The 3 Elephants in the Room – Part 1 – INFLATION
We are hearing about it almost everyday in the mainstream media. So, let's discuss the 3 biggest concerns we are facing in the current economic environment: inflation, interest rates, & recessions.
This will be part 1 of a 3-part series, where we will discuss each of these concerns and provide historical data to tackle them head-on, and look at the impact they may have on commercial multifamily but in particular... new multifamily development, which is the asset type in our current offering, the Equity Multiple Fund 1.
ELEPHANT #1
INFLATION
We are all feeling the impact of it, especially at the grocery store and gas station. Inflation, in general terms, is the rise in prices for goods and services over time. This leads to the decrease of purchasing power as the same currency affords less goods or services. Moderate levels of inflation is believed by many to be necessary to drive consumption, assuming that higher levels of spending are crucial for economic growth. Inflation can also function to prevent deflation, which could be worse. All of this is up for debate, but everyone seems to agree that high inflation is harmful to the economy.
We are currently at the highest rate of inflation since the 70s and 80s, but we are nowhere near the highs nor the sustained duration that these 2 decades had to face. Check out this graph that shows the peaks of the 70s & 80s and where we compare today.
So, how are we to forecast where inflation will go and how long will it last? What does history tell us?
When inflation rises above an unacceptable level and becomes persistent, the Federal Reserve goes into action.
In the last 61 years, the Federal Reserve has raised interest rates 9 times to kill inflation. And guess how many times they succeeded? Every single time.
From a historical perspective, we are forecasting that the Fed will succeed once again and have a 10-0 record at defeating high inflation. However, by squashing high inflation, the Fed will usher in a recession. This is intentional. We discuss this in Part 3 of our series, so stay tuned.
What's the Impact of Inflation on Multifamily Development?
- Construction costs (material & labor) will rise during inflationary times. Conversely, there is also a rise in wages, goods, services, and of course...rents.
- As experienced developers, we negotiate a GMP (Gross Maximum Price) with the builders of our apartments. This protects us from the volatility of rising construction costs. We also provide a bonus incentive to our builders to remain within or under budget.
- Historically, multifamily has always been an inflation hedge, protecting your investment dollars from being devalued. As inflation goes up, rents and asset values go up as well and typically outpaces inflation.
Check out this interview with a leading expert in commercial real estate. And see how multifamily is a hedge for inflation and remains a high demand asset class...
Bottom Line...
During a high inflationary period, commercial real estate is exactly where you want your money to be. By the time we are ready to sell our assets, the average market rents and value of the buildings will most likely be much higher than what we've projected, especially if inflation continues on this track. This is VERY good for every dollar you have invested in a solid multifamily investment property.........and not good for your cash.
If you want to ride the wave of inflation rather than be crushed by it:
We have an opportunity right now that will allow you to park your money into 6 inflation-beating, beautiful apartment buildings. This is where we are putting our money for the next 5 years and we invite you to join us.
sterling Rhino Capital Equity Multiple Fund 1
- 8% preferred return - Means you get paid first, before the GP Team
- 80/20 profit split (LP/GP) w/ NO Hurdles
- Projected 3.5x - 4.5x Equity Multiple Total Return in 5-7 years
- *$100k investment is projected to return $350k - $450k (includes initial $100k)
- Diversify your money across a portfolio of six (6) Class A, luxury, ground-up construction projects with ultra-modern amenities
- Markets include Denver, CO - Phoenix, AZ - and Colorado Springs, CO
Invest With Us Today!
If you’re considering investing in real estate, and are seeking an investment partnership, consider what values and skillset the potential partner has that align with your goals.
These are the values and skillsets that guide you on your path to financial security and will help you achieve financial independence and security.
If you want to learn more about investing in real estate, check out our informative podcast where you will find a wealth of valuable information.
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