With the corrosive effect of inflation front and center of today’s headlines, we shared in earlier posts how private real estate has historically been an effective hedge against high inflation. We also illustrated how the multifamily sector might be better positioned compared to other property types with or without inflation, but especially when inflation is high and rising.
What is the most effective investment approach for allocating to multifamily real estate in client portfolios? The answer depends on the client and their objectives, risk profile, return targets, and liquidity needs.. This post should help provide direction for you.
You Have Options
The good news is that you have a variety of structures and approaches when accessing multifamily real estate.
- Syndications and partnerships might appeal to clients with a long-term investment horizon and who have less need for liquidity. However, fees and expenses may be higher.
- Real estate mutual funds are easily accessible and real estate ETFs can be low-cost alternatives for clients seeking multifamily exposure. But, as publicly-traded securities, these investments may be more subject to market volatility than less-correlated private investments.
- Publicly-traded REITs are another popular approach for diversifying client portfolios into real estate, including multifamily. Many public REITs can offer diversification by property type and geography, but are subject to stock market volatility.
- Private REITs are compelling for a variety of investment advisors because they can provide many of the favorable characteristics of the investment structures mentioned above plus a few unique advantages. Therefore, a closer look is warranted.
The User-Friendly Private REIT
The private REIT structure has been an attractive option for many accredited investors seeking income and growth through private real estate. Private REITs, like their public counterparts, are available for various strategies. This allows you to identify the REIT that best meets your clients’ investment objectives.
As you consider your private REIT options, note that other investment advisors historically prefer multifamily REITs with specific benefits:
- A diversified portfolio of stable multifamily assets across different regions—to reduce the concentration risk inherent in single property or single location programs.
- A vertically integrated management team with complete in-house capabilities—to help ensure business plan execution and continuity through a property’s lifecycle.
- A structure utilizing 1099 tax reporting—to eliminate the cumbersome and time-consuming process of completing and filing tax returns with K-1s.
- Transparency and regular reporting—providing investors with a clear view of properties, cost, and performance.
- Limited liability—less investor liability compared to direct ownership or general partnerships structures.
- Lower minimum investment—provides easier access to institutional-quality private real estate.
- Liquidity features—periodic liquidity terms may be available for select private REITs, unlike many private investment structures.
A private multifamily REIT with the above characteristics can simplify your investment and management process, while providing your clients with the real estate exposure that can potentially enhance their portfolios.
If you’d like to learn more about the multifamily investment option, download our FREE eBook, A Potential Inflation Hedge for Today: Private Multifamily Real Estate.
You can also conveniently schedule a one-on-one meeting with me HERE.
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