CPI Blog

How Is Multifamily Investing A Hedge Against Inflation?

by | Aug 2, 2023

Dear valued existing investors and future investors,

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Real estate investors can be separated into two distinct types, active investors and passive investors; the latter type of investor being those who either don’t have the time, resources or inclination to get directly involved in multifamily and/or BTR-SFR real estate investment. In short, they prefer to leave such investment to experienced professionals.

But whatever type of investor, all have similar goals, to secure positive cashflow and, hopefully, capital appreciation, as well as looking for their multifamily and/or BTR-SFR real estate investment to be a hedge against inflation.

Why is multifamily investing popular?

Multifamily and/or BTR-SFR syndicated investing, which involves the acquisition and management of apartment buildings with multiple units, has become increasingly popular amongst real estate investors in recent years. One of the primary reasons for its popularity is its ability to act as a hedge against inflation by protecting investors’ wealth against inflation and providing a stable source of income.

What is inflation?

Inflation is the general rise in the price level of goods and services in an economy over a period of time. It erodes the purchasing power of money, making it less valuable. For investors, inflation can be particularly harmful because it reduces the real value of their assets and income streams. Therefore, investors need to look for ways to protect their wealth against inflation.

How can multifamily investing help?

Multifamily investing can act as a hedge against inflation in several ways and some of these are as follows:

  • Via rent increases: when inflation occurs, the cost of living increases and tenants’ salaries and wages may increase as well. As tenants’ incomes rise, landlords can raise rents to keep up with inflation. This means that the income generated by the multifamily property will increase as well, helping to offset the negative effects of inflation or higher interest rates on the investor’s wealth;
  • Through property appreciation: over time, multifamily properties tend to increase in value due to factors such as population growth, increased demand for housing and improvements in the local and regional economies. As the value of the multifamily property increases, the value of the investor’s equity in the property also increases. This means that the investor’s overall net worth is protected against inflation;
  • By providing a stable source of income, even during periods of inflation: unlike other types of real estate investments, such as commercial properties or office buildings, multifamily properties tend to have a consistent and predictable cash flow. This is because the demand for rental housing remains relatively stable, even during economic downturns. Therefore, investors can rely on the rental income generated by their multifamily properties to provide a steady stream of income, even when other investment options may be less predictable;
  • By allowing investors to take advantage of leverage: (or the use of borrowed funds to finance an investment). When interest rates are relatively low, as they are currently, investors can take advantage of this by using leverage to purchase multifamily properties. By using borrowed funds, investors can increase their purchasing power and acquire larger multifamily properties, which can generate higher rental income and appreciation over time. As inflation occurs, the value of the multifamily property will increase, which means that the investor’s return on investment will also increase.

In addition to these foregoing benefits, multifamily investing provides several other advantages that make it an attractive investment option:

  • Multifamily properties tend to have lower vacancy rates compared to other types of rental properties. This is because multifamily properties offer a more affordable housing option for tenants, which means that there is a higher demand for these types of properties;
  • Multifamily properties also tend to have lower turnover rates, which means that tenants are more likely to stay in the property for longer periods of time. This stability helps to reduce the risk of income fluctuations and provides investors with a more predictable cash flow;
  • Investors can diversify their portfolio. Diversification is the practice of investing in different asset classes or industries to reduce the overall risk of the portfolio. By investing in multifamily properties, investors can add real estate to their portfolio, which provides diversification benefits. Real estate investments tend to have low correlations with other asset classes, which means that they can provide a hedge against market volatility and help to reduce the overall risk of the portfolio.

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CPI Capital, as with other knowledgeable and experienced syndication investors, recognise that the multifamily and/or BTR-SFR asset classes offer excellent ways in which such investing can act as a hedge against inflation for the benefit of our multitude of passive investors.

It has been proven time after time over hundreds of years that investing in real estate with professional investors such as CPI Capital is a generational wealth builder—as well as a first class hedge against the erosive impact of inflation!

Yours sincerely,

August Biniaz
CIO, Co-Founder CPI Capital 

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