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Multifamily vs. The Stock Market: Which is Lower Risk?

Updated: Jun 28, 2023

In the world of investing, risk is an inherent part of the process. Every investment carries a level of risk and potential reward. When deciding where to allocate your hard-earned money, it's essential to understand the risks and returns associated with different investment options. Let’s compare the risks of multifamily real estate investments with those of the stock market and demonstrate why multifamily investments can offer superior risk-adjusted returns.

Understanding Risk

Risk is the possibility of losing some or all of your original investment. In investing, risk is often correlated with potential returns—the higher the risk, the higher the potential returns. However, this doesn't mean that every high-risk investment will generate high returns. Instead, it means that high-risk investments have a higher likelihood of generating substantial returns, but they also carry a greater chance of loss.

Tip: Be sure not to miss the data graph towards the bottom of this article!

Advantages of Multifamily Real Estate

  • Lower Volatility: Multifamily real estate investments typically exhibit lower volatility than stocks. Real estate is considered a tangible asset, meaning its value is derived from the physical property itself. This results in a more stable investment over time, as property values tend to increase gradually and are less likely to experience sudden drops in value.

  • Diversification: Including multifamily real estate in your investment portfolio provides diversification benefits. Real estate has a low correlation with the stock market, meaning it can help reduce overall portfolio risk by adding a different type of asset class.

  • Cash Flow: Multifamily properties generate regular rental income, providing a reliable cash flow for investors. This can help offset market fluctuations and provide a consistent source of income, regardless of broader economic conditions.

  • Tax Advantages: Real estate investments offer various tax benefits, including depreciation and deductions for mortgage interest and property expenses. These benefits can help to reduce your overall tax liability.

  • Inflation Hedge: Real estate investments can act as a hedge against inflation because property values and rental income often rise in line with inflation. This means that multifamily investments can help protect your purchasing power in times of rising inflation.

Risks of Stock Market Investing

  • Volatility: The stock market is known for its volatility, which can lead to substantial fluctuations in the value of your investment. This can be nerve-wracking for investors and lead to poor decision-making based on short-term market movements.

  • Company-Specific Risks: When investing in individual stocks, you're exposed to the risks associated with the specific company, such as poor management, declining sales, or increased competition. These risks can lead to a significant loss in the value of your investment.

  • Market Risks: Stock market investments are also subject to broader market risks, including economic downturns, interest rate fluctuations, and geopolitical events. These factors can negatively impact the overall stock market and result in losses for investors.

Comparing Risks: Multifamily Investments vs. Stock Market While both multifamily investments and the stock market carry risks, multifamily real estate has several advantages that can lead to superior risk-adjusted returns.

  • Lower Volatility: As mentioned earlier, multifamily real estate investments generally exhibit lower volatility than stocks. This means that multifamily investments are less likely to experience significant fluctuations in value, providing more stability for investors.

  • Asset-Backed Security: Multifamily investments are backed by a tangible asset (the property itself). In contrast, stocks represent a share of a company's ownership, making them more susceptible to market sentiment and speculation. This tangible backing provides a level of security not found in stock market investments.

  • Recession-Resistant: During economic downturns, multifamily properties tend to fare better than other asset classes, including stocks. People will always need a place to live, and in times of economic uncertainty, individuals may be more likely to rent rather than buy a home. This can lead to increased demand for rental properties, providing a measure of stability for multifamily investors (5).

  • Control over Investment: Directly investing in multifamily properties allows investors to have more control over their investments compared to stocks. Investors can make decisions about property management, tenant selection, and property improvements, directly impacting the property's performance and value.

  • Forced Appreciation: Multifamily investors can force appreciation through property improvements and increasing rental income, directly impacting the property's value. In contrast, stock market investors have little control over the performance of the companies they invest in.

The Sharpe Ratio – Comparing Risk-Adjusted Returns

The Sharpe Ratio is a tool that helps investors compare how well different investments perform while considering the risks involved. It shows how much reward you get for each unit of risk taken. When comparing things like apartment building investments and stock market investments, the Sharpe Ratio helps you see which one gives you better returns for the

amount of risk involved. A higher Sharpe Ratio means an investment has a better return for the same risk, making it useful for comparing different types of investments.

Here is an excellent graph to show how favorable the commercial real estate asset class is:

As you can see, commercial real estate has a far greater risk-adjusted return profile than that of other investment classes.

Summary? Well we are a bit partial to multifamily real estate investments, but by using the data shown we further justify our position that it’s the best performing risk-adjusted returns out there! As with any investment, there is risk, so as long as we can accept there is any level of risk, its our job to assess what the associated risk is.

At Focused Capital, we are committed to our rigorous analysis and thorough conservative underwriting to find assets that meet our specific criteria. It is because of the lower risk associated with multifamily real estate assets that we have chosen this investment vehicle. We invite you to come join our group as we progress ahead to change communities and make a difference in peoples’ family wealth.

Interested in Joining our Investor Club to diversify your portfolio?

There are many important considerations when evaluating a multifamily deal and we make it our mission to careful vet each of these items. If you would like to learn more about passively investing in multifamily, please set up a meeting by emailing us at, and subscribe to our weekly blog/updates Here.

Chad Schieler

Founder | Principal

Focused Capital



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