The National Council of Real Estate Investment Fiduciaries - NCREIF Property Index (NPI Index) - has shown a 21.9% return for the four-quarters ending in March 2022 compared to the -19.57% annual return from the S&P 500 since Oct. 2022. These numbers are drastic given the real estate market we were in recently during the COVID-19 Pandemic and its transition into a much higher interest rates environment in the hopes to tamper inflation. Nonetheless, data going back in time will show similar parallels in returns between real estate commercial investments (especially in apartment buildings) and those compared to the stock market.
As an asset class, real estate offers competitive, risk-adjusted returns with attractive income streams that offer great diversification. Unlike the stock market, this investment vehicle offers the ability to gain wealth through cash flow, depreciation, and appreciation of the asset. These investment vehicles are considered hard assets and offer some of the best tax advantages.
Competitive, Tangible, Stable
Competitive Risk-Adjusted Returns: Real estate is proven to be one of the best risk-adjusted returns investment vehicles. In addition to this, by utilizing conservative underwriting methods and techniques, we will minimize how much risk is involved with a particular investment and optimize this asset’s return.
High Tangible Asset Value: This is like land, gold, real estate, and equipment. In this case, we like to stick with assets that are back by a real brick and mortar. Unlike stocks and bonds, you can put your eyes and hands on these assets as well as their monthly financial reports.
Attractive and Stable Income Return: Over a 30-year period from 1977 to 2007, close to 80% of total U.S. real estate return was derived from income flows, not including appreciation. This means that real estate relies more on income return than on capital value return. What does this mean? Not only will you reap the benefits of cashflow, but also its appreciation when it goes up for sale.
Hedge Inflation
Inflation Hedging: An inflation hedge is an investment intended to protect the investor against (hedge) a decrease in the purchasing power of money (inflation), (Forbes).There is a strong positive relationship and correlation between increases in Gross Domestic Product (GDP) and the demand for real estate. As the economy experiences expansion, real estate demand increases pushing rents in an upward movement, thus increasing cash flow if operating cost remain constant. In addition, this increase in rent pushes the value of the asset up, furthering its appreciation in value. The inflationary pressures of the market are passed to the tenants while still having our asset appreciating in value. Can stocks do this better than private commercial multifamily investments? I don’t think so.
Better than Stocks
The average stoke market return is roughly 10% annually. Now, that might not be accounting for fees, taxes, and inflation.
Real estate apartment building syndication can yield at a minimum average annual return of 11-13%, Internal Rate of Return (IRR) 8-10%, and a Cash-On-Cash (Coc) 7-11%, respectively.
Tax Advantage
Real estate offers tax advantages over nearly every other investment vehicle including stocks, bonds, and much more.
Investors can benefit from joining Lion Den Capital due to our partnership with KC Kelley & Clarke PC Trusted Legal Advisors for all our acquisitions and tax advisory. By proper counseling, we have legal tax avoidance and deferment methods encouraged by the U.S. tax code, including depreciation, 1031 Exchanges and tax-free cash-out refinances.
How it Works
1. Markets & Proper Deal Selection
Location is key to success when purchasing an investment property. We thoroughly do our due diligence in selecting only stable markets in desirable neighborhoods that would give us the greatest yields in returns.
2. Acquisition Process
Once the market has been identified, we look for deals within such market. We do a thoroughly evaluation (underwriting) of the property to access its potential cash flow and overall appreciation over time.
3. Asset Management
Property managers play a huge role in assuring these assets perform accordingly. We have a vetting process to assure we select only the best property managers in the area that will help us increase gross income, reduce expenses, reduce vacancies, and maintain the property.
4. Distributions and Disposition of Asset
Through proper property and asset management, we will see force appreciation of the asset by either one or a combination of rent escalations (due to market forces and/or property improvements), and or operating cost reductions. This will increase the overall value and yield of the property, which in return would provide better cash flow, cash-out refinance, and distributions (syndication structure) at sale of the property.
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