How my investment portfolio increased in value during the great bear market of 2022

Multifamily real estate offers diversification from the stock market to weather periods of economic uncertainty. 

If you are like most investors, your stock portfolio took a real beating in 2022. All the major stock indices were down. Yet despite the downturn Wall Street took, my overall investment portfolio increased in value in 2022. How did I do this? For several years, multifamily real estate has been an important component of my overall investment strategy. This asset class provided an important hedge against losses over the past year, and I would like to go into further detail about my personal investing experience.

I still have a significant proportion of my investment portfolio in stocks and bonds, and that portion lost value over the past year, similar to the experience of most investors. My paper asset allocation is a moderate mix of stocks and bonds, and in general I invest in low cost index funds. With this fairly passive investment strategy, I ride the stock market ups and downs along with everyone else. Yet several years ago I began investing in multifamily real estate, and that has made a meaningful difference. In a year like 2023, my stock market losses were buffered by my real estate holdings, which served as an uncorrelated asset class.   

Over the past 8 years, I have participated in multiple apartment syndications, earning steady cash flow along the way. There have been ups and downs in the income earned, just like any business. There have been periods of time when income distribution has been fairly modest. For instance, cash distributions slowed during the pandemic as owners assessed the impact of eviction moratoriums and as lenders required larger reserves to acquire properties. Syndication managers became very conservative in their cash distributions during the early  pandemic because no one knew what was going to happen. After the initial period of uncertainty, rents and distributions began to grow again because the fundamental need for housing did not go away. In fact, there was a greater need for housing because the supply of homes was limited, putting upward pressure on home prices. As a result, fewer people could afford to become homeowners, and they remained renters for longer periods of time. This drove the demand for multifamily housing and fueled rent growth. Multifamily real estate performed well as an asset class during the pandemic because of the fundamental need for housing, even in uncertain economic times. 

In the past two years there has been strong rent growth, and as rent has grown, so has the net operating income (NOI) and subsequent valuation of multifamily properties. As you recall, the valuation of multifamily properties is based upon income earned. As NOI increases, so does the property value. Properties in which I had invested in a few years ago had steadily increased in value at the time of sale. 

Several of my multifamily investments went full cycle. That is, the business plans had been executed, rents had grown, and value was added. Their valuations had increased significantly for a profitable sale. When these properties were sold, I shared in the profits, and the net result was my positive portfolio growth despite a lackluster performance of the stock market.

The key to my solid financial position during a downturn was diversification into multifamily real estate, a non-correlated asset. My investments outside of the stock market afforded net asset growth during a bear market. Historically speaking, there have been fewer down years for real estate than the stock market over the past 30 years. As in all things, past performance is no guarantee of future returns. But if you participate in multifamily real estate with a reputable syndication manager who has a solid business plan for a property in a desirable area, then you have the fundamentals to weather uncertain economic conditions as well.