Multifamily Investments Produce Higher Yields
As global interest rates plunge and bank yields continue to decline, investors are looking to multifamily assets for greater returns.
Lloyd Jones Capital CEO Chris Finlay tells Bisnow that a direct multifamily investment can earn up to 8% in returns with minimal downside risk—a plus considering recent financial market volatility amidst the Brexit fallout. Chris says real estate provides a strong hedge against interest rate changes and inflation.
“In light of Brexit it’s needless to say that the opportunity to receive a return on a very safe investment in multifamily real estate is a compelling idea,” Chris tells us. “It’s a no-brainer. I would even suspect that European and British investors will be looking into the US to place more investments because we are the most stable and at this time prosperous country in the world.”
On June 10, Chris says, the 10-year US Treasury yield fell to its lowest close in three years—the worst disparity between yields on the 10-year Treasury he’s seen in his 35 years of business.
“What’s happened is the 10-year Treasury has dropped significantly and a lot of real estate returns are gauged based on a spread over the 10-year,” Chris tells Bisnow. “But if you buy what’s considered a core A-plus multifamily asset unleveraged with no financing you’d get a 4.5% or 5% return, versus if you bought a 10-year Treasury you’d get a 1.5% return. The return is three times as big; that’s pretty compelling.”
He suggests the following investment plan—20% in direct multifamily real estate, 40% in stocks, 30% in bonds and 10% in alternative investments.
Though multifamily guarantees returns, Chris warns that having a business division to oversee and manage properties is imperative. The investments firm offers both asset and property management and has been around since the early 1980s with offices in Texas, Florida and the Southeast.
“It’s so important to have an operations arm within your entity that’s capable of managing these properties,” Chris says. “Multifamily is all about operations and managing these properties on a day-to-day basis. If you don’t have that ability you’re at a significant disadvantage.”