We've been actively buying and selling assets in different parts of the cycle, including when Covid hit, which was a very interesting time. During the pandemic, a lot of groups were on the sidelines waiting to see what was going to happen. At that time, we continued to bet on multifamily real estate and that was a bet that paid off for us and for our investors.
The economy we’re in today is very different, meaning there are different factors that you'll want to look for in deals now that you didn't necessarily need to look for three or six months ago, but we still feel that now is a great time to invest in multifamily real estate.
Why are we buying assets right now?
Real estate is cyclical, and we’re in a period where interest rates and the health of the economy are on everyone’s mind. We’ve explored this before.
This is probably not a popular opinion, but I actually think we are already in the midst of a recession, at least according to the classic definition of negative GDP growth over two consecutive quarters. (The professional economist don’t agree, at least not yet, since they have yet to formally announce that we’ve entered a recession.)
Whether or not we’re in a recession. when we look at real estate, we see that it's still performing, specifically multifamily. It’s an asset class that remains strong and, from our view at least, is still a very solid investment. Of course, not all real estate investments are successful, but many of them are.
Inflation has been stubbornly high, but we’ve been able to make improvements, push rents and make sure that our income is in line with inflation and our assets keep cash flowing.
How are we evaluating real estate deals in today’s markets?
One key with keeping up with inflation is to understand that it’s more important than ever to choose the right location.
At Blue Lake Capital, that’s been our strategy from the get-go. We stay away from Class C assets and weaker areas that could be more severely impacted by a long economic downturn. These types of properties might work well on paper but, at least for us at Blue Lake, we feel they tend to underperform in the long run.
Location was a major factor when considering Stonebrook, which we are purchasing right now. Stonebrook is located in Mebane, just outside of the Research Triangle in North Carolina. This gives the asset a potential tenant base consisting of a lot of tech workers, medical professionals and affluent retirees.
Those are very strong communities from which we can attract quality tenants. Incomes in both areas are strong and, in the case of Vinings, we have million dollar homes in adjacent neighborhoods. We are confident that our tenant base will be attracted to nicer amenities and can afford higher rents as we make improvements to the properties. (Current rents in the properties are under market and we are planning a number of improvements to help support higher rents.)
The bottom line is that location has always been critical in real estate, but in a recessionary environment where things are kind of volatile, it’s even more important. You want to invest your money where you have stability with a strong tenant base.
Another factor to consider: what other investment options do you have right now?
The stock market has been incredibly volatile in 2022, and bonds haven’t been acting as a safe haven either. Bitcoin and other cryptocurrencies have suffered in this “risk off” environment. Short term treasuries have been paying higher yields but are still significantly trailing inflation. There’s a lot of cash on the sidelines, keeping money to wait to see what happens, but that money is losing purchasing power rapidly, as inflation remained over 8% as of September.
Finally, and not insignificantly, 100% bonus depreciation starts to phase out after 2022. It will go from 100% now to 80% in 2022, and 60% in 2024.
Unless there are changes, the bonus percentage will decrease by 20 points each year over until it eventually phases out completely, so this is the last year to take advantage of one of the most significant benefits in real estate.
Key Takeaways:
- First and foremost, while we may or may not be in a recession, investing in multifamily real estate can help preserve your capital and be a hedge against this very high inflationary market that we're in.
- Historically, every time we've been through recession, we tend to see a lot of real estate investors suddenly stop investing. That’s going to create opportunities. If you stick to fundamentals, if you can adjust your business model to consider today’s markets and if you have a high surety of closing, you can win quality deals and grow your portfolio.
- Location, location, location. Now, more than ever, you want to be where the tenant base is strong, where they will continue to pay their rents and keep occupancy high.
- 100% bonus depreciation is being phased out, 2022 is the last year to take advantage of the full tax benefit.
I'm not an economist or an investment advisor, but when I look at what to do with my money, how to grow it and how to create passive income, I still feel that real estate is a solid investment.
Profits and cash flow are one thing, but keeping the value of your principal along with the tax benefits are unique things that investing in real estate can do for you.
Be well, be strong, and keep pushing forward!
About Ellie Perlman
Ellie Perlman is the founder and CEO of Blue Lake Capital, a woman owned multifamily real estate investment firm focused on partnering with family offices and accredited investors to build and preserve generational wealth. Since its founding in 2017, Blue Lake has successfully acquired and operated multifamily assets across high-growth U.S. markets, completing $1B+ in transactions.
At Blue Lake Capital, Ellie and her team work exclusively with family offices and accredited investors, offering carefully curated investment opportunities that emphasize long-term wealth creation, stability, and risk-adjusted returns. A defining aspect of Blue Lake’s investment strategy is its integration of advanced AI-driven analytics and data science into the entire lifecycle of acquisitions and asset management. By leveraging cutting-edge technology, the firm executes data-driven forecasting on market trends, asset performance, and tenant behavior, ensuring strategic decision-making and optimized returns.
In addition to leading Blue Lake Capital, Ellie is the original founder and host of "REady2Scale - Real Estate Investing" podcast, which provides insights into multifamily real estate, alternative investments, and finance.
Ellie began her career as a commercial real estate attorney, structuring and negotiating complex transactions for one of Israel’s leading development firms. She later transitioned into property management, overseeing over $100M in assets for Israel’s largest energy company.
Ellie holds a Master’s in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.
You can learn more about Blue Lake Capital and Ellie Perlman at www.bluelake-capital.com.
*The content provided on this website, including all downloadable resources, is for informational purposes only and should not be interpreted as financial advice. Furthermore, this material does not constitute an offer to sell or a solicitation of an offer to buy any securities.
