Why You Should Invest in Real Estate Right now
When we look back on the economy and market behavior in 2022, we will have to consider it in tandem with the events of 2020 and 2021. There was a massive crash of the global markets in March 2020 due to the uncertainty of the looming pandemic. Schools and non-essential businesses were shut down, people were told to stay at home, and life slowed to a halt. In response, a historical influx of money by the government occurred to prop up the economy. All of this was a precursor to the severest and most rapid quantitative tightening over the span of a year (2022) that we have ever seen. As we have seen in the past couple of weeks, this tightening has led to new problems, specifically in the banking sector with the fall of Silicon Valley Bank. This has caused a ripple effect across the industry and bred even more uncertainty. Many savvy investors had seen the writing on the wall when it came to inflation and that was reflected in the decline in value of the riskiest assets since the late spring and summer of 2022. This has driven a lot of hesitancy for investors and an overall disjointed marketplace.
No matter how you feel about the response to the pandemic, it happened, and investors must adjust to the new landscape that we are all traversing. The time of “getting rich quick” on momentum stocks or cryptocurrency will be far more difficult as the markets give us a reality slap in the face. The uncertainty and chaos from recent years has left many wondering where they can invest their hard-earned money. Holding cash is safe, but with inflation at high levels, large cash reserves are quickly losing purchasing power.
So, the million dollar question is “Where do we put our money”? From where Morgan Legacy Partners (MLP) sits, we see vast opportunities in real estate assets as steady, more conservative cash-flowing investments become coveted once again.
MLP has patiently positioned itself over the last year to be able to take advantage of opportunities in the rapidly growing Carolinas. Currently, we have a couple of offerings for our properties with a preferred cash-on-cash return of 7-8% (annualized). Our expectation is that there will be ample investment opportunities where we can deploy our capital in the 2nd half of 2023, if not a little sooner.
Why invest with Morgan Legacy Partners and why real estate? There are multiple benefits of real estate investment that not every investor is aware of:
1) Supply/Demand Imbalance of Affordable Housing
This is not simply a “Carolinas problem”, but rather a nationwide problem as real estate prices rise. Specifically, in the Carolinas, the population has grown roughly 2% the past few years. Cities like Raleigh, Charlotte, and Charleston are sprawling and affordable housing is in high demand, but low supply. We at MLP see this largely ignored opportunity and want to be part of the solution.
2) Lower Minimum Investment
You will see many established real estate investment funds with minimums at $50,000, sometimes up to $250,000. These levels exclude the vast majority of the population from investing. For many, when you are trying to diversify your investments, it becomes more difficult when $50,000 is invested into a generally illiquid investment vehicle. The solution? MLP offers investments for minimums as low as $10,000. And, because of the way we have structured these investments, it is not required that the investor be accredited (Read this article for how to invest with a lower cash amount). This allows for a much larger pool of folks interested in real estate to get into the game.
3) Lower Cost of Maintenance
Specifically for mobile home parks, many units are owned by the residents. They aren’t paying us rent for the actual mobile home unit, just for the land. Responsibility to maintain the property and their unit is on them, taking a lot of headaches and cost out of the maintenance of our properties.
4) Low Turnover
Similar to the benefits of maintenance costs, because the residents often own their respective units, you see a much lower degree of turnover for mobile home park residents. The cost to move a unit can be prohibitive (sometimes as high as $7,000), so this makes residents less likely to leave and more likely to be “lifelong” residents. On our end, MLP strives to make them never want to leave in the first place; our property management team is excellent and has a “tenant-first” philosophy when managing the parks.
5) Tax Benefits of Real Estate Investing
Depreciation – you can depreciate your asset which allows for significant write-offs on taxes. For mobile home parks, there is an accelerated depreciation, meaning you can depreciate at a faster rate than other real estate investments. Mobile home park depreciation generally follows a 15-year depreciation schedule compared to 27.5 years for residential/apartments and closer to 40 years for commercial properties.
Passive Income – income from real estate investments is considered “passive” as opposed to “active” (income from your output at a job). Passive income is generally subject to a lower tax rate due to the deductions (e.g. depreciation) allowed.
6) Appreciation of Property
While no one has a crystal ball and can predict with certainty the performance of their assets, real estate, especially in popular and growing areas like the Carolinas, has the potential to appreciate. So, while you enjoy the cash flows from the property, you can also participate in the upside through appreciation of the property at the back end of the deal (either through a sale or refinance of the asset). MLP focuses on improving and stabilizing the properties to maximize appreciation potential.
7) Inflation Hedge
Rental properties can act as an inflation hedge as costs of materials/doing business and property taxes rise. It is expected that rents will rise, each year, to help offset any increase in the costs of running and maintaining a property.
Current market dynamics and the looming uncertainty on monetary policy make real estate a popular investment vehicle in the near to medium term. Steady cash flow and returns and an asset class that has withstood the test of time should be a staple in any portfolio. Our investor team of Karen Butz-Webb, Steve Spain, Mike Cashion, and Alex Lieske are happy to answer any questions.
Alex is the Sales & Development Manager for Morgan Legacy Partners, a subsidiary of MIG, as well as a fellow at Morgan Franklin Foundation, a free financial literacy platform.
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