“Diversification” is a hot term in the investment world today, and for good reason. Passive investors have multiple options when it comes to where they can place their money. So, what’s the magic cocktail? What percentage of your net worth should be allocated to investing in multifamily syndications versus the stock market, or any other investment class? 

Now, I can’t give you specific advice on what you should do with your money. You’ll need to consult with your own trusted financial and tax professionals. But, I do have excellent people on my team that have loads of experience consulting with investors on the allocation of their net worth, both across investment platforms and within the multifamily space.

In fact, our own Director of Investor Relations, Bronson Hill, has a background as both a multifamily investor and an investment advisor. Today, we are going to have a conversation about how an investor might traditionally allocate their net worth, and how the investment game is changing.

Join us in the video below, or read on.

The Diversification Myth 

Warren Buffet has something to say about diversification: it’s a myth. 

The diversification theory basically says that to mitigate risk, people should be invested in everything under the sun. But here’s the thing – do we really want our investments to just do okay?  What good does it do to spread your investments out amongst so many vehicles that none of them really pay off?

If you turn to a Wall Street educated investment advisor, most use the guideline of “suitability” to determine your investment portfolio. In other words, they are trying to determine the investment mix that is most suitable for your risk profile. Traditionally, this means spreading out your investment dollars between the stock market and the bond market, based on your age. 

If diversification is a myth, then why would a narrow plan based on “suitability” potentially be the wrong way to view your investment allocation?

Here’s the deal: most advisors are trained and educated by Wall Street. They are biased and incentivized for you to buy Wall Street products. So while total diversification may be a myth, where it comes into play in today’s investment game is in the education, experience, and comfort level you have within an investment class.  

A typical Wall Street advisor isn’t going to give you education beyond their own platform. That’s why you’re here today, reading this blog and educating yourself about your alternative investment options. So, let’s talk about allocation within the multifamily real estate space.

Allocation Within Multifamily Real Estate 

Whether you’re investing in stocks, bonds, or alternative assets like multifamily real estate, allocation is a very important consideration. 

Maybe you’ve already decided that for you, and your financial situation, that 20-25% of your net worth might be a good number to dedicate to multifamily investments. Some people will go much higher and allocate 50-70% of their net worth because they are comfortable with the investment class.

When you’re just starting out investing in multifamily real estate, or ANY kind of new investment vehicle for that matter, our advice is to start small and get your feet wet. Over time, your comfort zone will expand as your knowledge and excitement expand. 

I've interviewed people on my podcast that are basically putting 100% of their net worth into multifamily investing. They are taking everything out of the stock market and putting it into this asset class. Some are even steering their friends and family into multifamily investing because they’ve had such a fantastic experience with the cash flow and overall return on investment it provides.

Now, an investor might be wondering how many deals their investment should fund. In other words, if they have $200,000 to invest in multifamily, should they put it all in 1 deal? Or, should they take that lump sum and spread it amongst several deals?

In my conversation with Bronson, he feels that it’s always better to spread out your money across 3 or 4 different deals. Why? Because it gives the investor some diversification (there’s that word again) within the asset class. 

You may have some deals that perform phenomenally well and others that take a little longer to produce results. If you had 100% of your allocated multifamily money wrapped up into 1 deal, you could only hope that it’s the one doing phenomenally.

Getting Started with Multifamily Investing

Most of the investment education we get in the USA is geared toward retirement plans and the stock/bond markets. If you have only looked into these options as investment vehicles in the past, that’s totally normal.  Again, the multi-billion dollar investment firms are the ones that have primarily educated the public and profited from steering them to invest in Wall Street.

Truly, the best thing that an investor can do to get comfortable with multifamily investing is to educate themselves. We’ve put together some resources to help investors in that arena. In fact, there is a great report that can be found on our website: www.TheMichaelBlank.com/report.

It's a pretty extensive report that talks about the volatility of the stock market and the returns as compared to multifamily investing.

Related Podcast: Passive Investing in Today’s Market – with Bronson Hill

Once you are educated and more comfortable with the idea of doing something outside of the stock market box, then it’s time to execute. You might start with a small amount and allocate 10% of your investment pool to multifamily investing. At Nighthawk, the minimum investment amount is $50,000. Now every provider is different, but once you get consistent double-digit returns(!) on your money, you can start really harnessing the power of this investment vehicle.

You’ll come to realize that you can invest in something that will positively increase your cash flow today. You’ll start getting that mailbox money or those deposits into your bank account every quarter, or every month.  All with the backing of a professional team that’s dedicated to making these investments for you. It's pretty incredible.

The Bottom Line

• Before you decide how to allocate your wealth, it’s important to educate yourself on the various investment classes that are out there.
• Historically, investment education has been driven by the large financial institutions (Wall Street) that are biased toward selling stocks and bonds.
• There are plenty of alternative investment options available today, and resources to help investors educate themselves.
• Multifamily investing is a growing alternative investment option to Wall Street, due to its ability to create cash flow and provide a phenomenal ROI.
• When allocating wealth into multifamily investing, start small. Over time your knowledge and comfort levels within the space will grow and you can begin to increase your allocation.
• If you have a lump sum that you are ready to invest in multifamily real estate, consider spreading that cash out amongst a few deals. You might even try working with different operators.

If you're interested in getting involved with the deals that we do, you can go to NightHawkEquity.com and click the JOIN button. We’ll set up a call, have a conversation, and see if it's a good fit for us to work together.

We appreciate you taking the time to educate yourself because that's the biggest thing that you can do for your future.  We'll look forward to seeing you on the next video!