Real Estate as a Store of Value
Recent volatility in the stock and bond markets has people turning to gold as a "store-of-value". Makes sense. Historically, gold maintains value, is a hedge against inflation and is transferable (weight aside). When markets get rocky people look to invest in hard assets like gold and real estate.
Is multifamily a gold alternative?
The short answer is no. Of the various asset types within real estate multifamily is a favored investment. Can multifamily investment property be a "store of value"?
Real estate, in terms of investment allocation theory, is not a replacement for gold but it generates certain benefits, namely income. Gold is a defensive investment.
Multifamily can be an offensive and defensive investment; defensive against inflationary occurrences and offensive as a current income generator.
As financial markets have increased in sophistication (with the use of margin accounts, derivatives, spiders, etc.) gold is in many instances just one more piece of paper in an investment portfolio. The vast majority of individuals that own gold have never held a single ounce in their hand.
Direct real estate ownership is different from gold ownership. Owning un-leveraged income producing real estate can provide a stable source of current income. Presuming the asset is in a quality market and insurance is maintained, short of a catostr0phic event, you own it forever (forever in this instance being multi-generational).
Multifamily real estate is not a replacement for gold as a store of value. As an investment vehicle, multifamily does, however, offer some of the same positives as gold; as a hedge against inflation and as a store of value being a hard asset. There are thousands of passive multifamily real estate investors that will attest to this.
Thus, while multifamily is not a replacement for gold, it is an alternative investment with some similarities to gold when purchased without debt.
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Comments (3)
As a multifamily "specialist" of course I would prefer to say it loud, say it proud, that 100 multifamily units is superiior to 1000 ounces of gold. But the reality is that not everyone can acquire or control apartments, nor should they. Too few Americans think past next quarter's earnings statement. Torto Wheaton maintains a great chart on the value of a home and it's change in value from the 15th century until now. Real estate is definitely a store of value. But not a replacement for gold.
John Wilhoit, over 14 years ago
Investment/income RE is a better store of value than gold. It pays for itself with income. And hedges inflation.
Jon Klaus, over 14 years ago
John, in the current market multi-family is a store of value.Strictly from a cashflow standpoint.I agree, the best option is the purchase without debt.Multi-family is the only sector that is driving housing starts. As long as the invester can keep expenses in line with industry averages, cashflows should increase in the short term.Just MHO.Great post.
Mike Morrison, over 14 years ago