What impact does a weak dollar have on the U.S. multifamily market? For starters, a weak dollar brings added foreign equity capital to the asset class in the United States. Multifamily property is an established, known investment.
Apartments are a very stable investment. For multifamily buyers, when price decreases for reasons unrelated to operations of the underlying asset, this usually signals a buying opportunity. This is what occurs when the value of the U.S. dollar decreases versus other currency’s.
Here is the definition of a weak dollar from www.Investorwords.com:
Dollar that can be exchanged for only a small or decreasing amount of foreign currency. A weak dollar means that the U.S. dollar cannot buy very much of another currency… A weak dollar usually lends to high exports and low imports, the opposite of a strong dollar.
In the broadest definition, a weak dollar means U.S. goods are less expensive for foreign buyers. This includes apartments. In other words, when the dollar is weak, foreign buyers can buy more U.S. apartment property with their currency.
While currency’s bounce daily, property values, are cyclical. Multifamily property values do fluctuate, but not daily. And while multifamily assets are illiquid, they are stable, long-term investments- a safe haven.
For investors searching for yield, multifamily assets provide a steady and predictable income stream. For proof, note that every pension fund of size has significant real estate holdings- from 5% to 15% of total holdings.
Recently, the U.S. dollar hit an all time low against the Japanese Yen. Last year, around the time of the Greek debt crisis, the Euro dropped from $1.48 to $1.29. Currency’s are a bouncing ball best left to those that trade- daily. There is no such thing as a “passive” currency trader.
There are thousands of passive multifamily real estate investors, however. From investors in Real Estate Investment Trust (REIT”s) to local owners that have a small share in an a Limited Liability Company (LLC) that owns apartment units.
To a currency trader direct ownership of multifamily assets seems like a slow-moving business. After all, currency traders can execute a buy trade in nanoseconds whereas it can take three to six months to close on a single apartment property. Currency traders can sell with the click of a mouse whereas an apartment building can take six months to two years to sell.
Weakness in the dollar (even cyclically) will continue to bring foreign investors into the multifamily asset class in the United States. For all the talk of China becoming a rising economic power, the United States economy continues to dominate world trade, world politics and militarily. And with that dominance comes the power of a having the world’s reserve currency.
My view is that multifamily assets represent a cornerstone investment; an investment class kept in the family generation after generation. I say buy apartments in dollars.
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Multifamily Insight is dedicated to assisting current and future multifamily property owners, operators and investors in executing specific tasks that allow multifamily assets to operate at their highest level of efficiency. We discuss real world issues in multifamily management and acquisitions. This blog is intended to be informational only and does not provide legal, financial or accounting advice. Seek professional counsel. We discuss best practices in multifamily management and methods related to how to buy apartment complexes. Our focus is sharing strategies and tactics that can be implemented and measured. For more information, visit: www.MultifamilyInsight.com
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