Most of us have been told that we should work hard, climb the corporate ladder, and invest in the stock market along the way to maximize our financial growth.
No one tells us that our investments can actually change our lives now – not just in some distant retirement scenario.
Early in my tech career, I’d work 60+ hours a week, wondering if I’d ever be able to satisfy my fiery entrepreneurial spirit.
Luckily, I began investing in small rental properties as a side hustle. While the hassles of being a landlord (and even managing the property managers) were not ideal, I could see potential. When I found investing passively in commercial real estate, I knew that this type of investing could buy back my time.
For me, investing in the stock market never came close to the value provided in real estate – the potential for appreciation and large sale profits, or the ongoing passive income I would eventually use to quit my job and start my own business.
Let’s take a close look at investing in stocks versus real estate, the four basic risks of investing, how commercial multifamily real estate investments mitigate risk, and why the stock market can be much riskier than real estate.
A Primer on Risk
Every investment has a component of risk. Unexpected things come up in life, in the stock market, and in real estate.
The key is not to look for investments that are risk-free (that doesn’t exist), but to understand the risks thoroughly, determine your threshold for risk, and ensure that you’re doing everything you can to mitigate risk.
Risk #1 – Consumer Behavior Could Change
Stock Market
Stock market investors bet on the success of companies who create products for people to use. Facebook, iPhones, Happy Meals, and soap are all consumable products.
However, it’s impossible to predict the length those products will remain in favor, and a companies’ popularity. Blockbuster had a good run, but when technology and consumer behavior changed, the company stagnated, dragging investors down with it.
Multifamily Real Estate Investments
When you invest in real estate, you’re investing in a basic need: the need for shelter. As long as humans have existed, we’ve required a roof over our heads, and that need has only strengthened over time, especially with rising population trends.
Risk #2 – The Market Could Turn
Stock Market
One of the most common fears and possibly the biggest reason would-be investors remain on the sidelines is for fear of a sudden market correction.
During a downturn, investors may exit quickly (which solidifies their losses). Others aim to accept short-term losses in exchange for long-term gains. Historically, the market bounces back, but clinging to that “trust” is challenging during the downward trend.
Multifamily Real Estate Investments
Recessions are actually good for commercial multifamily real estate investments, especially for workforce housing.
In good times, incomes and savings rates are higher, which means more people tend to move up to class A (luxury) apartments.
When faced with layoffs or pay cuts, homeowners may sell, and renters of class A apartments may downgrade to more affordable apartments (class B or C).
During a recession, demand for apartments generally increases, which decreases risk.
Risk #3 – Competitors Could Come on the Market
Stock Market
When Netflix gained momentum, they beat out Blockbuster because not only did they target the same audience, but they also got ahead of the technology and consumer trends.
Consumers typically don’t have insight into technology development or companies’ operations. Thus, new competitors can have a significant impact on investment returns.
Multifamily Real Estate Investments
Multifamily competitors don’t just spring up out of nowhere, because space, zoning, and permits are limited. When new apartments are built, they’re always class A (i.e. newer luxury tier) apartment buildings.
Since the demand for workforce and affordable housing is on the rise, the risk of having high vacancy in well-maintained class B and C apartment buildings is fairly low.
Risk #4 – Not Having Control and Transparency
Stock Market
When the market is expanding, investing in stocks is smooth and exciting. During a correction, you can quickly feel powerless with your investment. You typically aren’t able to
Multifamily Real Estate Investments
When you invest in a real estate syndication, you know exactly who the deal sponsor is, and you can reach out directly to ask questions and provide feedback.
Further, when you invest in a solid syndication, you can be assured that there are multiple buffers in place to protect investor capital, such as reserves, insurance, and experienced professionals to handle the unexpected.
Plus, with monthly and quarterly updates, you have ongoing transparency into each deal.
Conclusion
There’s certainly no one “right” way to invest.
There are people who make money in the stock market, just as there are people making money in real estate.
The key is to assess your own goals and risk tolerance, then choose the path that will best help you meet those goals.
Next Steps
Here at Gen+ Capital, we provide multiple ways to leverage the power of real estate syndications in your investment portfolio so you can take advantage of real estate’s cash flow, equity, appreciation, and tax benefits.
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