park tenants are much less likely to move than an apartment renter. The costs to relocate their home is tens of thousands of dollars more than they can come up with and simply not a prudent use of their money, even if they do have it set aside. MULTIFAMILY APARTMENTS The current stock of multifamily properties, those often classified as Class B and Class C that focus on working-class tenants and that were built more than 20 years ago, are poised to outperform during the next few years. First, they share many of the same qualities as mobile home parks. They are at the end of the
downsizing chain for families needing to cut back, and they
represent a solution to a basic need for shelter. Although high interest rates have caused many recent apartment purchases to fall out of contract or require the sales price to be renegotiated, the corresponding high inflation has provided offsetting increases in revenue, enabling many buyers to continue, potentially with even higher projected returns. The near total void of housing construction that plagued the United States during the Great Recession a decade ago finally started to be addressed before the pandemic, only to be exacerbated by another construction shutdown in 2020 that created supply shortages and dramatically higher construction costs that still exist today. All of these factors have dissuaded new construction in the multifamily space, keeping occupancy rates near record highs and causing unprecedented demand for the existing stock of multifamily assets. It is hard to imagine this demand lessening even in a recession, where historically the sector has softened
FUNDING IS VITAL TO SUCCESS How efficiently you fund your purchases and operations determines your level of performance and returns—and whether you survive at all in a deep recession. For example,
make it to the other side as well as excitement for new opportunities. Those with large financial reserves fall in the excited camp; those with lean margins are filled with fear. Many who are in the excited camp were there also in 2020 as they entered a period that was uncertain while they enjoyed substantial liquidity. These people had embraced a core practice of those who’ve obtained generational wealth: infinite banking. INFINITE BANKING Infinite banking is storing family emergency funds, business and property operating reserves and
many sponsors of multifamily properties are still using the
techniques that worked well in the 2010s: fund with short-term bridge loans, rehab, assume they can then raise rents, get a higher valuation, and be able to replace expiring temporary financing with a long-term fixed rate loan. That can be an extremely risky business model in a recession where valuations could be lower; further, banks may not lend, even if there is sufficient equity to do so. What is the solution? You must have tremendous staying power. In the world of investing, staying power equals capital. Times of crisis are emotional times for all of us, specifically the fear you may not
capital for your investments in uniquely designed whole life
insurance. This essentially allows you to operate your own family bank. Your dollars earn uninterrupted compound interest in a private, tax- advantaged account achieving several
12 :: INVESTOR REVIEW :: NOV-DEC 2022
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