to purchase the property after several years.

3. Concentrate On Marketing

Investing in your marketing strategy is one of the best ways to create a sustainable business. Marketing will boost sales and build your reputation, increase your relevance and demand, and cements your place among customers, creating a loyal customer base.

One of the most potent forms of marketing is digital marketing. The main way of doing this is through search engine optimization (SEO) using keywords. You target a range of words potential clients use when searching for real estate properties for Google to drive traffic to your online sites.

Digital marketing could take many forms, such as email marketing, blogging—which 56% of marketers say is effective, and social media. Posting content on social media is exceptionally effective considering 82% of Americans use social platforms.

Whichever form of marketing you settle on, you should try videos. According to Wyzowl’s research, 86% of marketers said videos helped increase traffic and generate leads, while 81% said they directly helped increase sales.

4. Automate Your Savings

Automating savings is a great way to ensure you always have money available for whatever comes up. The best part is you won’t even have to think about it as it works in the background.

It’s also a great way to start investing in the future. You can set up automated transfers from checking to savings and then start saving with every dollar. It’s easy, painless, and will save you money in the long run.

To automate your savings, use an app like Acorns or Qapital. These apps allow you to set up automatic savings plans, plan, and invest without making withdrawals at specific times as traditional banks do.

5. Start Investing In Yourself

Another great way to prepare for the future is by investing in yourself. There are many ways to invest in yourself, such as:

  • Go to class: There are many courses available online or at local community colleges that can help you learn more about real estate and expand your knowledge in readiness for the future. Most of these courses have classes on various aspects of real estate, including how to market yourself, use social media, and manage your finances.
  • Subscribe to emails from industry leaders: By signing up for newsletters from real estate professionals or companies, you’ll stay up-to-date on changes in the industry and what you can do to adjust.
  • Listen to niche podcasts: Podcasts are another great way to learn about topics related to your industry—not just real estate. There’s a ton of valuable information on marketing, management skills, and more.

The Bottom Line – Invest In Your Future, No One Else Has More Of An Incentive

Just because the economy is tanking doesn’t mean you must sink with it. Since business is low, now is the best time to invest in the future and realign your business so you can reap big when the market turns hot again.

Some of the best tactics you can employ include concentrating on marketing, investing in your knowledge, diversifying your investment portfolio, and automating your savings. Before you set out, you must create an investment master plan to guide you through turbulent times.

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9 Things Help Investors Thrive During Real Estate Recessions

There is a concern among many investors in real estate about the possibility of a recession in light of recent economic uncertainties and how that will affect the real estate market.

In most economic downturns, people lose jobs, and mortgage rates typically go higher than most can afford, crippling their ability to purchase properties. But that doesn’t always spell doom for real estate, so here’s a look at how a real estate investor can survive, or even thrive, during a recession.

1. Branding And Marketing

The best way to survive a recession is to keep marketing your brand. It’s about building a brand that stands out from the crowd.

Branding isn’t just about getting customers to recognize your business; it’s about getting customers to keep coming back for more business as you have established yourself as a reputable brand. One of the best ways to achieve this is through positive marketing.

While most businesses would understandably cut down on marketing during an economic downturn, that’s the perfect time to rump up your marketing efforts, as it has healthy returns. For instance, the return on investment (ROI) for email marketing is $36 for every $1 spent. Here’s what you stand to benefit from good marketing and branding:

  • Gaining a larger audience
  • Increased cash flow
  • Help you take some of your competitors’ clients

2. Learn More About The Real Estate Market And The Recession

You need to have a working knowledge of the economy and how it will impact the real estate industry to stand a chance of surviving a recession. Get to know the causes of the recession and where the money is headed.

In a recession, not all economic sectors will slump; some might perform better than others. Use this knowledge to pivot your business to cater to those sectors that are doing better during the downturn.

Take the 2020 recession, for instance: while shopping in malls dipped by 70% and the office industry slumped due to work-from-home initiatives, the booming ecommerce industry led to a steep increase in demand for warehouses.

3. Invest In Technology

Investing in a customer relationship management (CRM) tool during a recession is one of the smartest moves you could make, as it has an average ROI of $8.71 for every dollar spent.

As a real estate brand, you can use CRM to track client information and make follow-ups. A sound CRM system should have features that enable you to access information about potential buyers and sellers easily and communicate with them using various channels.

Similarly, you can use social media sites and real estate apps to showcase your listings and increase your reach.

Consider technologies such as virtual tours and virtual staging to cut down on costs of staging an open day and staging a listing.

4. Work On Customer Retention Of Your Current Clientele

Keeping your already existing clients should be a major priority. When you work hard to maintain good relationships with your clients, they’ll appreciate it and return the favor. That makes them feel special goes a long way toward building trust. Try some of these customer service strategies:

  • Maintain a customer feedback loop
  • Provide personalized customer service
  • Start a customer education program
  • Give offers and discounts
  • Provide incentives

5. Grow Your Network

Never underrate the power of networking, as it can help your business stay afloat during recessions. You can build relationships with friends and associates to expand your business’s reach and abilities.

A more extensive network will help in acquiring new business leads, which you can work towards closing to improve sales. Additionally, it will help you keep abreast of the latest trends in the market and identify best practices.

Further, networking will increase your connections and opportunities to explore new markets.

6. Cut Expenses

Tough times call for tough measures. Everyone has to make sacrifices to ensure the firm makes it through an economic downturn, which means cutting costs. Reducing expenses is a brilliant idea even in good times.

Lower your expenditure by eliminating items that don’t offer much to the business, such as a cable subscription in the office. Alternatively, realign your financial spending by reviewing your insurance providers to get a better deal, consolidating bank accounts, and avoiding unnecessary debt.

Improving efficiency will also help in cutting down costs as it minimizes wastage. Purchase the right tools, go paperless, and improve time and project management.

7. Stick To Your Business Plan

Economic recession is part and parcel of every business cycle. You don’t need to panic and sell everything. Just stick to your original business plan with just a few adjustments. To stay focused on the big picture, make it a point to refer to your long-term objectives and plans regularly.

Moreover, set short-term weekly and monthly goals, and tweak where necessary as long as they tally with the master plan. You may need to restructure the business plan as recessions can be unpredictable.

8. Re-Evaluate The Business

A recession is the perfect time to take a step back and take a long hard look at the business. Since there’s plenty of time on your hands, use the time to evaluate the company and find any weak points that need fixing.

Maybe business is low because you’re not marketing right, your pricing doesn’t make sense, or you don’t understand prospects. Go over your data, try to work where problems are, and implement potential solutions.

9. Create A Unique Value Proposition

Creating a unique value proposition is one of the best ways to thrive in any market. In real estate, this means differentiating yourself from the competition. That means providing something the others don’t offer.

That could mean anything that offers extras to clients, like diversifying your business by partnering with a mortgage broker, so you offer mortgage provision services in-house.

Final Word

One of the key lessons to surviving a recession is never to stop marketing. That will help build your brand as well as bring in new business. Alternatively, create a unique value proposition, invest in technology, and grow your network to improve sales.

On the other hand, save money by cutting back on expenditure, sticking to the business plan, and retaining your current clients. It also helps to keep abreast of the current economic environment to find opportunities you had not considered before.

Despite the macroeconomic headwinds of recession, your individual economic success could be amazing, as long  as you can navigate and anticipate this crisis.  What outwardly appears to be chaos may be an historic opportunity.

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Property Investors Real Estate

6 Challenges Multifamily Property Investors Face

A multifamily property is any residential property with more than one housing unit. Duplexes, townhouses, condominiums, and apartment complexes are all multifamily properties.

Investing in a multifamily property is one of the best ways to dip your toes in real estate and property management. That’s because multifamily properties offer many benefits, such as steady cash flow, lowered risk, passive income, tax benefits, and valuation potential.

That said, like any other investment channel, it has its pitfalls. These are some of the challenges facing the real estate industry in 2021:

1. Management Intensity

You do have the option of outsourcing management for a multifamily property. However, looking after such property is so intensive that it occasionally requires your personal intervention.

For instance, you will deal with multiple tenants, leases, maintenance jobs, tax issues, and even different payment options. Each tenant has a unique way of handling their lease and communicates differently.

Some tenants will treat the property with respect, while others will tear up the place, leaving you with hefty repair bills. You can avoid this by screening potential clients to ensure you lease the property to a responsible tenant.

Also, if one thing goes wrong in one unit, it will likely go wrong for other units as well. Such a situation translates to higher maintenance and repair bills.

Compare this to if you were dealing with a single-tenant leasing a 15,000 sq. ft. office space. Despite the size, it’s still just one tenant. Unlike residential properties, maintenance costs and obligations fall to the tenant and not the owner, making management less intensive.

On the flip side, dealing with a multifamily unit has its perks compared to managing separate single-family units. It is easy to hire one on- or off-site manager to oversee the complex with a multifamily property. Whereas with multiple rentals, you’d need several managers to do the same job.

2. Cost

It is an understatement to say the price for a multifamily property is hefty. In fact, this is one of the main challenges of property development. This causes many real estate investors to shy away from investing in this property type.

Investing in a multifamily property is also challenging for first-time investors who may not have the required amounts to make the down payment.

For example, a two-unit apartment in New York or San Francisco costs more than one million dollars. As an investor, banks will require you to raise at least 20% for a down payment. This amount translates to $200,000, which is an amount a new investor may not have.

The scenario is more challenging in a bull market because new investors compete against seasoned investors for the same property.

An advantage to this is that you are more likely to get approval for a multifamily unit loan rather than a single-family home. That’s because banks view multifamily properties as low risk.

If you are a first-time investor, you can qualify for an FHA loan if you opt to live in one unit within the multifamily property, as you rent out the rest. FHA loans require a small down payment compared to other loans.

If the rental income from the multifamily loan is enough to pay for the mortgage that means you will live rent-free. However, you might need to live at the property for at least one year for this to apply.

3. Competition

As mentioned, multifamily properties attract seasoned investors. The result is serious market competition, which shuts out budding investors.

Experienced investors have an advantage over the others as they can pay for these properties in cash. Moreover, they have the industry connections to effortlessly secure funding.

These investors are also more than willing to waive purchase contingencies like financing contingencies or paying for inspections. Combined, these factors make seasoned investors more appealing to sellers than new and inexperienced ones.

New investors should partner with experienced investors when they start investing in multifamily homes to stand a greater chance. The partnership offers an opportunity for a new investor to learn the ropes.

4. Regulations

Landlords for single-family units already deal with strict regulations, but they are worse for multifamily properties. Breaking any codes results in hefty fines and penalties.

Because of real estate issues during COVID, the federal government made some rules and regulations you must enforce, including social distancing rules to stop the pandemic.

Further, there are mandatory design standards, utility cost computation rules, and the federal government has regulations governing multifamily communities.

To avoid falling foul of these rules and regulations, ensure you research the federal and state laws and abide by them religiously.

5. Vacancies

It is not uncommon for multifamily properties to have vacancies for weeks or months at a time. If you are still paying a mortgage on the property, you will have to cover that cost on your own.

Renting out both sides of the complex ensures that you still have a rent collection of about 90%. With a single-family unit, months-long vacancies are costly and offer a collection rate of about 80%. If this continues for a couple of months, it will affect your overall profits.

6. Frequent Turnover

Generally, tenants in such properties are more temporary than other real estate types. Multifamily property tenants are typically first-time renters, and with time, they’ll want to move onto more family-friendly properties.

With an enlarged family, they’ll need a bigger space, a yard for their kids and dogs to play in, and a garage for their multiple cars.

Because of that, the average length for tenancy in a multifamily home is one-third of what you’d expect at a single-family property. So, if you’re looking for tenants to stay a little longer, a multifamily property is not the right fit for you.

You can also avoid having too many vacancies by offering a generally pleasant living experience.

Final Word

You may be wondering if multifamily properties are the right real estate investment to try out. Like any other real estate investment, this type of property investment is lucrative. That said, it comes with its own set of cons, like any other type of real estate.

The most prevalent real estate challenges of 2021 you will face include hefty initial investment, high maintenance requirements, and frequent tenant turnover, forcing you to search for new tenants frequently.

That said, it’s up to you to decide whether to invest in them. When you address most of the challenges listed above, the multifamily property is one of the best investments.

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If you simply need more information. have questions, or want to discuss a specific deal, I’m always excited to help. Reach out to me at info@redpillkapital.com

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Why The US Could Be Headed For A “Richcession” In 2023

Economic downturns typically affect everyone irrespective of class, but the poor almost always bear the brunt of recessions. To the wealthy, a recession is nothing but an inconvenience. Not this time round.

Research by financial experts suggests that the next recession predicted to occur in 2023 will likely hurt the rich more than any other economic class. With that in mind, it’s easy to see why they’ve dubbed the 2023 downturn the ‘richcession.’ That is, of course, assuming there will be a recession in the first place.

But, what are the odds an economic downturn will occur in 2023, triggering a richcession? Using the ABC model, the Federal Reserve predicts a 35% chance of a recession in 2023 if there is a tightening of the policy gap. The unconditional estimate is a mere 16%, although a more restrictive policy gap results in a 60% chance of a recession marked by a rapid decline of inflation under the baseline.

Additionally, Lahart argues that the wealth of households in the lower classes grew more throughout the pandemic than those at the top. That could increase the chances of richcession due to the decreased wealth growth among the wealthy caused by a decline in the stock market and a comparatively modest paycheck rise.

What Is Richcession?

A richcession is a sub-branch of a recession, a widespread and prolonged economic downturn that occurs when a country typically experiences decreased economic activity, rising levels of unemployment, and a fall in the nation’s gross domestic product.

In most instances of a recession, the most hard-hit classes are the poor and lower-middle class members. However, this is not always the case. Sometimes recessions affect the rich the most, an isolated circumstance industry insiders refer to as a richcession.

While the US may not be experiencing a recession, the evidence seems to point to one in the near future. A recent Bloomberg survey suggests a 70% chance of a recession in 2023.

Factors like high-interest rates and inflation have fueled the chances of a recession in 2023. Unlike other instances when the US experienced a recession, experts speculate that the 2023 recession will likely affect the rich more than the poor, hence a richcession.

Signs Of A Richcession In 2023

Several factors suggest why there is a strong likelihood of a richcession occurring in 2023:

The Decline In The Net Worth Gap

For the first time in decades, the economic inequality in America has improved. Before the pandemic, the lower 50% were collectively worth $2 trillion. By the end of Q3 2022, that figure had more than doubled to $4.5 trillion.

That is in stark contrast to the fortunes of the high earners. Research shows that individuals between the 50th and 90th percentile’s share of the total net worth dropped from 30.1% before the pandemic to 28.7% by the end of Q3 2022.

As for earnings, the Federal Reserve Bank of Atlanta data shows that workers in the bottom quartile received a 7.4% increase in monthly wage over the same period in November 2021. That measures favorably against workers in the top quartile, who only received a 4.8% increase using the same parameters.

The fall in income for the well-off is significantly attributable to the dip in the stock market. Conversely, the lower 50% can link their fortunes to the government’s COVID-19 relief initiative and the strong labor market.

Changes In The Labor Market

Although unemployment reached an all-time high of 14.7% in April 2020, December 2022 data shows it edged down to 3.5%, well below the long-term unemployment average of 5.73%. Moreover, data from the Bureau of Labor Statistics (BLS) show that job openings still outnumber that of unemployed workers.

The other end of the scale shows that high-income earners felt the brunt of the economic slide, with white-collar workers at the center of recent layoffs. The news is full of stories of big tech companies such as Amazon, Meta, and Twitter letting go of high-profile workers, most of who were earning more than $200,000.

Effects That Richcession Will Have On The Wealthy Class

A richcession could impact the well-offs in the following ways:

Termination Of White-Collar Jobs

The richcession will mainly compromise high-income earners. For instance, Salesforce plans to let go of about 10% of its workforce, about 8,000 workers, in the coming weeks of January 2023. They are doing so to reduce expenses due to concerns about the downturn.

That comes hot on the heels of Meta laying off 11,000 workers, Amazon 10,000, and Twitter 7,500 employees. Vimeo also announced in January 2023 that it plans to lay off 11% of its workers following a similar exercise in July 2022.

Plummeting Stock Market

Investing in the stock market is beneficial, but not in the current climate. The looming fear of a recession is negatively affecting the stock market. A continual fall in stock prices will eventually lead to one thing—plummeting net worths.

Businesses That Target The Well-Off In Trouble

2023 might not be a great year for businesses that target the affluent, as that market segment is likely to run into economic headwinds. White-collar jobs are at risk, the stock market is taking a pummeling, the real estate market is cooling, and the economy is on shaky grounds. That will only spur the affluent to tighten their purse strings.

Those that rely on the lower 50% could be on better footing as the jobs market seems to favor lower-level workers. Even if there is a recession, experts expect the jobs market to remain relatively unscathed and wages to remain stable.

How To Prepare For The Richcession

It’s prudent always to have a backup plan in case the richcession hits. You could use these strategies to help minimize the impact of a richcession:

  • Build an emergency fund and always budget: It’s good practice to have some money put aside, no matter the state of the economy. That will come in handy when there is a financial emergency like a richcession. An excellent target is to have an emergency fund that should sustain you for at least six months.
  • Pay off your high-interest debts first: Such as debt from your credit cards. That should free you from punitive debts and give you enough time to build your cash reserves, enabling you to engage in meaningful investments.

Final Word

If 2023 is to experience a recession, it will likely be a recession. It is a highly unusual downturn that affects the affluent disproportionately to the other economic classes.

Already the signs point to a recession. The stock market dip is affecting the rich, more companies are cutting white-collar jobs than blue-collar jobs, and the lower-income earners have received higher income increases than their well-off compatriots.

Investing in real estate is no longer a secret kept for the nation’s ultra-wealthy! People like you are participating in the action and taking advantage of the numerous benefits of real estate investment.

While the commercial real estate sector is going through a transition, we’re keeping our eyes on what’s important: solid fundamentals. When you’re allocating your hard-earned funds, think long-term and keep it all in perspective. When you are ready to reap the rewards of real estate investing let’s talk.

By Gurpreet Singh Padda, MD, MBA

www.redpillkapital.com

If you simply need more information. have questions, or want to discuss a specific deal, I’m always excited to help. Reach out to me at info@redpillkapital.com

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