Welcome back to the Net Worth Podcast.
Speaker 1: This week we are diving into why multifamily real estate is becoming a powerful ally for building and securing your net worth, especially as you plan for retirement.
Speaker 2: Check out the full edition on our website, wearenoyack.com.
Speaker 1: Today we’re going beyond just the headlines.
Speaker 2: We’re exploring how a seemingly specialized asset class, multifamily real estate, can actually become a cornerstone of your financial future.
Speaker 1: maybe even accelerating your path to a truly robust retirement.
Speaker 2: And this is all based on this edition from Noyack Wealth Weekly.
Speaker 1: Yeah, exactly.
Speaker 2: And that’s really why understanding multifamily is so relevant now, especially for uh for Henry’s high earners not rich yet.
Speaker 1: It’s not just for the big real estate players anymore.
Speaker 2: It’s it’s really about anyone looking to intentionally build substantial wealth.
Speaker 1: Multifamily, it’s proving to be a really strategic move for like accelerating real wealth accumulation, focusing on smart, sustainable growth.
Speaker 2: OK, let’s unpack this then, because I mean, for a long time.
Speaker 1: Real estate, especially multifamily, it sort of felt like it was just for the big institutions or people already deep in real estate.
Speaker 2: It felt a bit out of reach for most of us, right?
Speaker 1: But what we’re seeing now, it really challenges that idea.
Speaker 2: It seems like multifamily is becoming this uh powerful tool, maybe even a secret weapon for a future-proof retirement.
Speaker 1: So what are the market signals?
Speaker 2: What’s really showing the shift?
Speaker 1: That’s a great question.
Speaker 2: The current market trends.
Speaker 1: they really paint a clear picture of why it’s gaining so much traction.
Speaker 2: mean, look at mortgage rates.
Speaker 1: They’ve been hovering around, 7.9 % recently.
Speaker 2: In practical terms, that’s a big jump in monthly payments for potential homeowners.
Speaker 1: So it’s pushing a lot of would-be buyers into renting instead.
Speaker 2: It’s a pretty fundamental shift, actually.
Speaker 1: Right.
Speaker 2: So more people renting just out of necessity.
Speaker 1: How does that play out in the investment side, in the multifamily space itself?
Speaker 2: Exactly.
Speaker 1: And the numbers are, while they’re pretty compelling, in 2024, multifamily deals actually made up 34.7 % of all commercial real estate transactions.
Speaker 2: That’s a huge chunk.
Speaker 1: It shows where the money’s flowing, you know?
Speaker 2: And for good reason, apartment occupancy rates soaring like 95%.
Speaker 1: 95%, wow.
Speaker 2: Yeah, think about that.
Speaker 1: Almost every unit is full.
Speaker 2: It says a lot about demand.
Speaker 1: And then if you look at the public markets, apartment REITs, real estate investment trusts, they delivered something like a 26.6 % return in 2024.
Speaker 2: Okay, those are some really significant numbers.
Speaker 1: So what does all that mean for stability and growth potential for someone looking to build their net worth?
Speaker 2: Well, for your net worth, it signals this powerful mix of stability and growth potential.
Speaker 1: Even when the economy feels a bit shaky, maybe volatile for other assets, multifamily has shown incredible resilience.
Speaker 2: High occupancy means steady income.
Speaker 1: Strong returns show investor confidence and capital appreciation.
Speaker 2: It’s really a testament to how the sector performs, driven by a basic need housing.
Speaker 1: That makes it less susceptible to other market swings.
Speaker 2: It’s pretty attractive for long term wealth building.
Speaker 1: OK.
Speaker 2: Those market trends are definitely compelling.
Speaker 1: But looking beyond just right now, what are the sort of fundamental long term advantages?
Speaker 2: What makes multifamily stand out for building net worth compared to, say, just sticking with stocks or bonds?
Speaker 1: If we zoom out a bit, there are really three main benefits that make multifamily shine for boosting your net worth.
Speaker 2: The first one is reliable passive income.
Speaker 1: And that’s driven by these strong market dynamics we’re seeing.
Speaker 2: When you invest, maybe through REITs or managed funds, you tap into this consistent stream of rental income.
Speaker 1: And this cash flow, it’s not just pocket money.
Speaker 2: It’s like an engine compounding your equity over time, steadily growing your assets.
Speaker 1: That 95 % occupancy, the 26.6 % REIT return, those aren’t just stats.
Speaker 2: They’re real examples of the stability and growth you can get.
Speaker 1: That consistent income, especially for something essential like housing, that sounds incredibly attractive.
Speaker 2: It feels like…
Speaker 1: You get the rent without the landlord headaches, which I know puts a lot of people off precisely That’s where the managed auctions really shine you get the benefit of the income, but the professionals handle You know the tenants the repairs collecting rent pretty hands-off for the investor.
Speaker 1: Yeah, avoiding those midnight calls is a big plus Okay, so that’s reliable income.
Speaker 2: What’s the second big benefit?
Speaker 1: Especially thinking about protecting wealth from things like well inflation the second one and it’s crucial right now Is it being a natural inflation hedge when the cost of living goes up?
Speaker 2: Your dollar buys less, right?
Speaker 1: But real estate, it tends to hold up well.
Speaker 2: Why?
Speaker 1: Because rents, they tend to rise along with inflation.
Speaker 2: Landlords can adjust rents to keep pace.
Speaker 1: So your multifamily investment is more likely to keep its real value and income power when other assets might uh lose ground to inflation.
Speaker 2: The net worth benefit is huge here.
Speaker 1: It helps preserve and actually grow your real purchasing power.
Speaker 2: It protects your wealth.
Speaker 1: It’s like an asset that adjusts itself to the economic winds.
Speaker 2: That makes a lot of sense.
Speaker 1: A sort of built in defense against inflation eroding your savings.
Speaker 2: OK, now let’s get into something that sounds really interesting for long term wealth building, especially retirement.
Speaker 1: How does investing in multifamily within certain accounts boost that growth even more?
Speaker 2: Right.
Speaker 1: This brings us to the third big advantage.
Speaker 2: Tax efficiency through retirement accounts.
Speaker 1: This is often overlooked, but it can seriously maximize your returns.
Speaker 2: Holding these investments inside tax advantaged accounts like Self-directed IRAs, SDRAs, or Solo 401k.
Speaker 1: That unlocks a whole different level of compounding.
Speaker 2: Think about it.
Speaker 1: The rental income, any appreciation, it can grow tax-deferred in a traditional IRA or completely tax-free in a Roth IRA.
Speaker 2: That just means more of your money stays invested working for you instead of getting shaved off by taxes every year.
Speaker 1: So deferred or even tax-free growth, that sounds massive.
Speaker 2: Are there other tax perks besides just the growth in the account?
Speaker 1: Oh yeah, absolutely.
Speaker 2: You can also benefit from depreciation deductions.
Speaker 1: Now, this mainly applies if you own directly or through private syndications, but it lets you write off a part of the property’s value each year against its income.
Speaker 2: That can boost your net returns, even while the property itself is going up in value.
Speaker 1: And for REITs, there’s another clever tax advantage.
Speaker 2: A lot of the payout can be classified as return of capital.
Speaker 1: What that means is a chunk of the distribution isn’t taxed as income right away.
Speaker 2: It just lowers your cost basis.
Speaker 1: So you defer the tax until you eventually sell.
Speaker 2: This lets way more growth compound inside your portfolio because you’re not paying taxes on those payouts year after year.
Speaker 1: That’s a pretty sophisticated benefit.
Speaker 2: What about the tax reporting?
Speaker 1: Is it complicated?
Speaker 2: Well, REITs often simplify things.
Speaker 1: Unlike some private deals that might give you complex K-1 forms, REITs usually send a straightforward 1099.GIV.
Speaker 2: Much easier come tax time.
Speaker 1: And it really raises an important question, doesn’t it?
Speaker 2: How much more can your net worth compound when more of your earnings stay invested, shielded from immediate tax?
Speaker 1: It’s a real game changer for long-term wealth, especially over 10, 20, 30 years.
Speaker 2: It definitely sounds like a strategic move.
Speaker 1: What I like about the approach in this edition is that it doesn’t just talk concepts.
Speaker 2: It breaks down the different ways to get started.
Speaker 1: It makes it seem accessible, you know, for different people, even if they don’t have huge amounts of capital.
Speaker 2: It’s clearly not just for the big fish anymore.
Speaker 1: Exactly.
Speaker 2: There are basically three main entry points.
Speaker 1: So there’s usually a path for almost everyone.
Speaker 2: First, you’ve got REITs, real estate investment trusts.
Speaker 1: These are great for broad hands-off exposure.
Speaker 2: You buy shares, and boom, you own a tiny piece of a huge portfolio, maybe thousands of units, without any management hassle.
Speaker 1: They’re liquid-like stocks, and like we said, simpler tax supporting.
Speaker 2: Plus, they have to pay out most of their income as dividends, at least 90 % of taxable income.
Speaker 1: So you get regular cash flow.
Speaker 2: So REITs give you diversification, professional management, regular income.
Speaker 1: Yeah, sounds like a really easy way to get into multifamily without being a landlord.
Speaker 2: That’s it, exactly.
Speaker 1: Then for folks wanting a bit more direct involvement, but maybe not full ownership, there are crowdfunding platforms.
Speaker 2: You hear names like Fundrise, Crowdstreet.
Speaker 1: These let you invest in specific projects, maybe starting with surprisingly little capital, sometimes just $10.
Speaker 2: You pool money with others, get into bigger developments.
Speaker 1: Now these can potentially offer higher returns than REITs, but they usually mean longer hold periods.
Speaker 2: Your money’s tied up for years.
Speaker 1: And yeah, probably a bit more risk since it’s tied to one specific project.
Speaker 2: It’s kind of a middle ground.
Speaker 1: Okay.
Speaker 2: And for those who really want to be in the driver’s seat, have more control, maybe leverage those tax advantages we talked about directly.
Speaker 1: What’s the third way?
Speaker 2: That leads us to self-directed retirement accounts, SDI raise and solo 401k.
Speaker 1: These give you the most control.
Speaker 2: You can invest directly in things like multifamily syndications, private placements.
Speaker 1: Think about the example in this edition, Alex, a 30 year old Henry.
Speaker 2: She puts $50 into a multifamily fund, another $50 into a private development, all using her SDR.
Speaker 1: Let’s say those grow at 8 % a year average.
Speaker 2: Without taxes hitting it each year after 15 years, her $100,000 could be over $317,000.
Speaker 1: All tax deferred or tax free.
Speaker 2: That’s the power of compounding without the tax drag.
Speaker 1: Wow.
Speaker 2: That really paints a picture of that tax advantage growth.
Speaker 1: So if someone wants to go that route, what’s the basic plan?
Speaker 2: What steps do they need to take?
Speaker 1: Well, the action plan is pretty clear, but it needs diligence.
Speaker 2: First, you gotta set up the SDIRA or Soli 401k with the right kind of custodian, one that handles alternative assets.
Speaker 1: Not all of them do.
Speaker 2: Second, and this is critical, understand the IRS rules, especially prohibited transactions.
Speaker 1: You can’t sell, deal, or use retirement funds for personal benefit.
Speaker 2: Big penalties if you mess that up.
Speaker 1: Third, vet your investments carefully.
Speaker 2: Research the sponsor, understand the deal’s numbers, check out the local market for that specific property, scrutinize the fees, due diligence is key.
Speaker 1: Fourth, you make the investment, working with your custodian who handles the funds and paperwork.
Speaker 2: And finally, you monitor it.
Speaker 1: This isn’t set and forget.
Speaker 2: Keep an eye on things.
Speaker 1: Adjust as needed based on the market or your goals.
Speaker 2: Be an active steward of your wealth.
Speaker 1: That’s a solid roadmap.
Speaker 2: But you know, like any investment, there are always risks, right?
Speaker 1: It’s important to see both sides.
Speaker 2: What are the main things listeners should be aware of, the potential pitfalls to make sure their net worth keeps moving in the right direction?
Speaker 1: Absolutely.
Speaker 2: Undertanding risk is key.
Speaker 1: The first big one is liquidity constraints, especially with those syndications or crowdfunding deals.
Speaker 2: Your money can be locked up for years, five, seven, maybe 10 years.
Speaker 1: You can’t just sell it tomorrow like a stock.
Speaker 2: So be sure you don’t need that cash short term.
Speaker 1: Right.
Speaker 2: Not for your emergency fund then.
Speaker 1: What about how local markets affect things?
Speaker 2: Exactly.
Speaker 1: That’s the second risk.
Speaker 2: Market sensitivity, a downturn in a specific city, too many new apartments built, uh local job losses that can hit occupancy and rents hard.
Speaker 1: location, location, location still really matters.
Speaker 2: interest rates have been such a big topic.
Speaker 1: How does that play in?
Speaker 2: That’s number three.
Speaker 1: Interest rate exposure.
Speaker 2: If rates go up, financing costs for properties go up.
Speaker 1: If a fund has to refinance a loan at a higher rate, that can squeeze cash flow and cut into returns.
Speaker 2: It’s a major variable.
Speaker 1: Fourth, and this is huge, is the quality of management.
Speaker 2: Your returns really depend on the sponsor or property manager being experienced, honest, and efficient.
Speaker 1: Bad management can sink even a good property.
Speaker 2: You got to trust who you’re investing with.
Speaker 1: Makes sense.
Speaker 2: And you mentioned tax complexities earlier as well.
Speaker 1: Yeah, that’s the fifth point.
Speaker 2: Tax nuances.
Speaker 1: Things like UBI unrelated business income tax.
Speaker 2: Even inside a retirement account, certain types of business income can still be taxed.
Speaker 1: It can get complicated.
Speaker 2: So sometimes you need professional advice to avoid surprises.
Speaker 1: So, yeah, the bottom line across all these risks is you have to do your homework, thorough vetting, due diligence.
Speaker 2: It’s crucial not just for upside, but are protecting your capital.
Speaker 1: It’s good to get that full picture, the potential and the things to watch out for.
Speaker 2: So wrapping things up, what’s the main takeaway from this edition for our listeners?
Speaker 1: Why should multifamily real estate be on their radar for their net worth strategy?
Speaker 2: Well, I think the core message is that multifamily isn’t just some speculative bet.
Speaker 1: It’s really a strategic, resilient asset class.
Speaker 2: It’s sort of structured to both grow and protect your net worth over the long haul.
Speaker 1: Whether you use REITs, crowdfunding or SDR arrays, it offers powerful advantages for retirement.
Speaker 2: or really any long-term wealth plan.
Speaker 1: hits those goals of stability, steady growth, and protecting what you’ve built.
Speaker 2: That really brings it together.
Speaker 1: And I think it leaves us with a really interesting thought for you, the listener, to consider.
Speaker 2: How might diversifying your portfolio with an asset class that is inherently inflation-resistant and um tax-efficient, how might that fundamentally change your whole approach to building lasting financial independence, moving beyond just chasing short-term market movements?
Speaker 2: Remember to subscribe to Noyack Wealth Weekly on our website, wearenoyack.com, to read the article behind today’s conversation and to get our weekly newsletter straight in your inbox.
