5 Ways Multifamily Syndications Can Reduce Portfolio Volatility

The stock market has seen record levels of volatility. In 2022, the S&P 500 experienced swings of 1% or more on 87% of trading days. The last time the market saw this level of volatility was in 2008, at the start of the Great Recession.

Due to elevated levels of volatility, many investors are looking for safety and stability.

Syndications provide a platform for accredited investors to participate in multimillion-dollar real estate deals. Multifamily real estate does not move in tandem with the stock market and has less volatility. They tend to produce stable returns and are one of the most robust alternative investments available to qualified investors.

Below are five ways multifamily investments mitigate portfolio volatility:

1. Asset-backed investments are less volatile than security-backed investments. Physical property has intrinsic value making it less prone to volatility. Stocks rise and fall based on emotional responses to company, regional, or world events. Real estate is also subject to market conditions, and prices adjust according to location, demand, and asset quality. Multifamily housing also draws value based on revenues, population shifts, the local job market, and property upgrades.

2. Large tenant pool: Even though all real estate has intrinsic value based on the worth of the land and buildings, not all real estate has the same level of risk. Apartment complexes spread risk across a large number of tenants. Properties often have one hundred tenants or more, with each unit contributing to the overall revenue. In this case, a small number of non-performing contracts will not significantly impact the total revenue because of the size of the tenant pool.

3. Short-term leases allow landlords to raise rents when leases renew. Landlords elevate rent to compensate when inflation or rising interest rates increase operating costs. Short-term leases make it easier to grow revenue.

4. Steady demand for housing regardless of market or economic conditions. Everyone needs a place to live. Recent trends have increased the demand for multifamily housing. Millennials who could buy choose to rent for its flexibility, and retirees are cashing in on their homes in exchange for apartment complexes with desired amenities. Current market conditions, which include rising interest rates and housing costs, are pricing buyers out of the market and requiring potential homebuyers to turn to multifamily housing.

5. Supply chain issues: The multifamily housing market is experiencing a housing shortage expected to last for at least the next decade. Inflation has increased the cost of building, leading to a slowdown in construction. Even before inflation took off in 2022, the housing shortage was severe, which is currently driving up prices for home buyers and renters.

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