How the Bond Market Impacts Real Estate

The bond market is a critical component of the global financial system, where entities like governments, municipalities, and corporations raise funds by issuing debt securities to investors. While it may appear to operate distinctly from the real estate market, there is a closely knit relationship between the two. Understanding this interaction is key to recognizing not only the current economic landscape but also to forecasting potential shifts in real estate values and interest rates.

Understanding Interest Rate Movements

The bond market's influence extends greatly into real estate through interest rates. Bond yields, which move inversely to bond prices, often presage changes in mortgage rates. This correlation between bond yields and mortgage rates is fundamental; as investors demand higher yields on bonds, lenders adjust mortgage rates accordingly to remain competitive. This dynamic can directly influence the real estate market by altering the affordability of loans for borrowers, potentially dampening market activity when rates are high.

Furthermore, an uptrend in bond yields translates into steeper borrowing costs. This scenario affects not only prospective homeowners but also real estate investors and developers who rely on financing for purchasing and building projects. Higher mortgage rates can slow down the real estate market by compressing leveraged yields and impacting valuations.

Real Estate Investment Trusts (REITs) Under the Microscope

Real Estate Investment Trusts (REITs) offer a clear lens through which the effects of bond market fluctuations can be observed. As entities that finance real estate through investor shares, REITs are sensitive to changes in the bond market due to their reliance on financing and their payout structure to investors. When bond yields are high, the fixed income they offer can become more appealing than the variable dividends of REITs, potentially detracting from REIT investments. Conversely, in environments of low bond yields, REITs might appear more attractive due to their higher yield potential.

Navigating Inflation's Terrain

Inflation significantly affects both the bond and real estate markets by influencing interest rates and bond yields. Inflation typically leads to higher bond yields as investors look for returns that offset the reduced purchasing power of future payments. This effect can create a challenging environment for real estate. On one hand, inflation can push property values and rents higher. On the other hand, it can increase borrowing costs through higher mortgage rates, complicating the impact on real estate investments.

Inflation affects the bond and real estate markets by influencing interest rates and yields.

Liquidity and Sentiment: Market Dynamics

The liquidity and sentiment in the bond market can also sway investment trends in real estate indirectly. The overall liquidity of the bond market often reflects broader economic conditions and investor confidence, which in turn influences real estate investment decisions. During times of economic uncertainty or volatility, the perceived stability of bonds might temporarily outweigh the potential gains from real estate investments, directing capital flows accordingly.

The Influence of Government Interventions

Government policies can have a profound impact on both the bond and real estate markets. Central bank policies, such as interest rate adjustments or quantitative easing, can drastically alter the landscape for both bonds and real estate. Investment strategies require recalibration when these two interacting markets evolve in response to policy changes.

Strategic Partnership for Institutional Investors in Multifamily Syndication

The intricate relationship between the bond market and real estate requires constant vigilance and strategic foresight from investors. Understanding the dynamics at play allows for better positioning in response to economic indicators and bond market movements, allowing informed decision-making for optimizing real estate portfolio performance in any economic climate.

At CF Capital, our expertise in multifamily investment provides institutional investors with a strategic vehicle for diversifying into real estate. This approach allows for significant leverage of resources, granting access to high-value, multi-family real estate opportunities that may otherwise be beyond reach. By focusing on pooling the financial strength and strategic acumen of institutional investors, we unlock exclusive investment prospects. This ensures our partners are perfectly positioned to benefit from real estate's potential in any economic climate. Our commitment lies in equipping institutional investors with the insights, opportunities, and strategic foresight required to navigate the complex relationship between the bond and real estate markets, aiming towards long-term financial success.

So, get in touch with us today and leverage our expertise and market presence to harness the strategic advantages necessary for your long-term financial objectives in the real estate market.

How the Bond Market Impacts Real Estate

Understanding Interest Rate Movements

Real Estate Investment Trusts (REITs) Under the Microscope

Navigating Inflation's Terrain

Recession vs Depression: Navigate Market Volatility

When it comes to investing, understanding the differences between a recession and a depression is helpful nuance for navigating market volatility, mitigating risk and capturing opportunities. An economic downturn can cause concern and confusion among even the most skilled investors, so having strategies in place to minimize risk and capitalize on opportunities becomes crucial. The comparison of recession vs depression, two terms that describe periods of economic decline, has distinct characteristics and impacts on the market. By grasping these differences and implementing strategies to navigate market volatility, investors can make informed decisions and protect their assets. Let’s go over the essential differences between recessions and depressions and provide strategies to navigate market volatility.

Recession vs Depression: What’s the Difference?

Recession: A Moderate Economic Downturn

A recession is a significant decline in economic activity lasting for a relatively short period. It is characterized by a slowdown in economic growth, a contraction in business activity, and an increase in unemployment rates. During a recession, consumer spending tends to decrease, so business revenue and profit margins decrease, too.

Recessions can be caused by various factors such as high-interest rates, reduced consumer spending, natural disasters, or financial market crashes. One significant historical example is the 2007-2008 recession, which was primarily triggered by the bursting of the housing bubble and subsequent financial crisis. However, it is important to note that every recession has its unique combination of factors and causes.

Key indicators of a recession include declining GDP (Gross Domestic Product) for two consecutive quarters, a rise in the unemployment rate, and a decline in consumer confidence. Recessions can be caused by factors such as a significant shift in supply demand dynamics, employment market volatility, geopolitical instability, inflation, trade disruptions, and financial market crashes.

During a recession, investors face unique challenges and considerations. The reduced consumer demand during this period can directly impact businesses and subsequently affect the stock markets. Therefore, it is crucial for investors to closely monitor the financial health and performance of the companies they have invested in or are considering investing in. Stock markets often experience increased volatility, with prices fluctuating based on investors' perceptions of the overall health of the economy.

To mitigate risks during a recession:

Diversify your investments and focus on defensive options.
Research and select investments with strong financials and a history of resilience.
Maintain a long-term perspective and avoid reacting to short-term market fluctuations.
Stay informed and monitor the financial health and performance of your investments.
Keep a cash reserve to provide a buffer in case of emergencies or investment opportunities.

Depression: A Severe and Prolonged Economic Downturn

A depression is a more severe and prolonged economic downturn . While there is no universally agreed-upon definition of a depression, it is generally characterized by a significant decline in economic output, widespread unemployment, and a lasting impact on various aspects of the economy. characterized by a significant decline in economic output, prolonged periods of reduced economic activity, a significant decline in GDP, widespread unemployment, and a lasting impact on various aspects of the economy. Unlike a recession, a depression extends beyond a few quarters and can last for several years or even a decade.

Depressions typically have a cascading effect on the economy. Job losses lead to reduced consumer spending, which dampens business activity, leading to further job losses. The cycle perpetuates itself during the economic downturn and creates uncertainty, fear, and distrust in the overall economy.

Depressions are often accompanied by massive bankruptcies, widespread business closures, and financial crises. Stock markets can experience significant declines, causing widespread investor apprehension. Governments often intervene by implementing fiscal and monetary policies to stimulate economic growth and stabilize the financial system.

Investing during a depression can be challenging but here are a few tips:

Assess your risk tolerance and invest accordingly.
Diversify your portfolio across different asset classes.
Stay informed and adapt to changing market conditions.
Maintain a long-term perspective and avoid reacting to short-term fluctuations.
Evaluate investment opportunities selectively.

*Multifamily syndication investors saw stable rental income during the economic downturn.*

Navigating Market Volatility through Multifamily Syndication

Though we are not in a recession or depression at the time of this writing, it is always important to protect your assets against market instability. At CF Capital, we operate with a long-term viewpoint at all times, and recognize that we operate in a cyclical investment class that goes through various phases of the market cycle: expansion, hyper supply, recession, and recovery. In the event of a potential downturn, multifamily syndication can be an effective strategy to achieve risk mitigation and wealth protection. By pooling capital from multiple investors to acquire and manage larger real estate properties, such as apartment communities, investors can gain access to steady cash flow, diversification, professional management, tangible assets, tax benefits, passive income, and potential for appreciation.

During periods of economic turbulence, multifamily syndication can offer a safe haven for elite investors looking to protect their assets and generate stable returns. The consistent rental income generated by these properties can offset the impact of economic downturns, and investors can benefit from the expertise of professionals who manage the properties on their behalf.

There have been historical instances where multifamily investing during a recession or depression has proven to be a wise investment strategy. One example is the Great Recession of 2008. During this time, while the housing market experienced a significant downturn, the multifamily real estate sector remained resilient.

Investors who had allocated their capital into multifamily syndications found that the consistent rental income from residents helped offset the impact of the economic downturn. Additionally, the demand for rental properties increased as individuals and families affected by foreclosures or financial hardships turned to renting instead of owning homes.

Explore Multifamily Syndication Opportunities with CF Capital

Understanding the differences between a recession vs depression and having strategies to navigate market volatility is crucial for investors. By investing in multifamily syndication, individuals can protect their assets during economic downturns.

At CF Capital, we specialize in multifamily investments and leverage our expertise in acquisitions and management to deliver superior risk-adjusted returns. Our primary focus is on prioritizing the preservation and growth of our investors' capital. We are committed to protecting your financial security and building lasting partnerships. With our track record and dedication, we strive to be a reliable option for investors seeking more exposure to the multifamily real estate market.

Take the next step and explore the multifamily syndication opportunities with CF Capital today.

Elevate Your Invesment Portfolio with this infographic outlining 9 key benefits of investing in multifamily real estate

Effects of Inflation: Strategies for Wealth Preservation

While inflation has generally become a regular occurrence in the context of economic growth, elevated or unexpected inflation can present obstacles for prudent wealth preservation and economic stability. To safeguard and augment wealth over time, it is essential to understand the causes and ramifications of inflation. By proactively implementing effective strategies, investors can mitigate the impact of inflation and secure their financial well-being. Through a combination of foresight and ongoing vigilance, individuals can take control of their financial future—protecting their investments from the eroding effects of inflation and ensuring long-term prosperity.

Causes of Inflation

Various factors, such as imbalances in supply and demand, supply shocks, and expectations of future price increases, can drive inflation.

Imbalance in Supply and Demand

When demand for goods and services outpaces available supplies, inflation occurs. In such cases, producers and businesses may raise prices in response to the heightened demand, which can lead to inflationary pressures. On the other side of this equation, when the overall money supply increases and productivity remains generally equal, inflation tends to follow as well. In recent years, we’ve seen money supply increase exponentially, leading to very substantial inflation.

Supply Shocks

Disruptions in supplies can also trigger inflation. For example, a sudden decrease in global energy supplies due to geopolitical tensions or natural disasters can lead to a spike in energy prices. This increase in production costs can ripple through the economy, contributing to inflation.

Following Russia's invasion of Ukraine, international sanctions restricted countries in the "collective West" from purchasing energy supplies directly from Russia. While Russia still sells energy to some countries, the restriction on their exports impacted global energy markets and led to increased prices. This tightening of the market contributed to inflation.

Expectations of Inflation

Expectations of future price increases can also influence inflation. When people anticipate prices will rise in the future, they may demand higher wages to protect their purchasing power. In turn, businesses and producers may respond by raising prices to cover the increased labor costs. This dynamic of wage-price spirals can contribute to inflationary pressure.

*Inflation erodes money's value, diminishing purchasing power and challenging the maintenance of a consistent standard of living.*

The Effects of Inflation on Wealth Preservation

Reduced Purchasing Power

Inflation decreases the value of money over time, leading to a reduction in purchasing power. This erosion of purchasing power can gradually diminish the value of your wealth. As a result, it becomes more challenging to maintain the same standard of living because the same amount of money will buy fewer goods and services.

Erosion of Investment Returns

Inflation can erode the real returns on your investments. When the inflation rate exceeds the returns on your investments, it diminishes the purchasing power of your investment gains. For example, let's say you earn a 5% return on your investments, but inflation is at 3%. In this case, your real return is only 2%. This example illustrates that even when inflation is at a lower rate than your return, it still reduces the purchasing power of your investment gains.

Negative Impact on Fixed Income Investments

Fixed-income investments such as bonds and fixed-interest securities have a predetermined interest rate. In an inflationary environment, the purchasing power of the fixed income generated by fixed-income investments such as bonds and fixed-interest securities decreases—meaning the buying power of the interest income may not keep pace with the rising cost of goods and services. As a result, the real return on fixed-income investments may be lower, impacting your overall strategy for preserving wealth.

Real Estate Value Fluctuations

Inflation can have a dual impact on real estate. On one hand, property prices may increase in an inflationary environment, leading to appreciation in the value of your real estate holdings. On the other hand, the real value of the asset may decrease if the rate of inflation outpaces the growth in property prices. This can make it challenging to preserve and grow wealth through real estate investments. Inflation can also impact income and expenses that real estate properties generate, elevating both sides of the income statement.

Increased Cost of Living

Inflation leads to an increase in the cost of goods and services, which affects your cost of living. When prices rise, your day-to-day expenses will increase, impacting your ability to preserve wealth. The higher cost of housing, food, healthcare, and other necessities can eat into your savings and limit your wealth accumulation.

*Investing in multifamily real estate serves as an effective inflation hedge, leveraging historical property value appreciation*

Mitigating the Effects of Inflation

To mitigate the impact of inflation on wealth preservation, it is crucial to adopt various strategies, such as:

Diversification

Diversify your investment portfolio across different asset classes, such as equities, real estate, commodities, and fixed income. A diversified portfolio can help you spread risk and mitigate the potential negative impact of inflation on your overall wealth.

Inflation-Protected Securities

Consider investments in inflation-protected securities or bonds. These securities are designed to provide returns that keep pace with inflation, ensuring your purchasing power is preserved in an inflationary environment.

Real Estate Investments

Investing in real estate, specifically multifamily, can be an effective hedge against inflation. Historically, property values tend to rise with inflation. Furthermore, rents are marked to market on an every 12 month basis, taking inflationary effects into account on the income side of these investments for owners. By investing in this type of real estate, you can benefit from the appreciation of property values and protect your wealth from inflation.

Investing in multifamily real estate is beneficial for several reasons: stable cash flow from multiple rental units, economies of scale for cost-efficiency, diversification to spread risk, accessible financing opportunities, and the potential for property value appreciation over time.

Equity Investments

Equities have the potential to outpace inflation over the long term. Companies can raise prices for their products and services, generating higher revenues and deliver real returns which outpace inflation. However, it is essential to assess the risk profile of equity investments before making any decisions.

Regular Review and Adjustment

Review your investment strategy and make adjustments as needed to adapt to changing market conditions and inflationary pressures. Staying proactive and informed is crucial in preserving your wealth and ensuring its growth over time.

CF Captial Leveraging Real Estate as a Hedge Against Inflation

Inflation can have a significant impact on wealth preservation and growth. However, by implementing these strategies, you can navigate the challenges of inflation and ensure the preservation and growth of your wealth over time. At CF Capital, we focus on acquiring and operating multifamily assets that provide stable cash flow, capital appreciation, and a margin of safety. With our expertise in acquisitions and management, we prioritize capital preservation while delivering superior risk-adjusted returns. When you invest with CF Capital, you can navigate the complexities of inflation with confidence, knowing you have a trusted partner dedicated to optimizing your wealth preservation and growth strategies.

Elevate your investment portfolio with this infographic outlining 9 key benefits of investing in multifamily real estate. Download Here

Will the Housing Market Crash? Insights for Investors

A market crash in the housing sector would affect the entire economy, reducing consumer spending and negatively impacting investor confidence, leading to economic uncertainty and volatility. Against the landscape of recently soaring home prices and continuing uncertainty, this blog aims to provide insights and analysis for investors, as we examine the potential for a housing market crash. By understanding the underlying factors and trends influencing the market, investors can make informed decisions to navigate through these uncertain times and safeguard their investments.

The Current State of the Housing Market Crash

Since the pandemic and the historic response from Congress and the Central Bank, the US housing market has experienced a surge in activity and values. This dynamic can be attributed to a combination of factors, including record-low mortgage rates and high demand in conjunction with very low supply, and the continuing trend of lower new construction deliveries than ongoing buyer demand, putting substantial upward pressure on home prices across the country. There are concerns about the sustainability of this rapid growth and the stability of the market moving forward.

The recent historically rapid interest rate increase induced by the Federal Reserve, juxtaposed with record-low inventory levels, has led to sustained elevation in home prices, yet now those prices are resulting in significant increases in homeownership costs. These increases, along with significant inflation impacting the cost of living for all Americans, makes it challenging for potential buyers to afford homeownership. Moreover, the cost of construction continues to rise, suggesting inventory levels are unlikely to change significantly in the near future.

Given these circumstances, some analysts question whether the current growth in the housing market is sustainable in the long run. While the current conditions favor sellers, there are early signs of a market correction (some markets are already seeing longer days on market for listed homes in comparison to prior quarters, and there are examples of sale price declines in certain markets) or even the potential of a market crash, depending on the health of the consumer moving forward, along with the stability of the job market. It is important for both homeowners and investors to carefully assess the market and consider alternative options to safeguard against risks.

Factors Affecting the Housing Market

The US housing market is affected by a range of factors, including the COVID-19 pandemic, affordability, regional-specific circumstances, interest rates, job market, and inflation.

The pandemic has had a significant impact on the housing market, leading to changes in consumer behavior, including increased demand for housing in suburbs and rural areas. At the same time, the pandemic also created challenges for potential buyers in terms of affordability.

Regional-specific factors such as zoning laws and land availability also impact the housing market. For example, areas with limited land availability may experience a surge in demand and prices, which can lead to increased risks of a housing bubble.

Interest rates are another critical factor affecting the housing market. Low-interest rates can lead to increased demand for housing, while high-interest rates can lead to decreased demand, impacting home prices. Economics 101 reminds us that higher demand with the same or declining supply will equal higher prices.

The job market is also important to consider when assessing the housing market. A weak job market can lead to lower demand for housing, whereas a strong job market can increase demand. While the job market remains generally robust and resilient, some analysts have concerns with where it’s heading due to certain substantial industries being significantly negatively impacted by current economic circumstances.

Finally, consumers’ ability to stay afloat amidst inflation is another factor that can impact the housing market. Inflation can lead to a rise in prices, including housing prices and other costs of homeownership, making it more difficult for consumers to afford homeownership.

Is a Housing Market Crash Likely?

While a market crash is a possibility, the more likely outcome in the short term is a market correction. The market has historically shown resilience and economic factors like strong demand, low inventory, low-interest rates (in the broader context of history, by comparison), and a non-linear economy suggest gradual adjustments instead of a severe crash. Understanding the real estate market cycle, which includes expansion, hyper-supply, recession, recovery, etc., can help in predicting future patterns and forming realistic expectations. In summary, a slowdown is more probable than a market crash, with gradual adjustments expected in the housing market.

*Multifamily real estate has historically been a stable form of investment.*

The Reliability of Multifamily Investment

In these uncertain market conditions, multifamily investment remains a strong option for investors seeking stability and consistent cash flow throughout market cycles. Multifamily properties, such as apartment complexes, have a history of showing resilience even during market downturns, making it an attractive alternative to the unpredictable housing market. Sometimes, the factors that cause tremors in the single-family residential market are driving forces that improve fundamentals within multifamily real estate. For example, when a homebuyer is priced out of the single-family market due to interest rates, rising home values, lack of inventory, inflation, or a host of other factors, that individual typically seeks an apartment to rent for shelter. After all, human beings always need a place to live, no matter the economic circumstance.

While single-family primary residential housing demand may wane, multifamily property investors can ensure consistent rental income streams while working to reduce vacancy rates. Additionally, the diversification of a multifamily investment portfolio further increases stability and benefits in times of market disruption.

Multifamily investments, when thoroughly vetted and properly evaluated, have a proven track record for success. Investors who have invested in multifamily properties through a rigorous vetting process have found stable and consistent cash flows while waiting for appreciation. The advantageous real estate sector offers a hedge against market downturns, mitigating any potential losses.

Multifamily Properties: A Stable Alternative to the Uncertain Housing Market

Determining whether the housing market will crash or continue to grow is a complex endeavor. The current state of the housing market indicates significant price appreciation and increased challenges, meaning it’s an uncertain investment risk. To navigate housing market conditions, investors need the knowledge to make informed decisions. A comprehensive investment strategy in multifamily property can provide a stable investment opportunity by mitigating potential risks while enabling stable income streams. It is crucial to work with experienced and accredited real estate investment professionals, like CF Capital, for optimal results. Multifamily investments offer an attractive alternative to the sometimes erratic (and usually speculative/unpredictable) housing market, instilling confidence and stability for investors for the long haul.

CF Capital specializes in multifamily property syndication, offering a range of investment opportunities for interested investors. Our platform offers equity investments in top-performing multifamily properties across the Midwest and Southeast, and our team handles all the management, construction and maintenance on your behalf while giving you exposure to the benefits of ownership (ie. Passive income, tax benefits, equity appreciation, etc.) without all the headaches. If you are interested in learning more about multifamily property investment and how it can benefit your investment portfolio, contact CF Capital.

From the Desk of CF Capital: February Investor Report

Hello Friends and Investors,

The 2023 sprint is now kicking into high gear - how did your first 30 days of 2023 go? The fact that it's already February is a reminder for us to course correct where appropriate and focus on what we've committed to for the first 90 days of the new year, along with the more grand vision we have for this year. While time passing can sometimes feel like a sprint, we're reminded that in the business of real estate investments, it's really a marathon. We're focused on long term relationships, long term decisions, and long term values. Your relationship with us is really the most important, and one that drives our thinking day in and day out.

In the short term, the market is still absorbing much of the rapid shift that was initiated last year. While we're seeing a bit of an uptick in new acquisition opportunities since the turn of the year, we anticipate that the most compelling opportunities will begin to surface later in the year. That still could be later this quarter, and time will certainly tell. Nevertheless, we remain nimble and prepared to strike on game-changing opportunities to provide attractive investments for you to protect and grow your wealth during volatile times alongside CF Capital. We remain patiently aggressive.

Throughout whatever stage of the market cycle we're in, our focus at CF Capital is on driving value to you, our highly valued investor partners. With that, we'd love to hear from you. What are the biggest dangers or challenges you're facing with your investments and finances this year? What do you see as your most powerful opportunities? How about your greatest strengths? Respond to this email and let us know exactly what's going on in your world from these angles, so we can support your most optimal outcomes. If you'd like to set up a virtual or in-person meeting, we'd love to make ourselves available for you - simply schedule a time with us via the link below.

Prior to wrapping up this month's dialogue, we wanted to update you on a few things going on in our world, aside from the day-to-day blocking and tackling in the business and our prime focus on 'Elevating Communities Together.' Here's what else has been going on in our world:

Louisville Business First did an expose on our new headquarters. Take a sneak peek here.
Elevate Podcast has a brand new podcast studio within the new CF Capital HQ. Some massive shows are coming out over the next month to help you elevate your real estate investment performance and lifestyle through mindset, mind expansion, and personal development.

Tyler recently has interviewed several highly influential thought leaders including Benjamin Hardy (Author of Who Not How, The Gap and the Gain - both with legendary entrepreneurial coach Dan Sullivan - Willpower Doesn't Work, and 10X is Easier Than 2X - coming soon - along with other highly impactful books). This episode, along with several others, are some of the very best and most impactful productions we've ever produced. Buckle up and get your notebook ready for some life-changing breakthroughs.

Bryan and Tyler, along with our marketing team, created a brand new presentation that shows you how to "Elevate Your Financial Security and Prosperity Through Apartments". If you want to learn exactly how CF Capital can help you reach your goals, you should absolutely check out this on demand webinar (coming soon!).

In summary, we deeply appreciate your partnership and interest in furthering your partnership with CF Capital. We're confident that exciting days and opportunities are on the near term horizon, and that for the long term, we will continue to capture upside together through course correction, adaptation, and expansion.

In Partnership,

Tyler & Bryan

How Would a Housing Market Recession Impact Multifamily Property Investing?

Many macroeconomic forecasters are saying that the United States (and many countries throughout the world, for that matter) is currently or is going to be in a recession soon, which has many investors concerned. During a housing market recession, (one angle of the economy that experts are forecasting may be entering recession territory) depending on your timing and the particulars of the strategy, it may not be the ideal time to invest in single-family homes. However, history has proven it can be an ideal time for multifamily property investments if you’re careful and diligent. While the impact of a recession is often felt in almost every aspect of business and investing, multifamily real estate can be a recession-resilient investment vehicle.

Why is Multifamily Property Generally Stable during a Housing Market Recession?

Although recessions can cause people to stop spending money on unnecessary consumer goods like luxury cars, housing is a must. However, the home-selling inventory is tight, and prices have skyrocketed over the past few years. This leads potential buyers to struggle as they search for an affordable home. These consumers are less likely to purchase a home because of the sub-optimal state of the housing market. Since purchasing a home is out of the picture for most individuals, they are more likely to rent. This means there is an increased demand for rental homes, like multifamily properties. In past recessions, multifamily investments remained stable in the midst of rising prices. Today, in the United States, there is an increase in demand for multifamily apartments, which is one significant reason it’s generally a great time to invest in them.

Multifamily Property Investment: Vehicle to Success

The economy fluctuates and markets can be unpredictable. But commercial real estate opportunities have built-in protections, for example—current trends of population growth in specific geographical areas. Investing in prime locations for multifamily apartments targets existing or new tenants because they want a safe, comfortable, and affordable place to live. Multifamily property areas need strong fundamentals like good neighborhoods and good job access, and when these criteria are met along with buying well, financing appropriately, and managing prudently, your investment will produce consistent cash flow via strong occupancy and rent growth.

Potential Risks of Multifamily Property Investment

There is a clear relationship between inflation and rising interest rates. The Federal Reserve has increased interest rates in order to decrease demand across the economy, and therefore prevent further increases in prices. Obviously, this makes borrowing money more expensive. Getting a loan after these interest rates rise can cause your debt burden to increase substantially. Although the purchasing power of money could decrease allowing future loan payments to be “cheaper,” it still can be a risky proposition.

Also, although the cost of housing might decrease, inflation causes the cost of construction materials and labor to rise. Having to invest more into a renovation could cause your return on investment to decrease. Therefore, having an experienced and resourceful investment partner is key. With the right team, tactics, and expertise implemented, multifamily property investments can be a dependable investment vehicle for profits and success.

Invest with CF Capital

During a recession that includes persistent inflation, certain markets across the United States may be affected by rising prices. Those who struggle to purchase a home because of skyrocketing prices and interest rates become more reliant on the multifamily market. This means having a diverse investment portfolio in multiple multifamily assets will help ensure that your cash flow continues to increase for the foreseeable future. Get in touch with our team at CF Capital, to learn about how you can passively invest alongside our team to protect and grow your wealth.

Is Commercial Real Estate Really a Good Hedge Against Inflation?

Many experts are predicting inflation will continue to grow higher and higher. While there is uncertainty about the broader economy, it is important to apply sound economic strategies during this time and for the long haul. This has led investors like you to ask: is real estate really a good hedge against inflation? In this blog, the CF Capital team investigates this question through the lens of commercial real estate.

How Does Investing in Commercial Real Estate Hedge Against Inflation?

Inflation is one of the most significant risk factors for those looking to invest their hard-earned capital. However, commercial real estate is considered a safe haven against that insidious and sometimes invisible force. Here’s why:

The cost of rent rises generally at the same rate as inflation. As currency devalues, average property values increase with commercial real estate—new or old—as lease renewal rates rise. Multifamily real estate, in particular, resets rent annually per resident and is generally a sounder hedge against inflation versus other asset classes in commercial real estate as a result.

Inflation will typically increase the cost of the rent. When the rent increases, the investor’s income will increase. The higher income possibilities lead to higher sale value when selling real estate (assuming your income growth exceeds expense growth). Commercial real estate is a quality inflation hedge because of its intrinsic properties making it a compelling investment during inflation periods when prices rise rapidly.

Benefits of Investing in Commercial Real Estate

Commercial real estate can be a highly profitable investment vehicle. On top of that, it’s also considered exceptionally reliable regardless of market cycles since it has little correlation with stocks and bonds. Of course, all real estate is hyper-local, but generally, there are many inflation-hedging benefits to investing in commercial real estate. Investing in it is not only about generating cash flow, but also building on your own wealth over time via appreciation and tax mitigation. Here’s how:

Ensures streams of cash flow
Equity appreciation through NOI enhancements
Allows you to utilize powerful leverage
Cash flow is taxed at a lower rate than earned income
Appreciation is taxed at capital gains rates, a significant savings versus earned income
Improvements can be depreciated, generating powerful “paper losses” for investors

Selecting the Best Property Type

Here comes the question: which type of commercial property will work in the current economy and as things continue to unfold in the broader market? It depends on the specifics and your goals in particular. At the current state of the economy, investors are leading toward the safe haven of multifamily real estate. Of course, CF Capital specializes in apartment investing. Multifamily real estate has grown in popularity over the past few years because it can offer a secure and more reliable investment where there are multiple sources of cash flow coming from different tenants, and everyone needs a place to live (in a strong or weak economy). That means there will always be income, as long as the operator can meet the market.

The market can seem unpredictable. When it comes to commercial real estate investing, including multifamily investing, it is always good to monitor the economic situation and plan out your strategy carefully. If you are interested in passively investing in quality multifamily real estate, sign up for our investor list.

Multifamily Rent Growth: What to Expect in 2022 and Beyond

The current economy has real estate investors worried as interest rates have increased and inflation is having an undeniable impact on consumers. According to most macroeconomic forecasters, it seems that the likelihood of recession is much higher: the interest rate hikes have already impacted investors from making deals as they hold out until the capital markets level out. Despite the uncertainty, rental returns for properties, especially multifamily properties, have historically grown over time. The multifamily rent growth is positioned very well and is forecasted to have a solid performance.

What Does Rent Growth Rate Mean?

The rent growth rate is the expected or projected trend of the market rental rates over a particular period of analysis, usually month to month. Each year, you can determine if your rental revenue increases and by how much. Then you can compare this to the average growth rate in the area, determining how your investment property performs compared to others in the same market.

In a multifamily investment, rent growth is arguably the most important component to increasing Net Operating Income (NOI). Rent growth is the main source of profit. That’s why projecting rent growth and keeping up to date on rents compared to competitors is crucial.

History of Multifamily Rent Growth

The multifamily market remains one of the largest and most resilient among all assets in the US. The strength of the rental market has grown since the end of 2020, with more markets seeing higher rent growth in the year and a half compared with the five years leading up to the pandemic. In 2021, multifamily investors saw substantial cap-rate compression, this is largely due to the pandemic causing driven interest rates declines and increased rental rates. This caused multifamily assets to increase in value. Since the beginning of 2021, every market has experienced rent growth.

In 2022, the multifamily market has remained robust. Though COVID-19 never fully went away, Americans are getting back to the norm of working conditions, which means legal consequences of not paying rent can be enforced. Like almost every industry, inflation has impacted the costs of multifamily payroll expenses, maintenance, property taxes, utilities, and other expenses. However, the overall performance grew more than the expenses, creating a net positive impact and this will likely continue.

What to Expect in 2022 and Beyond

The multifamily rent growth market is expected to continue to grow given that housing is essential. As interest rates have increased, inflation is very real for consumers, and as the economy gets back to a “normal,” post-pandemic operating environment, multifamily investors will benefit with the demand for multifamily rentals, as first-time homebuyers need to keep renting and wait for a more favorable time to buy. Investors will produce equity in the market and cash flow.

How CF Capital Can Benefit You as an Investor

Multifamily investing remains one of the most popular and best-performing assets. At CF Capital, our team is dedicated to assisting current and future multifamily property owners and investors in executing the highest level of efficiency. If you have any questions or want to learn more, contact us today!

Market Measures: Let’s Talk About Single Family’s Impact on Multifamily...

**“Every little action creates an effect: we are all interconnected.” – Yehuda Berg**

The real estate market continues to draw a lot of attention these days.

Both multifamily and the single-family real estate markets are “hot” with price increases continuing at a high rate relative to history.

Across the country single family homes are selling fast and, in many cases, selling well-above the “ask” price. Homeowners may get 20-30% above their listing prices. We have even heard of some selling their homes at a 50% premium.

Why is this happening?

For one, mortgage rates have reached historically low levels. Monetary policy was also helping to keep mortgages “cheap” partly by purchasing the debt that banks used for the mortgage loan offerings. If lenders have the ability to offload their mortgage loan risk, they will keep writing more and more loans at a low rate.

However, there is another significant contributor to the drastic climb in single-family home prices. Huge players, including the nation’s biggest landlord, Blackstone, and the famous real estate marketplace company, Zillow (until recently), went on a shopping spree with homes around the country. While these are two behemoths, they are not the only investors making major moves in the SFR space.

Forces of supply and demand tell us immediately that large contributors to market demand will result in a large increase in price (when holding supply equal or outpacing supply growth).

Here are some examples of the scale we are referring to when we say, “large contributors to market demand”:

In June, Blackstone paid $6 billion to acquire a single-family rental company, called Home Partners of America. The result, Blackstone now owns 17,000 more homes.
To compete with the first large iBuyer, OpenDoor, Zillow created a program called Zillow Offers that buys and sells single-family homes. The initial fundraising for this program was $450 million with plans to be able to buy 5,000 homes per month.

Why does this matter?

When big companies like Blackstone and Zillow buy a significant amount of single-family homes at a fast rate, the market supply (i.e. available homes to purchase) is reduced and prices are driven upward across the US.

Years of underbuilding single-family homes nationally has also created upward pressures on housing. Reports are showing that we are currently short millions of homes and hurdles surrounding construction pricing and timelines will continue to be headwinds moving forward.

Furthermore, the owners of short-term rental homes, think Airbnb and VRBO, are able to pay significantly more for homes that they are able to re-rent at a profit vs. the buyer looking for a primary residence.

This means an average American looking to buy a home may find it harder to not only find a home but find a home that is affordable.

This also means that the multifamily market is impacted. It just so happens that Blackstone is also heavily involved in the multifamily market.

So let’s have a discussion about the impacts of the single-family market on the multifamily market.

The Bright Side of Multifamily Investing in this Market

With the single-family market boom comes a lot of “scary” connotations. But right now in reality, there are actually fewer people in the market that end up making a purchase.

Well that doesn’t make sense… right?

What if we looked at a scenario where you knew you could sell your house above the “ask,” but did not know where to go next because all home prices have gone up significantly. So much so where the purchase price was way too high or your “bid” was not going to be competitive with Blackstone and other buyers (over and over again).

Also, let’s not forget that the spike in home prices has been so large that profit from your previous home likely vanishes with the purchase of the next.

Additionally, the sources of financing are an interesting variable in this environment. Even with low interest rates, lenders are increasingly becoming a barrier to home purchases, especially the more expensive homes.

Perhaps with additional regulation and flashbacks of the nightmares from the last real estate market crash in 2008, banks and other alternative lenders are beginning to play on the safer side of things. Many lenders have even set a policy to write loans based on the valuation price, as opposed to the purchase price. In other words, homebuyers now need some extra cash in their pockets before trying to make a purchase.

With these conditions discussed, it would only mean more barriers for Americans to purchase a new home. As a result, an increasing number of people are deciding to stay in their homes or sell their homes with a significant profit and become a renter – most likely looking to the multifamily market first.

While the multifamily sector has also seen compressed cap rates nationwide (and higher prices for investors), rents have also been outpacing historical performance, and all of these interrelated factors are compounding to give us continued confidence in the asset class moving forward.

Although there are a lot of moving parts to the interconnectedness of these factors, we remain diligently focused on our underwriting of strong assets where the risk/reward ratio is in balance. It is worth noting that many multifamily property sales do not meet the risk/reward ratio that we feel comfortable with. In fact, we usually pass on 99% of deals that go through part of our evaluation process.

This market has caused us to sharpen our pencils even further and continue to refine our deal sourcing process, so that we can continue to make sound investments. In this environment especially, it is imperative for us to evaluate even more deals.

What to Expect Going Forward

Some of you may remember from other posts that we do not identify as investors who speculate on the future. We stick to what we know and let the speculators do the speculating.

But what we do know is that a “boom” never lasts as real estate is cyclical. In fact, it wouldn’t be considered a “boom” if there was nothing to compare it to. We can see that in the past, similar behaviors in the real estate market have led to eventual corrections.

However, there’s truly no way of knowing, as the circumstances related to the level of liquidity that’s been injected into the economy over the past 18 months from the Federal Reserve is unprecedented. Never before have we seen this type of capital seeking a “home,” no pun intended.

As for contrarians like us, we don’t see any reason to wait around when there are opportunities to discover and when there are pockets of value still out there. In addition, we see no reason to believe that the demand for multifamily housing will halt, particularly in Class B and C properties. For renters by necessity and renters by choice, the fundamentals remain incredibly strong for multifamily performance.

Closing Thoughts

The single-family market is booming.
Large investment companies have entered the single-family home market as buyers, purchasing homes at a scale that is unlike anything we have seen in the past, and driving up home prices even further.
Because prices have gone up drastically, and with additional difficulties, like financing, there are now more barriers to the homebuyer pool.
This is actually a positive for the multifamily market because existing multifamily renters are more likely to stay in the market and former homeowners have the option to cash out and become multifamily renters.
This “boom” in any real estate market cannot last forever, but in the meantime, the multifamily market remains a selection of attractive investment opportunities for CF Capital.

If you’d like to learn how to invest alongside our team in multifamily real estate, please reach out.

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