Multifamily v/s Stocks – a 19 year progress report

Multifamily v/s Stocks – A 19 year progress report

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Investment decisions tend to become complicated when one does not clearly know why, how, what, and where to invest their surplus income or savings. There are plenty of options and strategies to consider when you want to start investing. Most people choose between two major options: stocks and real estate. Both options are known for helping people build large fortunes. This article compares these two types of investments; stocks and multifamily real estate, and their potential returns in the last 19 years, so you can determine which is the better option for you.

So let’s say if you had $100,000 of surplus funds in your Savings, IRA or if you received an inheritance, how would you invest it? Let us show you some historical data and returns on how stocks and multifamily real estate investments have potentially performed over the last 19 years. Multifamily real estate deals potentially yield on an average between 1.5x to 2.0x multiple over a five-year investment term.

What is Equity Multiple?
Equity multiple is a commonly used performance metric in commercial real estate. Let’s take a look at the equity multiple as it’s used in multifamily real estate with a walk through example.

Equity Multiple =  Total Cash Distributions
                             Total Equity Invested

Eg. if the total equity invested into a property was $1,000,000 and all cash distributions (combined annual preferred returns + proceeds received on sale of property) totaled $1,700,000, then the equity multiple would be $1,700,000 / $1,000,000 = 1.7x.

An equity multiple less than 1.0x means you get back less cash than you invested. An equity multiple greater than 1.0x means you get back more cash than you invested. In our above example, an equity multiple of 1.7x simply means that for every $1 invested into the project, you are expected to get back $1.70 (including your initial $1investment)


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As you can see in the above chart, the value of a $100,000 initial investment in stocks, from year 2000, would be potentially worth 2.19x in 2019, but the same investment in multifamily real estate would be potentially worth 5.17x, i.e. the multifamily real estate option would potentially return 3.0x more, on your original investment. 

All investment options come with a certain level of risk. The choice of a preferred investment strategy and option depends on one’s risk appetite and volatility tolerance. It is observed that, compared to investing in stocks, multifamily real estate investments are less volatile, and a great investment option for passive cash flow and long-term wealth creation. One must always consult their tax or investment professional before making any investment decisions.  
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