In this week’s episode of the Actively Passive Investing Show, Travis Watts highlights the major challenges multifamily investors are currently dealing with and shares his insights on how to successfully tackle each of them:
- Systematic risk. When it comes to publicly investing — for example, through REITs — you are subject to the volatility of the market. If the stock market at large is down in a big way, whatever real estate you’re currently holding will likely be down as well.
- Interest rates. Because the Feds anticipate raising rates in order to tackle inflation, real estate pricing will be negatively impacted. However, when investing in a private placement or syndication, you can underwrite with these rising rates in mind. This works for factoring in the possibility of cap rates lowering as well.
- Financing. Luckily, there are many advantages when it comes to financing real estate. You can negotiate flexibility, use agency debt to lock in a great rate, or get private loans with no prepayment penalties. Purchasing interest rate caps is also an option.
- Political risk. While investors have little control over political events, controlling your reaction is key. For example, during the eviction moratorium, Travis saw syndicators maintain excellent communication with their residents to provide them with the information and opportunities they needed.
- Other obstacles to executing your business plan. There are many unforeseeable issues that can throw a wrench in your plans — for example, the supply chain issues many investors are currently facing.
- Wage increases. With today’s rising wages, inflation, and labor shortages, properly underwriting and anticipating raises for maintenance personnel, property managers, and contractors is a must.
Tips to combat these challenges include:
1. Start by identifying your goals.
2. Get educated.
3. Only work with operators in the space that match and meet your criteria.
4. Do your due diligence.
5. Start building your passive income stream.
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