Why Multifamily Provides an Effective Hedge Against Inflation
With inflation already a major concern, investors are looking to protect their capital while also potentially benefiting from rising costs and interest rates. Multifamily real estate has consistently been the favored asset class for real estate investors as an effective inflation hedge due to its unique advantages.
- Short Term Leases: Apartment leases generally last no more than one year, giving landlords the ability to act in real-time and adjust their rents accordingly when faced with rising costs.
- Essential Expense: Shelter is a life essential and one of the last things people will sacrifice. Most people will pay their rent before paying for other expenses.
- Supply/Demand Imbalance: There is not enough housing supply in most US markets to keep up with demand. Additionally, rising interest rates make homes unaffordable for “would-be” home buyers, increasing the demand for apartments. More demand than supply places upward pressure on rental rates.
- Value-Add Strategy: Strong multifamily fundamentals persist, with favorable household formation, high wages, and solid job growth bolstering demand and, ultimately, investment returns. These returns can be further enhanced by employing a value-add strategy that focuses on renovations, management efficiencies, and amenity upgrades to justify higher rental rates.