Episode Transcript:  

 So I'm sure you've heard everyone talking about it. Is there going to be a recession this year? As of last week, JP Morgan increased their forecast for recession from 30 to 40%, and Goldman Sachs increased theirs from 15 to 20%. So what are investors supposed to do? I'm gonna explain to you today why multifamily real estate is an ideal investment during a recession.

Hey guys, my name is Jeannette Friedrich, a director of Investor relations at Blue Lake Capital, and there's a lot of uncertainty going on in the market today, particularly around concerns of. Are we going to enter a recession and are we going to see inflation actually start to increase again instead of decrease?

So I wanted to talk to you today about why multifamily investments are really an ideal investment to have in this type of scenario. So the first thing is, it's obvious everybody needs somewhere to live and during a recession or times of high inflation, the reality is that the demand for rental housing actually.

Increases not decreases because people's money simply doesn't have the purchasing power in these types of conditions that it previously did. So basically when a recession hits everything tightens, businesses slow down, layoffs increase, and typically the government will respond by either reducing interest rates or by actually printing out money.

But either way, that means that your cash loses buying power. So how can multifamily real estate help you basically create some type of protection mechanism for the value of your money? In many ways. So let's say you have a hundred thousand dollars in the bank. Now, when things are uncertain, when the economy is shaky, it feels better to just have a hundred thousand dollars tucked away safely in your savings account where you don't have to quote, worry about it.

But the reality is that by actually leaving cash. Sitting in a bank account like that, you're actually guaranteeing that it's going to be losing value instead of protecting it. So I'm gonna walk you through a scenario that's pretty similar to where we are today and maybe what we'll be looking at in three to six months.

So let's say that inflation is running at 5%. Right now it's at 2.8%, but we've seen it significantly higher than that. So I'm going for a conservative 5%. So in just three years, your a hundred thousand dollars at a 5% inflation rate would actually lose purchasing power to the point that it's basically only worth 85,000.

So you have a hundred thousand dollars in real money, but you can only really buy about $85,000 worth of stuff because your money is losing value due to the high inflationary economy. Now, let's say instead of leaving that money sitting in a bank account where it's actually losing value or purchase power, let's say you invest a hundred thousand dollars in multifamily real estate.

Now real estate is a great idea. Pretty much in any type of cycle, but in recessionary environments, high inflationary environments, there's particularly important benefits that people really like, which is why so many people, especially wealthy and successful people continue to invest in real estate no matter what part of the cycle we're in.

So first of all, there's cash flow. So if you take a hundred thousand dollars and you put it into a multi-family real estate investment that say it's returning 5% annually. That's very conservative. Then you are actually taking your a hundred thousand dollars putting it to work, and now instead of it losing purchasing power, it's making you money at 5%.

That would be around $5,000 a year. Now the second thing that's really important to understand about real estate is that there is appreciation. So what appreciation means is that generally. Real estate, the value of real estate increases over time. So let's say that your property that you've invested in is appreciating at 3% a year.

Now, in just a three year time period, that could be worth around $110,000 when it's started off at a hundred thousand dollars. So not only are you making cash flow, but in addition to that, you are actually also benefiting from appreciation, meaning that your investment is growing in its overall value on top of the cash flow.

Now, the third benefit that's really important that a lot of people also don't appreciate or understand is that you basically are getting to pay down debt and capture tax benefits. Thanks to the tenants. So the reality is that it's tenants that actually pay down the loan over time, and the investors, while that is happening, are able to actually capture and utilize some very important tax benefits like bonus depreciation.

And some other items that help either reduce the amount of taxes that you have to pay or defer it, meaning kick it off to a later time, allowing investors to keep more cash in their pockets. Now. So to recap, there's basically two scenarios here. If you put a hundred thousand dollars in a bank after three years, it's basically worth 85,000.

Or if you put a hundred thousand dollars into a multi-family investment, you've earned cash flow, appreciation, and tax benefits growing that a hundred thousand dollars to potentially $125,000 in three years, maybe more or less depending on the market, but you get the idea. So the bottom line here is that holding cash, while it may psychologically make you feel better, is really working against you in a recessionary environment or a high inflation environment, or maybe both.

So instead, I encourage you to take into consideration multifamily real estate investment where you can put your money to work for you, benefit from cash flow. Benefit from appreciation, benefit from the tax advantages that it offers, and actually continue to make sure that your money is growing in value and helping you build your wealth and achieve the goals that you have no matter the circumstances.

So I hope you guys found that helpful, and I look forward to telling you more about this and other real estate strategies to help you accomplish your goals next week. Ready to Scale is brought to you by Blue Lake Capital, where we hunt down the best multifamily investment opportunities that we can find and invite investors to join in with us.

We target class B value add multifamily properties across the Sunbelt. Our CEO Ellie Perlman, invest a substantial amount of capital into every deal. This means our interests are aligned with yours. If you're an accredited investor looking to expand your portfolio and diversify sponsors, be sure to visit us@bluelakecapital.com.

Blue Lake Capital, be bold, be extraordinary, and keep moving forward.