Why Income-Generating Real Estate Is The Best Hedge Against Inflation

Read the Full Interview:

Multi-family real estate can be great for investors because the size of the deals and economies of scale enable them to make a lot more money in proportion to the effort compared to other property types. That is why you see industry titans like Grant Cardone focusing exclusively on this asset class. But investors specializing in this niche often get a bad rap because many make profit their only concern, often leaving tenants in a substandard living environment. But real estate investor, Patrick Grimes, says it doesn’t have to be this way, and it shouldn’t be.

Unfortunately, many investors try to squeeze every bit of profit out of a property for themselves, leaving little to nothing to properly take care of their tenants, knowing they can get away with it.

It’s not uncommon for repairs to get excessively delayed and routine maintenance to be ignored. And in many cases, there’s no on-site property management, leaving tenants to communicate with a faceless and unaccountable entity on the other end of the phone when trying to get issues with their apartment resolved. Because of the nationwide housing shortage, tenants aren’t left with many other options. Especially in growing markets like Florida and Texas.

He believes investors can provide a cleaner, safer, and all-around better living environment for their tenants while still earning a great return on investment.

“It’s not a zero-sum game. When you structure a deal properly and foster a culture of service within your management team, you can create a scenario where everyone impacted by the transaction wins. That includes the buyer, seller, and even the apartment building’s residents,” Grimes explains.

His perspective seems to be rare among investors these days.

We’ve all heard the horror stories of slumlords who only care about the bottom line, leaving tenants to suffer in buildings that are dilapidated, infested with pests, and plagued by crime. In fact, many of us have even lived in such a place at some point in our lives, because let’s face it—it is, sadly, all too common. He founded his company, Invest on Main Street, to change that.

Grimes has lived all over the country, including in several apartments where the owners didn’t care about the tenants, during his younger years. So he knows exactly what that feels like. And after losing everything during the 2008 real estate crash, he had to start over. In doing so, he completely re-engineered his own approach to investing. Today, instead of single-family homes, he’s investing in large multi-family apartment buildings, and instead of going into massive debt on each deal, he’s minimizing debt by buying a very specific type of property. He focuses on distressed properties that he can acquire at a bargain, renovate to improve the quality of life for the tenants, and then earn a substantial, long-term profit for his investors.

Grimes says this is the smarter long-term approach.

“When you provide a poor living environment for your residents, you might make a little more money in the short term, but that approach also drives rental income down. When word spreads within the community and poor yelp reviews are posted, the residents you want won’t apply, turnover will increase, rents will lower, and vacancy will rise. In desperation, property managers will inevitably lax applicants income and credit requirements, and, sometimes stop or overlook poor credit checks driving increased rent defaults, evictions, and crime, further perpetuating the cycle. Besides, that’s just ethically wrong.”

He explains that when investors take a balanced approach, it leads to a stable investment that’s more resilient to economic challenges. That is especially important as the country faces economic uncertainty and rising inflation. This approach also creates a better living environment for tenants while still providing a substantial return on investment. It’s the best of both worlds.

Grimes says he believes entrepreneurs have a duty to look beyond profit and find ways to add value to all of the relationships connected to their businesses and the communities they are operating in.

Brands in other industries have been doing this for a while. Patagonia donates a portion of its profits to environmental causes. Black Rifle Coffee Company runs an advocacy program for transitioning veterans. Salesforce gives employees seven days of PTO to volunteer for the charity organizations of their choice. And Whole Foods is engaged in several foundations that support nutrition, wellness, and community. The real estate industry, however, is generally behind in this area, but perhaps the tide is turning.

tax advantaged cash flow

How to Build Tax-Advantaged Legacy Wealth

The Smart Investors Guide to Passive Real Estate Investing