One of the most practical options for investment diversification is real estate property. Using real estate as an option to diversify a portfolio is a viable, low risk, and low maintenance alternative that can greatly reduce the potential for loss in the event of a downturn in the stock market.
When introduced into a multi-asset portfolio, real estate offers key diversification and inflation hedging benefits, potentially enhancing the portfolio’s risk-adjusted returns.
The average home inventory in Greater Cincinnati has dropped from 6,415 in 2016 to 2,826 in 2020, which has pushed average home prices from $188,563 to $234,569. Due to a housing supply shortage, more people are renting. Rent has increased by 5.7% year over year since 2016. The real estate market is hot in Cincinnati, and will continue to grow. Cincinnati has a population of nearly 304,000 people, making it the third-largest city in the state of Ohio and the 64th largest in the country. Currently, there are seven Fortune 500 Companies in the Cincinnati Metropolitan Service Area (Kroger, P&G, Fifth Third Bancorp, American Financial Group, Cincinnati Financial, Western & Southern, & Cintas). With these thriving and growing businesses, we can expect the population to continue to grow, therefore pushing rent and housing prices even higher.
A short answer: Yes! Cincinnati has a population of nearly 304,000 people, making it the third-largest city in the state of Ohio and the 64th largest in the country. The population is predicted to increase by 6,500 in 2022 alone. The Cincinnati metro area is part of Hamilton County and has a population of about 2.19 million residents. It’s the largest region in the state of Ohio and the 29th largest in the country. Currently, there are seven Fortune 500 Companies in the Cincinnati Metropolitan Service Area (Kroger, P&G, Fifth Third Bancorp, American Financial Group, Cincinnati Financial, Western & Southern, & Cintas).
Rents in Cincinnati have increased by 5.7% year over year, and market values are skyrocketing. Due to high demand and low supply, real estate prices will continue to increase. When the housing supply is lower than demand, people are willing to pay more to secure housing. Competition increases, single family housing prices rise, making it more appealing to rent. When renters flood the market looking for apartments, rent will rise as well.
Cincinnati is also home to 18 colleges, with 47 colleges within 50 miles. This totals 159,846 students enrolled. Recent graduates tend to rent instead of owning a home. This constant influx of recent graduates only supports the rental market more.
If you own your own home, you have already started investing in real estate. There are a few other ways to get started in investing in real estate. What you decide to invest in depends on how involved you want to be and how much capital you are willing to invest.
This option requires a large amount of hands-on work. Finding your tenants, routine and emergency maintenance, and rent collection will all fall on your shoulders. The amount you invest will depend on what property you choose and what condition the property is in.
House flippers buy outdated homes, renovate them, and resell for a profit. This option is inherently high-risk, since there are so many places it can go awry. Some examples include hidden defects that are costly to repair or a sharp market downturn. If a flipper is stuck holding a house that won’t sell, they might not end up making a profit. Not only does this option come with high risk, it is also labor and time intensive.
Prosper Capital is a real estate investment group. We carefully select promising properties to buy, renovate, and manage. Shareholders are able to invest in a property of their choosing and watch their investment grow as they let the group do all the heavy lifting
Investing in a REIT is similar to buying an ETF in the real estate industry. It allows you to invest in a wide portfolio of real estate at once. The downside to this is that you don’t choose the specific properties you’re investing in. This choice is low risk and hands-off.
The risk level in real estate is a broad spectrum. Higher risk investments have a chance at bringing in high rewards if you are willing to take the risk. Lower risk tends to provide steady returns.
Lower risk investments include REIGs and REITs, while higher risk investments include buying your own rental properties or buying and flipping houses.
Investing in real estate can be a great way to diversify your investments. Investments that are concentrated in one area can be risky. If that area fails, you can lose your entire portfolio. Real estate has two ways of returning your investment: through rent and appreciation. There is a limited supply of land, so in the long term, real estate prices will always appreciate.
Now! If you spend your time trying to time the market and get in at the “bottom,” you might be waiting forever. Meanwhile, you have cash depreciating in a savings account with an interest rate of .06%. Since inflation is typically between 3-7%, that means your money’s value is dropping by the day. Instead, let’s make your money start working for you.
As a home price rises over time, it lowers the loan-to-value of any mortgage debt, acting as a natural discount. As a result, the equity on the property increases, but your fixed-rate mortgage payments remain the same. Inflation also benefits real estate investors who are earning income from their rental properties, specifically property sectors with short-term lease structures like multi-family properties, because higher home prices often equal higher rent. Real estate can be a good hedge against inflation because property values over time tend to stay on a steady upward curve. Real estate investments can also provide potential recurring income for investors and can keep pace or exceed inflation in terms of appreciation.
Cash sitting in a savings account continues to lose its value. Over the long term, inflation erodes the purchasing power of your income and wealth. This means that even as you save and invest, your accumulated wealth buys less and less as time progresses.
As a property price rises over time, it lowers the loan-to-value of any mortgage debt, acting as a natural discount. As a result, the equity on the property increases, but your fixed-rate mortgage payments remain the same. Inflation also benefits real estate investors who are earning income from their rental properties, specifically property sectors with short-term lease structures like multi-family properties, because higher home prices often equal higher rent. Real estate can be a good hedge against inflation because property values over time tend to stay on a steady upward curve. Real estate investments can also provide potential recurring income for investors and can keep pace or exceed inflation in terms of appreciation.
While Prosper Capital does not guarantee a return rate, historically on average we provide a double digit cash on cash return, 15%+ IRR, and 2.5-3x equity multiple on our investments. We are always looking for the best deals in order to provide the best returns.
We deliver distributions to investors monthly.
Each of our deals has its own minimum investment. Our average minimum investment is $50,000. Please reach out to us for specific information on any of our investment properties.
There are many risks associated with investing in real estate.
At Prosper Capital, we do everything we can to minimize risk in our investments. We buy and hold our investments for 5-10 years, allowing us to weather short market downturns. We have our own in-house management team, allowing us to keep close tabs on how our properties are managed. Our vacancy rates have remained lower than 5% for all our properties, due to our tenant retention and putting high value on preleasing. Prosper Capital also has an in-house maintenance team, so we can quickly and efficiently take care of work orders. Natural disasters are unfortunately out of our control, but we are able to control one thing: insurance. Our insurance policies ensure that we are able to bounce back quickly after any disasters.
Market value for a property is calculated by dividing NOI (Net Operating Income) by the cap rate. We increase market value by increasing our NOI. This can be achieved by increasing rents, reducing utility costs, adding additional fees, and decreasing vacancy rates.
Many properties in Cincinnati are older, requiring renovations and an attentive management team. Prosper Capital renovates units as they become vacant, allowing us to increase the market value over time, while still receiving rent from the rest of the filled units.
We have a few strategies to make a profit on our investments.
Investing in out of state properties always comes with a few risks. Since you aren’t there to directly manage, you could get taken advantage of, or be shown a false picture of your investment.
At Prosper Capital, we keep the risk of investment at a minimum. We provide quarterly updates on all our properties, have in house management you can trust, and are always here to answer questions you might have.
Not only are we transparent, but we also come with extensive knowledge about the area. We have a tested list of contractors that we work with, as well as a skilled in-house team to maintain properties in the Cincinnati area. Our management team keeps up to date on market rents, popular rental periods, and connects on a personal level with tenants.
Each of our deals have their own timeline, but we typically start monthly distributions within 90 days of acquisition. We acquire properties that are already functional, and start value-add projects to increase the existing profits.
In real estate, NOI calculates the profitability of a rental property by simply taking the gross income and subtracting operating expenses. Investors use NOI solely to judge a building’s ability to generate revenue and profit.
NOI = (Gross Income-Operating Expenses)
Gross Income in an apartment community primarily consists of Rent. However, on-site laundry, garage spaces, and storage provide additional streams of income.
Property Management, Utilities, & Insurance are the most common recurring expenses. We DO NOT include the mortgage, taxes, or large capital expenditures (roof replacement for example).
Increase Gross Income: Renovate and Update Units to command a higher rent rate, charge additional fees, such as pet fees and utility fees
Decrease your expenses: Effective Property Management, Installation of low flow toilets, low flow shower heads, energy efficient fixtures and appliances. Implement RUBS (Ratio Utility Billing System).
Multi-family real estate is a stable asset class that provides steady, solid returns and is a great hedge against inflation. Unlike some commercial properties like retail shops or restaurants, which usually have multi-year business leases, individual rental units usually renew leases every year. The more units a building has, the more frequently you’re presented with opportunities to adjust the rent and increase the income of the property. In addition, multi-family properties like apartment complexes are a unique asset class in that they are always in demand (especially when housing prices go up).
We do not charge broker fees, but the standard fees include 1% of acquisition, 1% asset management, and 1% at disposition.