Given that I see my job as educating you, not selling you, I want to push back on something I'm seeing a lot in our industry today – the constant trumpeting of overly optimistic return projections as the reason to invest in real estate...
The last decade in real estate
The last decade in real estate (and almost every asset class, really) has been universally strong. Every operator's track record looks pretty great in this environment, including Flywheel's operating history.
But when any asset sustains a decade long bull run you have to wonder when its performance will start to falter. Even if you weren't an economist you would start to temper your future expectations accounting for a pull back, or at least a pause, of some sort.
Yes, there is a very valid hypothesis that in our current economic environment we will continue to see asset prices inflate. But are you comfortable requiring that for your investments to perform?
Despite the runup we've had, I see many operators continue to project 15% annual returns for their current-day acquisitions. Have they uncovered the perpetual motion version of real estate investments or are they preying on your unrealistic expectations?
Your expectations as an investor
When operators continue to roll out the same return expectations in every single stage of a market cycle, I really get irritated. But that's exactly what I see happening today. It's like they're afraid to be realistic with you and are treating you with kid gloves.
Well, that's not what you get with Flywheel Equity.
I'm here to tell you that, in this stage of the market, you should not expect a 15% IRRs (though, don't get me started on IRR).
Could your real estate investments meet this return? Absolutely! They could blow it away. But expecting them to do so would be overly simplistic and naive.
This may be a bit unintuitive, but I believe chasing returns is the wrong investment approach and will only lead to the exact opposite result.
So what's the right approach?
Why invest in real estate?
Real estate is a powerful addition to any portfolio. Not because of its average rate of return (which can absolutely exceed more popular investment classes), but because it is a low-volatility, consistent, non-correlated, tax-efficient, and income generating asset.
Compare the volatility across the major asset classes and see how much less volatile direct ownership of real estate (while also outperforming)!
Just like not all handyman tools are useful for the same work, nor do all investments serve the same purpose. If you are investing in real estate based because of projected returns, you are doing it wrong.
Invest in quality real estate because it will provide steady and stable tax-adjusted returns that will boost the overall performance of your portfolio. It's the investment you shouldn't have to worry about. If your actual returns end up anywhere near 10%/year over a 10+ year period then you've likely done amazingly well and the investment has served its purpose.
While it is not my intent to dissuade you from investing in multifamily real estate, I want you to be doing it for the right reasons and have realistic expectations.
Here's hoping this perspective will help you better evaluate your real estate investment options and understand how best to utilize it within a diversified portfolio.
Flywheel joins the Verivest sponsor network
We talk a lot about transparency here at Flywheel – how it provides access for our investors and accountability for ourselves. But without modifying how we do business, transparency too easily becomes just a marketing slogan.
I'm happy to announce that Flywheel is doubling down on its commitment to transparency by joining the Verivest sponsor network.
Verivest is a third party that independently verifies our investments, their performance, and our role within them. We send all deal documentation (purchase statement, equity structure, quarterly results, etc...) to Verivest for review and confirmation. While they are not accounting auditors, they do provide a similar function across all aspects of real estate private equity.
It's our goal to imbue transparency into every aspect of how we conduct business. Verivest furthers that commitment.
As the Flywheel turns
An update on our acquisitions activity: We continue to submit LOIs on assets within our target markets. Stay tuned for updates we we progress!
Just as a flywheel is slow to turn at first, so too does it take time to build a quality real estate portfolio. We thank you for your patience and continued interest in Flywheel investment opportunities.