I began my study of how the wealthy invest when I watched my parents follow all the rules that most of us are taught about finance, only to see them live through the 2008 crash and the turmoil that followed. They were told that they would be in a lower tax bracket when they retired, but the brackets never went down, and the rates always went up. I watched as the realization hit them that sure, the 401(k) grows tax-free, but then when you take it out, they don’t even let you pay the capital gains rate! Especially cruel was the government that forced them to withdraw from their retirement accounts and pay those high taxes, with no possibility of recovery because now the money was gone.
After living through that, as you might imagine, very little of my current net worth is in products that Wall Street offers. I’m able to earn cash flow and protect my principal via opportunities that I certainly didn’t learn about in business school. Even more rewarding, I’m now able to share what I’ve learned.
Over the last 10 years, I’ve raised millions of dollars from amazing investors just like you and me to purchase cash-flowing, multifamily apartment communities. Together, we’ve been able to create homes that people can be proud to live in, help neighborhoods become safer and more desirable, and overdeliver every single time for our investors. However, 2023 has been particularly challenging for me as the Federal Reserve has raised interest faster than it ever has in history. The only time interest rates have been raised anywhere near as quickly was between 2004 and 2008, when the Fed raised interest rate 17 times. We all know how that turned out.
This summer, raising money has never been so difficult. More and more investors have told me that they are instead investing in single-family homes so that they can “rent them out or Airbnb them.” I’ve seen firms like BlackRock buy up entire subdivisions at high prices, driving costs up for regular homebuyers. Those high prices coupled with higher mortgage interest rates are making home-ownership out of reach for more and more people.
As if on cue, here come the affordable loans! Zillow is now offering programs for buyers with as little as 1 percent down. Companies like New American Funding, Loan Depot, and Fairway are offering low-FICO score loans with as little as 3 percent down. Meanwhile, Wall Street is still selling annuities, banks are offering CDs, and index funds are still touting no fees and 11 percent returns.
We just closed on an apartment community this week, and our largest investor is, wait for it… an annuity fund! People purchase annuities that offer them guaranteed returns in retirement, then the annuity company takes their premiums and invests in my apartment complex!
What makes them think that my apartment complex is more likely to protect their principal while delivering a profit than other options that are out there? They know that in 2008, when the stock market crashed and the real estate market crashed, and banks failed, that multifamily real estate as an asset class continued to over-deliver.
As a country, we are so brainwashed to believe that if it says Vanguard or Fidelity that it’s safe and has hardly any fees. That could not be further from the truth, and it’s a shame.
Are we headed for another 2008? Who knows? History does indeed have a way of repeating itself, so just in case, I’m going to stick to cash-flowing, multifamily private investments.
Holly Williams is the principal of www.KeepMore.com.