What’s up, everybody? The goal of this video is to help you understand why apartments. So by the end of this video, you’re going to know exactly why I think apartments are an unparalleled investment vehicle to build and preserve your wealth. And it starts right now. So real quick, if you get value out of this video and find it helpful in some way, would you please hit the subscribe button and the bell notification, too? It would really mean a lot and it would help boost my self-confidence. Sometimes it’s just the little things in life that matter. So I want to know that this message is reaching the right people. So if it reached you in some kind of way and helped you out, please hit those buttons for me. But now let’s get into the good stuff.
1. Appreciation of Asset Value
Number one, appreciation of asset value. So in just the past two years alone here in Hampton Roads, mine and Rachel’s portfolio has seen about a 30% increase. And that’s just in the last two years. So a 30% increase in our portfolio just by virtue of the market pushing values higher. My only regret is that we didn’t have more apartments. Honestly, I remember the run up from 2001 to 2008, and there were a lot of big investors that I watched just absolutely destroy it just because they owned so much property. Let’s see how many people built lifetime wealth in just a six or seven year period because they had scaled their portfolio and they’d seen great runs of appreciation.
So we’re seeing another great run in appreciation right now. And this time I was at least in some position to really take advantage of it. If everything closes, like I’m anticipating by the end of this year, our portfolio here should be somewhere in the nine to $10 million range. Super important to remember that markets go up and markets go down, right? So this is an uptick. Eventually the markets going to turn, it’s going to go the other way, but there’s always going to be another run up. So the next time there’s a run up, I’m hoping our portfolio will be closer to 100 million, then 10 million and you can do the math on what 30% increase looks like on a hundred million bucks.
It’s pretty sweet, right? So we’re going to keep buying, we’re going to keep scaling. We’re going to use cash flow to keep our investment safe as a defensive metric. That’s what enables you to keep the property and use leverage to continue expanding, which we’re about to talk about in just one second.
2. Apartments are Dependable Income
So number two, apartments are a dependable income stream. I think one of the most overlooked benefits to apartment investing is that the assets are generally secured by a 12 month lease. That means you have someone committed to paying your mortgage for you. These regular rent payments provide a regular and consistent income stream that should, when purchased properly produce cash flow higher than typical stock dividend yields. Which is why one reason why I prefer apartments to the stock market.
3. You Can Quickly Scale Using Leverage
Number three, you can quickly scale using leverage. I mentioned leverage earlier. So now let’s talk about it. Leverage is my favorite element of commercial real estate because it gives you the ability to place debt on the asset in several multiples over and above the original equity or down payment. This essentially allows you to buy more assets with less money and significantly multiply your portfolio value over time quickly. So for instance, $100,000 can buy you a 400 to a $500,000 property. So you’re able to scale quickly using leverage and control assets worth far more than the equity or the down payment that you have to bring to closing.
4. Multiply Cash Flow with Low Cost
Number four, you can multiply cash flow with low cost debt. So here’s what I mean. Placing positive leverage on an asset allows for investors to effectively increase positive cash flow from operations by borrowing money at a lower cost than the property pays out. So for example, I know that was a mouthful. If a property that generates, let’s say, a 6% cash on cash return to have debt placed on it at, say, 4%, the investors would be paid 6% on their equity portion and approximately 2% on the money borrowed, thereby leveraging the debt. So watch that part again, if you have to. But it makes sense.
5. Debt is Reduced by Monthly Income
Number five, the debt is reduced monthly by property income. So just like when you have a mortgage payment on your personal residence, you have a mortgage payment on an apartment, the debt on the property will be reduced by the monthly payments and by the operating income or the rents that you collect from your tenant base. The NOI will sufficiently fund the debt or the mortgage payments, thereby reducing your debt balance each month and creating equity each monthly payment.
6. It’s a Hedge Against Inflation
Number six, and this really applies right now. It’s a great hedge against inflation. Real estate investments have historically shown the highest correlation to inflation when compared to other asset classes such as the S&P 500, the ten year treasuries, corporate bonds and those sorts of things. As countries around the world, including here at home, obviously, everybody’s freaking printing money right now to spur economic growth. So it’s important to recognize that the benefits of owning income, producing real estate is the best hedge against inflation. Historically speaking, when inflation occurs the price of real estate particularly outpaces inflation. So the assets tend to rise in value.
7. It’s a Physical Asset
Number seven, it’s a physical asset. Don’t talk to me about crypto. I know there’s a lot of people making a lot of money with it. For those of you that are loving it, good for you. But I like physical assets and nothing makes real estate safer than the fact that it’s a physical asset and it’s a necessity of life food, shelter and clothing. Everybody’s got to have a place to live. An income producing real estate is one of the few investment classes that, as a hard asset, has a meaningful value in other words, the property has value, the land has value, and the income stream itself has value. And those are things that cannot be taken away. So unlike the stock market apartment assets don’t have red days and green days. Their value is much, much more reliable and consistent over time.
8. Great Tax Benefits
Number eight, tax benefits. This is extremely important if you’re a high income earner. The US tax code benefits real estate owners in a lot of ways. Just in the two last buildings that I bought alone, Rachel and I have over half a million dollars in taxable deductions because of depreciation losses. So accelerated depreciation is a buzz word. There’s also the 1031 exchange that allows investors to exchange into a like kind of instrument and defer all taxable gains into the future. And you can actually keep kicking that can down the road for years and years and eventually never have to pay taxes. But, I’m no tax pro, so talk to your tax advisor for more details on that.
So there’s the nine top reasons that I think apartments are the best asset class for you to build your wealth and to preserve your wealth. So if you have any questions, hit us up. I’m Jonathan Beasley with That Fit Team. We are professionals in real estate and passion about people. We’ll see you next week.
