There is no doubt that the recession is deepening:
-According to the Bureau of Labor Statistics, as of February 2009, the national unemployment rate went to 8.1%, and more than 2.6 million jobs have been lost in the last four months.
-Credit continues to tighten, although banks have received billions of dollars in government funds.
-Values of real estate are plunging across the country as more and more properties go into foreclosure.
The upside of all this bad news is that the price of money is still cheap, and our money buys a lot more than it did last year (due to falling values of real estate), and a lot more than it will at the end of this year (due to likely inflation). What to do in this situation?
We believe that now is the time to invest in high cash flow, which is best achieved by acquiring as many income-producing units under one roof as possible. Proportionally, a 100-unit apartment building will yield a much higher rate of return than 100 single family homes all spread out.
Commercial properties (defined as five units and above) will become a more and more profitable investment vehicle as more and more people move to, or remain in, rent. The sharp deterioration of the national economy and loss of personal wealth have pushed millions of Americans to a lower economic status:
-The generation known as the Baby Boomers, a demographic roughly 76 million in number, now entering retirement age, have suffered a loss of 40% and more in their retirement accounts.
-The generation known as the Echo Boomers, generally considered the children of the Baby Boomers and also roughly 76 million in number, are entering the stage in life when they would be buying their first house, but are forced to stay in rent due to a growing dread over the future of their employment or an inability to qualify for a loan with more restrictive guidelines.
-As mentioned above, millions have lost their jobs, and lost their homes to foreclosure, and are now thinking about how to eliminate expenses to make ends meet.
The next six months will likely see an increase in demand for housing in B and C class properties, which will then force rent rates higher. This powerful combination of the low price of money and an increase of cash flow maximizes profits in multiple ways—the acquisition of an investment at a lower price than what would have been possible a year ago; the increase of monthly passive income following the acquisition; and since values of these types of properties are determined by income production, appreciation is likely to follow.
The combination of the plummeting economy, increased demand for this type of housing as well as decreased supply, will create a situation where multi-units may be one of the smartest and most profitable places to put your money. Investing in single-family homes will only work in very specific and limited conditions; we are all acutely aware of how much has been lost in our 401ks, IRAs, etc; hoarding all of your cash in the bank only means that you’re losing value to the inexorable grind of inflation. Now is the time to think about how to invest in an undervalued property that yields a monthly cash flow, and will yield a return at the exit that is hard to beat!
