Real Estate vs. Stocks

Whether you’re a savvy stock investor, work with a broker, or you’ve just tucked away a big chunk of your retirement in a few blue chips, it might be a good time to look at diversifying your portfolio with Lucern Capital Partners.

As inflation continues to rise and the stock market seems to be hitting a rough patch, here are 10 solid reasons why we believe all serious investors should be diversifying their portfolio with multifamily real estate.

  1. Lucern multifamily properties are strong hedge against inflation

It’s no secret that stocks traditionally do poorly in an inflationary period and the US is currently hitting some of the highest inflation we’ve seen in more than 20 years. The annual inflation rate in the US accelerated to 8.5% in March of 2022, which was the highest since December 1981.  Real estate is generally a fantastic hedge against inflation because it holds intrinsic value, is in limited supply and is a cash-yielding asset. Multifamily assets historically have been the best inflation hedges within commercial real estate because lease structures in multifamily are generally 12 months in term. As a result, they can “reprice” quicker, and are far better positioned to benefit from an increase in inflation than other asset types. 

  1. Lucern properties have the ability to appreciate in value

The demand for rental property isn’t going anywhere for many years to come.  Although inflation does have an impact on real estate, the markets that Lucern invests in are among the strongest to fight inflation and be protected from real estate pricing fluctuation.  The current inventory, population growth, and “share of the wallet” ratios in the markets we’re active in should continue to sustain and provide additional rent increases, thereby improving cash flow and bottom-line profits. 

  1. We add value to each property

When investing in stocks, you have little to no control over factors that can increase their value. Even more importantly you certainly cannot change or predict general investor sentiment that can make values fluctuate independent of the company’s success. Our investments are not tied to the volatility in the public equity markets. In fact, as an active real estate investment firm, Lucern is involved in the day-to-day operations and can pivot strategies when we see opportunities or upcoming challenges. Just like any business, a lot lies with the operator. At Lucern, we have shown through our past performance, that our thoughtfulness and execution has been able to provide favorable results for the firm and our investors. With multifamily real estate, Lucern is an active manager and has the ability to control and implement changes to improve the overall performance of the asset.  Examples include unit and common area improvements, rent increases, more stringent tenant selection, the addition of appropriate amenities and more.  

  1. Our investors get tax benefits that public market investors do not

Taxes are unavoidable when it comes to income, but real estate is the least taxed asset in the US. Some of the tax benefits our investors get to share in or directly benefit from are:

  • Interest on the mortgage
  • Depreciation deduction
  • Insurance premiums
  • Property tax deductions
  • Cost of repairs, services, and utilities
  • Legal fees for the mortgage or rental
  • Deferred capital gains programs 

Public market investments (stocks & bonds) do not enjoy the same tax benefits and treatment as real estate and does not offer investors the ability to take “paper” losses as a result of depreciation or other non-cash write-offs. Dividend payments from stock, which are similar to cash flow from real estate, are taxed as ordinary income and cannot be shielded from tax. Annual income from real estate can often be shielded through non-cash write-offs, and upon sale, there are greater options for tax efficiency, also a contrast to a public market investment.

  1. Lucern properties generate passive income

Owning rental property can give you a source of immediate and relatively predictable income from monthly rental fees on well-managed and stabilized assets. 

  1. Stocks can’t be leveraged in the same way as real estate

Borrowing money to invest in the highly volatile stock market may not seem like the best idea, but for real estate, leverage is plentiful and regularly used to help improve investment returns. This is a result of the historical performance of the asset class and the perspective of lending institutions which view the asset class as stable and in-demand. In addition to being plentiful, the lending terms for multifamily tend to be more favorable compared to other asset class alternatives.  

  1. Real estate is a tangible asset

The tangibility of real estate makes for a safer investment relative to public market alternatives. It won’t disappear overnight if the market crashes. The prices may fluctuate, but it is still there. It’s something you can see, touch, and physically use.  More specifically multifamily real estate is a necessity-based asset that is in short supply and provides much needed shelter for a vast amount of the population. 

  1. Real estate is insurable, stocks aren’t 

Risk is an element that’s always present when investing. Because of this, investments in the form of stocks, bonds, or mutual funds can’t be insured against market crashes that cause significant loss. Real estate, despite being an investment, can be insured against elements that damage its physical value and to protect against interest rate hikes on variable rate loans.  

  1. Lucern fights inflation through growth and control

There are a variety of reasons why real estate is a great inflation fighter, but perhaps the most potent ones for Lucern are growth and control. Growth meaning our ability to invest in markets and properties that are poised for long term population, wage, and rent growth, Control meaning our ability to control operational costs and make decisions that impact the long-term health of our investment. 

  1.  You don’t need specialized knowledge to invest with Lucern 

To invest in the public markets, a fair amount of knowledge and time is needed to make sure you earn money. Lucern makes investing in real estate easy, so you can feel comfortable and confident in your investment.

We believe that a diversified portfolio should have exposure and investments directly into real estate. Lucern will always have our doors open to accredited investors allowing them to access and add institutional-grade investments in multifamily housing to their portfolio. Historically, REITS have been the path for most investors to gain this type of exposure. However, it has one major drawback: it is still subject to swing and trading in the equity markets and can be disconnected by the actual performance of the underlying real estate. We always welcome discussions with interested parties to learn more about what we do and investment opportunities we provide. We are also happy to share our knowledge about the industry at large to help you determine if this is a space you want to be involved in. 

Are we biased? Of course, we are. Our multifamily real estate portfolio has historically and consistently generated above average returns for our investors because of Lucern’s ability to take action in specific markets and exercise the control we need to drive investment growth.  With that said, past performance does not guarantee future results.  

Are you interested in learning more about investing in multifamily real estate with Lucern?  Schedule a call with a managing partner today to learn more