U.S. Multifamily Real Estate Still the Reigning Champ

As my 1-month long trip back to the Argentine motherland (with a short stop to Brazil) comes to an end, I reflect on how the U.S. remains the best place in the Western Hemisphere to build wealth. My trip began in Argentina, where inflation is on track to reach possibly 200% by the end of 2024. As I write this in July the all-mighty dollar will get you a cool 47,500 Argentinian pesos, which reflects the tough economic times that Argentina has been enduring for the last 16-years. Regardless of what side of the political fence you are on, it’s evident that the economic policies of the past 2 decades have has caused nothing but misery for the Argentine people. During my travels, I had the chance to speak with my uncle who runs a well-established Real Estate company in Buenos Aires. We discussed business, politics, and of course real estate. Some of the distinctions between the U.S. and Argentina real estate markets were:

• Return on Investment: Many American investors are familiar with the widely-used 1% rule of thumb, which says that for a potential investment to have legs, its monthly rent must be equal to or greater than 1% of the property’s purchase price. For example, a single-family home costing $250,000 should generate at least $2,500 per month in rent to cover expenses and still produce a reasonable return on your investment. While this rule of thumb is loosely applied to multifamily apartments in the U.S., it should by no means by relied upon to come up with offers nor does it indicate that a deal makes sense on paper. It’s simply a high level metric that some investors use to rule out deals. However, Argentinean real estate investors are lucky to be able to achieve a 0.3% – 0.5% return on investment per month using this rule. The current monthly asking rents are so low that purchasing property to rent doesn’t make financial sense. For example, a 3-bed, 2-bath, full-service apartment building in one of the most expensive areas of Buenos Aires will cost you around $180,000. This same apartment will likely rent out for just $800 – $1,000 per month.
• Financing: Generally speaking, most of the world doesn’t have access to the amount of leverage/credit that we do in the U.S. We are a country that covets the ability to borrow from our banking system for long periods at very high leverage (the percent of an asset’s value that we can borrow). The almighty 30-year mortgage rate loan that we are all accustomed to here in the U.S. is not an option for Argentines, and with an interest rate in the double digits it squeezes any cash flow that may exist from rental real estate. As we all know, leveraging “good” debt via a mortgage to buy real estate has been a tool used to build generational wealth for many decades in the U.S.
• Political Stability: Lastly, and probably one of the most important aspects is the financial and political stability that the U.S Government offers versus countries like Argentina. Say what you will about the U.S.’s political system and it’s dysfunction, but Argentina (and many developing nations) is even more fractured and intractable. During the 2001 Argentinian financial crisis, the government froze bank accounts, and in some cases withdrew funds from depositors to help stabilize the economy. Many people did not receive their hard-earned money back till years later, and this created lasting distrust in the banking sector with many Argentines later turning to the mattress as their main savings accounts (and many still do).

Now, let’s head over to Brazil with a land mass larger than the lower 48 states of the contiguous U.S and a population of over 200 million people. This up-and-coming global contender has its own real estate idiosyncrasies, but it again pales in comparison to the U.S. and the availability of credit that we all know and love. A family friend of ours recently purchased an office building for his accounting business, and the debt product available to him was a 20% down payment at an 11% interest rate. Though this interest rate may seem high to us Yankees, this is considered VERY attractive to many Brazilians looking to buy real estate as an investment. Not everyone has access to even these debt terms with only a small percentage of Brazilian citizens being able to qualify for loans due to the nation’s strict lending requirements.

Travelling abroad you realize many of these countries stand in awe of the spectacular, capitalistic, and free-market society that we have built which has produced such a high quality of life and wealth for its citizens. It’s sometimes easy to lose sight of this fact as Americans, but we should be very grateful for the availability of robust capital markets that allow entrepreneurs (real estate and otherwise) to take risks, grow businesses, and create jobs. At Maple Capital Partners, we believe that multifamily real estate is one of the most attractive vehicles us Americans have to build generational wealth and achieve financial freedom. By partnering with Operators/Sponsors that are ethical, experienced, and knowledgeable, investing in U.S. multifamily real estate is the envy of investors the world over.