The next post in our Guest Blog series is provided by Pat Poling, Principal of Mara Poling, and provides an overview of his thoughts on multifamily investment strategies and its benefits to investors. You can view their latest offering by clicking here.
The following are solely the opinions of Pat Poling and do not constitute financial advice or counsel from RealCrowd. RealCrowd is not an investment advisor, attorney, tax consultant or endorsing the following comments. As always, please consult your investment advisor prior to making any investment decisions.
“I need better returns!” cried every investor I’ve ever met. When queried as to what better returns means the responses are many. I need more stability. I want less risk. I want higher returns. I want it all. Ah, Optimized Returns, the holy grail of the investing world. Well, here are 4 easy steps you can take today in your quest for Optimized Returns.
Revise your asset allocation
Equities? Check. Bonds? Check. Fixed Income? Check. Cash? Check. Real Estate? … Did you know that 40% of investment portfolios do not contain any commercial real estate, and those that do are underweighted (according to Goldman Sachs).
- Commercial Real Estate in general, and Multi Family Real Estate in particular, deserves a place in your portfolio. A 2013 study by Thomson Reuters Datastream tells the whole story.
- Commercial real estate generates total returns exceeding small cap and large cap stocks; with stability on par with corporate and government bonds – all with tax advantages neither can offer (depreciation, 1031 exchange, pass through tax treatment/K-1).
- And remember, returns in the Multi Family segment of Commercial are driven by a supply/demand imbalance that will continue for years to come (more on that another time). How much Commercial Multi Family is up to you. Don’t miss out on a key component of optimized returns – add some Commercial Multi Family to your portfolio.
Invest in a Fund
- Funds provide diversity, tax efficiency, actual real estate ownership (not a stock), and the ability to add to your position.
- A fund has the ability to provide greater tax efficiency than an investment in a single property. Laddering asset acquisitions can result in net losses at the fund level even after some assets begin to generate positive income. Timing 1031 exchanges to minimize tax exposure can defer gains while providing fresh assets to depreciate.
- A Fund is not a publicly traded REIT – a publicly traded REIT is a stock in a company that owns real estate, subject to the whims of the stock market. You want a Fund not a REIT.
- An extra benefit of some funds is the ability to add to your position over time, enabling you to grow your position while maintaining your diversity (an investment in a single asset is a one time transaction).
Re-Invest your cash distributions
- Compounding is one of the most powerful forces in investing.
- Cash yield is a valuable component of the total return associated with Commercial Multi Family real estate. Re-Investing some or all of your cash distributions can be a powerful force to grow your returns.
- Ask your sponsor to reinvest your quarterly distribution checks back into your capital account. Note – not all investment sponsors offer a reinvestment option.
- The compounded growth from reinvestment will boost your return substantially. Selecting the reinvestment option, in our experience, can increase your total return by 250 to 300 basis points or more.
Use your IRA
- A small fraction of the more than $6 Trillion in IRA accounts is invested in real estate. Put your retirement fund dollars to work doing more than investing in index funds or whatever else your current IRA provider offers.
- Take control and invest in what you want to invest in – Commercial Multi Family real estate.
- The average return on investment for IRA funds in the US is less than 10%, significantly lower than your potential return from a Commercial Multi Family investment.
- Select your Commercial Multi Family investment carefully as not every sponsor can or will accept IRA investments.
So there you have it. A simple four-step plan to optimized returns. 1. Add some CMF to your portfolio, 2. Through a well managed Fund, 3. One that provides a reinvestment option, and 4. Accepts investments from IRA accounts.
*If you like this post, be sure to enroll in our free six week course on the fundamentals of commercial real estate investing — Enroll Now.*
Pat Poling is the Founder and CEO of Mara Poling, a Total Return real estate investment firm dedicated to enabling their clients to Build Lasting Wealth. Check out the Mara Poling Total Return Fund now available on RealCrowd.