It’s important not to be investing blind. Understanding your priorities and your profile as an investor will help you make smarter investment decisions.
How to Determine Your Investment Priorities
To start, there are a few main factors that will influence your investment profile. These are your priorities in several specific areas.
One of the first things to consider is how long of an investment you want. Short-term investments are typically considered one to three years. Medium-term investments are four to nine years. Long-term investments are longer than this. Examples would be an upcoming trip, saving for a home, and saving for retirement, respectively.
The longer you hold great real estate, the more the effects compound. The value of the real estate appreciates, the cash flows continue to grow with inflation, and the debt continues to be paid down. As we talk about in our tax efficiencies of multifamily email, we can do returns of capital tax-deferred. At a certain point in an investment, the capital could be entirely returned and the investor could still be earning cash flow creating almost an infinite return.
Income vs. Growth
Next, you will have to decide whether to prioritize income or growth.
You prioritize income if you want your investment to earn money that you then use for life. People who prioritize income will want something with some sort of preferred returns. Preferred returns are crucial in multiple ways. They ensure that the investor is paid 7% or 8% before any split of the profits. They incentivize the sponsor to exceed these returns so they can earn their promotion. This keeps incentives aligned for everyone. There are no guarantees in investing, but preferred returns guarantee that the first 7% or 8% of the returns on investment annually go to the investor.
By contrast, those who prioritize growth don’t care as much about year-to-year stability. Typically, the goal here is to grow one's equity and compound the equity into major growth. This typically happens over time and depending on the asset type can have volatility along the way. This type of return is generally not as dependable and can not be counted on due to this volatility. One needs to have patience and a long-term view to realize the most growth. Stocks are a commonplace that folks look for growth, but real estate offers a great growth opportunity if the sponsor is executing a value-add business plan.
We are biased, but we love value-add multifamily for its ability to provide both income and growth.
You also want to consider how quickly you can convert your investment into cash. There are pros and cons to liquidity. With private real estate, you get something called a liquidity premium. You’re expected to earn a premium compared to the public markets because you’re giving up liquidity, however, the lack of liquidity can also be a huge benefit. During times of market volatility, even the most hardened investors can get squeamish and sell. It’s much easier to log into a brokerage account and sell your positions than it is to line up a sale of real estate. Real estate forces you to have a long-term view, which time and time again has produced outsized returns.
You also have to decide on the balance between risk and reward. Mostly in investing, higher risk demands higher risk premiums on returns. But you also have a higher risk of losses and generally higher volatility. Even within real estate, there are different levels of risk and you generally see higher returns for higher-risk projects like a development than you do for class A stabilized multifamily.
Investors are usually targeting something called a risk-adjusted return. You’re looking for the best returns adjusted for risk.
Value-add multifamily, in our view, has great risk-adjusted returns. As with all investing, there is a risk, but generally, the underlying values of assets are quite stable, we stress test for various scenarios, and we are investing a lot into our renovations which force a creation of equity protecting the downside.
Examples of Investment Profiles
Once you have your priorities, you can decide on an investment profile that fits them. The following are the three most common. Remember that there are also various other options between these.
Conservative investors prioritize liquidity and security over profitability. There is very low (or zero) tolerance for risks and losses, and they prefer investments that aren’t volatile. They typically look to short-term investments.
Aggressive investors are at the other end of the spectrum. They prioritize profitability and are willing to take risks to achieve it. They typically look to long-term investments.
Moderate investors are middle-ground and tend to have balanced profiles. They have a higher tolerance for risk than a conservative would but less than an aggressive one. They are more willing to sacrifice security and liquidity but without going too far in either direction. They tend to prefer medium-to-long-term investments.
When deciding how to allocate your investments, you will have to consider your priorities as an investor. Then, you will settle on a profile that balances your priorities and construct a portfolio that meets your goals. We’re passionate about providing private multifamily investment opportunities to folks who generally don’t have any exposure in their portfolio. Many folks believe that stocks and bonds are the only forms of investment, but we provide access to an investment class that normally requires a $1M minimums.
Investing in multifamily real estate can be a great way for investors to generate income and potential appreciation. These types of properties, which include apartment buildings and duplexes, offer the opportunity to generate income through rental income and potential appreciation. One important aspect to consider when investing in multifamily real estate is the location of the property. Properties in desirable locations with strong job markets and population growth are more likely to generate higher returns.
Carbon Real Estate Investments is a company that specializes in investing in multifamily real estate. They have a team of experienced professionals that are skilled in identifying and acquiring properties that have the potential for strong returns. They also have a strong track record of successfully managing and repositioning properties to maximize returns for investors. Carbon Real Estate Investments also provides investors with a wide range of multifamily properties to choose from, including niche markets such as student housing and senior living, providing investors with a diverse range of options to fit their investment objectives.
In conclusion, investing in multifamily real estate can be a great way for investors to generate income and potential appreciation. Carbon Real Estate Investments is a company that has a proven track record in this area and offers investors a range of opportunities to consider. By utilizing the expertise of Carbon Real Estate Investments, investors can feel confident in their multifamily real estate investment decisions and have peace of mind knowing that their investments are in good hands. Carbon Real Estate Investments is a company that investors can trust to provide them with the best multifamily real estate investment options available in the market.