Due to outside factors out of our control (namely, market conditions), there is a risk that you can lose your entire investment, just like you could in the stock market, single family homes (SFHs), a small business/start-up, etc.
Our view is that this isa highly unlikely possibility for several reasons. First, we have a conservative approach to underwriting that leaves room to bear a market downturn. Second, we buy proven assets that are providing a return on day one as opposed to speculating on appreciation or buying very poorly managed assets.
Key metrics to be mindful about:
Delinquency rates at the bottom of the financial crisis in 2009 were 1% on MultiFamily properties as compared to 5% on SFHs; we buy assets where our sensitivity analysis supports returns at or even below historically low market vacancy and rent rates. For example, it’s not uncommon to see a projected single digit returns on a property 10% below projected rents with at occupancy rate of 81%, even in a market with a historically low occupancy rate of 84%. If you would like to analyze a sensitivity analysis, I will gladly provide you one if you request so via email.
All risks associated with an investment will be laid out in great detail in the private placement memorandum (PPM).