If the last article was about today's market, this is about why many experienced investors continue developing today - particularly smaller size multi-family residential.
When people compare real estate to stocks, they often focus solely on appreciation.
But what makes well-executed real estate investing unique is that multiple forces are working in your favor simultaneously.
The James Apartments (St. Johns neighborhood-Portland, OR)
The first is prudent leverage.
Imagine investing $500,000 in the stock market. You own $500,000 worth of assets that you can't see, feel or touch.
Now imagine using that same $500,000 as a 20% down payment on a $2.5 million multi-family asset. Assuming the property generates sufficient cash flow to appropriately service the debt, you've gained control of a much larger asset with the same amount of equity.
The second advantage is inflation.
Most people think of inflation as something to fight. Owners of well-performing real estate often experience the opposite. Replacement costs increase, land becomes scarcer, rents generally rise over long periods, while a fixed-rate mortgage payment stays remarkably consistent. Over time, inflation quietly reduces the real burden of yesterday's debt.
The third advantage is that real estate produces several return engines at once.
Instead of relying primarily on appreciation, owners may benefit from:
Monthly cash flow
Loan principal paid down by tenants
Long-term appreciation
Rent growth
Tax advantages such as depreciation
These forces reinforce one another over time. Rising rents strengthen income. Income can increase value. Equity grows through appreciation and loan amortization. That equity creates opportunities to refinance or invest in the next project.
This is why time matters so much.
None of these advantages compound over twelve months.
They compound over decades.
Of course, there's one critical condition.
You have to be able to hold the asset. If you're forced to sell - time becomes your bully.
That means buying wisely, managing risk carefully, and creating enough resilience in the deal structure to avoid becoming a forced seller during difficult markets.
In the next blog, I'd like to share why, after all these years, I still believe housing is one of the most meaningful endeavors anyone can dedicate their career to.
