When the Value of Money is Zero

What can multifamily property owners do when the value of money is zero?  Finding investment yield in today’s marketplace is a challenge. Options are limited on a risk-adjusted basis. Seeing advertisements for CD’s yielding 2% is not exactly inspiring investors.  Even municipal bonds seem to have more risk as rating agencies have become suspect. Property owners have an alternative to seeking yield from these sources.

Paying down existing debt is sometimes a good alternative to keeping cash. For example: if the mortgage on your apartment portfolio has a 6% interest rate and your savings account is paying 1% then there is sound logic to paying down the mortgage versus keeping cash. To a point, of course. This does not apply to reserve cash and/or operating funds.

One thing you may have noticed as a multifamily property owner in the last eighteen months is that even though valuations have fluctuated greatly rent rates have remained steady. This bodes well for future value as population increases meet the mean streets of decreased housing (and multifamily) starts.

Consider additional debt reduction from the perspective of a dollar cost averaging strategy like for any other investment. Mortgage reduction is not the place to invest your last dollar or rainy day reserves, but if you believe that the market is cyclical (as I do) then this is a solid alternative investment to non-yielding treasuries or non-dividend paying stock.

Its necessary to believe in the property markets long-term to consider making such an investment in owned assets. My perspective is to buy long. The investment cycle we are in at present is archaic to say the least. While deflation could occur I believe the probability is remote. And whereas inflation can be a property owner’s friend, I would not rely on this aspect of the economic cycle in the next few years.

So before considering buying into that oil and gas well (when you have NO experience in that industry) or purchasing civil war currency (that your best friend loves to collect) consider additional mortgage pay down on owned assets ( revenue producing owned assets).

Always keep cash reserves. The recommendation posed here is for dollars looking for a yield.

About This Blog
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 property management and acquisitions. This blog is intended to be informational only and does not provide legal, financial or accounting advice. Seek professional counsel.  For more information, visit: http://www.MultifamilyInsight.com

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