Many of our investors reach out to us because they are looking for a debt-free investing solution – some are looking to diversify their portfolios, others for passive income with lower risk profiles, still others look for shelter from recession, or choose to invest debt-free because of religious beliefs.
BENA Capital was founded on the principle that it’s possible to invest with peace of mind by being debt-free. Debt obligation wiped out trillions in household wealth during the Great Recession. The ripple effects have been so long-lasting for so many, that even when debt is cheap, a remnant worry lingers that default amidst another financial crisis would put them at risk of going under.
In today’s COVID-19 reality, in an environment of high unemployment, experienced investors are looking to limit risk and preserve their capital. In our specific sector – real estate – the multifamily residential asset class has seen tremendous growth since the last recession. With the US economy officially in a recession again, those who have invested wisely and who have managed their properties efficiently will weather the storm. Those with healthy asset financials and capital reserves who are well-positioned to strike when new opportunities arise will emerge stronger. Conversely, those who have chased high risk scenarios, especially those who are overleveraged will be even more exposed.
In certain markets, especially in cities where the government stimulus has not been enough to help cover rental payments, occupancy and lease rates have seen unprecedented falls. If we look in the California Bay Area, apartment rental site Zumper reports that one-bedroom rents in San Francisco dropped by over 9% YOY this month. In Mountain View, prices for one-bedrooms fell 16%, Menlo Park and Cupertino by 14%, and Palo Alto by almost 11%. Furthermore, emergency ordinances have been put in place where landlords may have limited recourse against renters unable to pay. No one could have foreseen a pandemic, but for direct investors, this means that it’s more difficult to cash flow and cover debt. Overleveraged investors risk losing their properties, and in some cases, their personal assets.
Investing in a debt-free fund protects your portfolio from downside risk. It is a solution for investors looking to diversify their risk profiles, and it offers a better alternative to low-yield savings accounts and bonds. While returns may be lower than leveraged funds in times of economic expansion, it can provide stable income and a safe haven when the economy contracts unpredictably like it has this year.