Investing in CDs vs Multifamily Syndication

Investing in CDs vs multifamily syndication, which one is better? Understanding the key differences between CDs and multifamily real estate can be an example that helps you decide where to invest your capital. These investment strategies offer a range of differing benefits and risks. Let’s take a look! 

 

What is Investing in CDs? 

When you open a CD (Certificate of Deposit), you agree to entrust a certain amount of money with a bank or credit union for a/over fixed period of time: generally ranging from a few months to several years. In return, the bank or credit union agrees to pay you a guaranteed interest rate on your deposit during the term of the CD. This is different from a savings account since the money must not be withdrawn for the entirety of the term. Generally, CDs have a higher interest rate than a savings account, however, the rate of return is typically lower than other investment types. CDs are still appealing, though, because they are considered a safe and predictable investment with minimal risk. 

 

What is Multifamily Syndication? 

Multifamily syndication is a real estate investment that is a way for investors to pool their capital into a larger real estate project, such as an apartment complex or other types of residential or commercial properties that have multiple units. In this type of investment, a professional real estate sponsor researches and identifies a real estate investment opportunity and then invites multiple investors to contribute their capital to passively invest alongside the sponsorship team. The best part of this type of investment is that you will not be responsible for managing the property, leasing, and dealing with the many day-to-day issues. Instead, the sponsor will manage the investment on your behalf. You can receive returns in the form of positive cash flow generated by the property and from the appreciation of the property’s value over time. 

Multifamily real estate syndications can be an attractive investment option for investors looking to diversify their portfolio without the responsibilities of property management. It can also provide access to larger, higher-quality real estate assets that may not be available to individual investors. 

 

Investing in CDs vs Multifamily Syndication: Which is Better? 

Risk and Return: Multifamily investments have higher risk and higher potential returns; whereas CDs are low-risk investments with a low rate of return. According to the National Council of Real Estate Investment Fiduciaries (NCREIF) report, the return rate for multifamily real estate investments was 7.52% over the past 10 years, while CDs typically provide a lower rate of return: usually 1% to 2%. 

Liquidity: CDs are very liquid, which means you can withdraw your money at any time, however, if you withdraw your money before the fixed period, you may have to pay a penalty. On the other hand, multifamily real estate is illiquid, which means it can be difficult to sell your stake quickly. Typically, real estate investment takes more time and effort to sell compared to liquid assets. 

Management: Both require little management. CDs require you to simply deposit your money and wait for the CD to mature; multifamily syndication management responsibilities are handled by the sponsor. 

Diversification: CDs investments are stable and diverse, but they’re low-risk, and therefore low-returning. Multifamily real estate investments also provide diversification with the potential for high returns, especially since they are not directly tied to the stock market or other traditional investments. 

 

CF Capital: Your Investment Partner 

Ultimately, the decision between CD investing vs multifamily real estate investing depends on your goals and risk tolerance. However, if you are looking to make the most out of your capital, then multifamily investment may be the right investment opportunity for you. When you invest alongside the CF Capital team, we will be committed to maximizing your returns and minimizing the risks associated. Get in touch with CF Capital to see how we do it and get started on passively investing with us.  

How Would a Housing Market Recession Impact Multifamily Property Investing?

Many macroeconomic forecasters are saying that the United States (and many countries throughout the world, for that matter) is currently or is going to be in a recession soon, which has many investors concerned. During a housing market recession, (one angle of the economy that experts are forecasting may be entering recession territory) depending on your timing and the particulars of the strategy, it may not be the ideal time to invest in single-family homes. However, history has proven it can be an ideal time for multifamily property investments if you’re careful and diligent. While the impact of a recession is often felt in almost every aspect of business and investing, multifamily real estate can be a recession-resilient investment vehicle. 

 

Why is Multifamily Property Generally Stable during a Housing Market Recession? 

Although recessions can cause people to stop spending money on unnecessary consumer goods like luxury cars, housing is a must. However, the home-selling inventory is tight, and prices have skyrocketed over the past few years. This leads potential buyers to struggle as they search for an affordable home. These consumers are less likely to purchase a home because of the sub-optimal state of the housing market. Since purchasing a home is out of the picture for most individuals, they are more likely to rent. This means there is an increased demand for rental homes, like multifamily properties. In past recessions, multifamily investments remained stable in the midst of rising prices. Today, in the United States, there is an increase in demand for multifamily apartments, which is one significant reason it’s generally a great time to invest in them. 

 

Multifamily Property Investment: Vehicle to Success 

The economy fluctuates and markets can be unpredictable. But commercial real estate opportunities have built-in protections, for example—current trends of population growth in specific geographical areas. Investing in prime locations for multifamily apartments targets existing or new tenants because they want a safe, comfortable, and affordable place to live. Multifamily property areas need strong fundamentals like good neighborhoods and good job access, and when these criteria are met along with buying well, financing appropriately, and managing prudently, your investment will produce consistent cash flow via strong occupancy and rent growth.  

 

Potential Risks of Multifamily Property Investment 

There is a clear relationship between inflation and rising interest rates. The Federal Reserve has increased interest rates in order to decrease demand across the economy, and therefore prevent further increases in prices. Obviously, this makes borrowing money more expensive. Getting a loan after these interest rates rise can cause your debt burden to increase substantially. Although the purchasing power of money could decrease allowing future loan payments to be “cheaper,” it still can be a risky proposition. 

Also, although the cost of housing might decrease, inflation causes the cost of construction materials and labor to rise. Having to invest more into a renovation could cause your return on investment to decrease. Therefore, having an experienced and resourceful investment partner is key.  With the right team, tactics, and expertise implemented, multifamily property investments can be a dependable investment vehicle for profits and success. 

 

Invest with CF Capital 

During a recession that includes persistent inflation, certain markets across the United States may be affected by rising prices. Those who struggle to purchase a home because of skyrocketing prices and interest rates become more reliant on the multifamily market. This means having a diverse investment portfolio in multiple multifamily assets will help ensure that your cash flow continues to increase for the foreseeable future. Get in touch with our team at CF Capital, to learn about how you can passively invest alongside our team to protect and grow your wealth.