Multifamily homes play a vital role in the real estate market, providing a flexible and cost-effective housing solution for a diverse range of individuals and families, regardless of their stage in life.
However, there are still many questions that arise in people’s minds like how can investing in a multifamily property benefit me? Therefore, we’ll take a closer look at the benefits of multifamily investing and explore why it can be a smart investment choice for those looking to diversify their portfolio.
What is Multifamily Investing?
Multifamily investment refers to the acquisition and ownership of properties with multiple housing units, such as apartment buildings or duplexes, triplexes and quads. These types of properties can be used to generate income from multiple tenants in the form of rental payments. Multifamily investing is a popular strategy among real estate investors because it can provide a stable source of cash flow, the potential for appreciation in value, tax benefits, and the ability to manage multiple units in a single property. Multifamily properties can also be considered a less risky investment as it’s less dependent on a single tenant, and it can also provide more diversification for your portfolio.
Benefits of Multifamily Investing
Multifamily investing plays a vital role in the real estate industry, it is commonly perceived as the most cost-effective and in-demand housing solution, appealing to individuals of all ages and lifestyles. It’s a popular choice among real estate investors due to, depending on careful market selection, its consistently high demand and therefore lower vacancy rate. Multifamily properties can offer a unique opportunity to invest in the real estate market and can be a great way to build wealth over time.
It offers various benefits for investors. Some of the most notable benefits include:
Cash flow: One of the most attractive benefits of multifamily investing is the potential for cash flow. Because the property is generating income from multiple units, the cash flow can be much more stable and consistent than if you were relying on a single tenant to pay the mortgage and other operational expenses.
Appreciation: Real estate has historically appreciated in value over time, and multifamily properties are no exception. As the value of the property increases, so does the equity, which can provide a nice return on investment. It is also an asset class that hedges against inflation – protecting your wealth from the devaluation of the dollar.
Tax benefits: Investing in multifamily properties can also provide some significant tax benefits. For example, the IRS allows you to depreciate the property over time, which can provide significant tax savings. Additionally, interest on the mortgage is tax-deductible, which can further increase cash flow. It is not uncommon to receive distributions throughout the year, but still be able to report a loss.
Economies of Scale: Managing multiple units in a single property can be more efficient than managing multiple single-family homes. With a single property, you only have one mortgage, one property tax bill, and one insurance policy to worry about. Additionally, with a property manager or onsite staff, day-to-day operations can be streamlined, allowing the investor to focus on acquiring more properties or other investments. This efficiency can also lead to cost savings of labor and supplies, which increases returns.
Simple and streamlined investing strategy: Multifamily properties provide the opportunity to acquire multiple properties in a single deal, which can save both time and energy for the investor. Furthermore, for limited partners who wish to join the team of an experienced general partner, multifamily properties can offer a low-stress high-stability high-return investment option.
Short-Duration Leases: Multifamily properties provide a unique advantage to real estate investors by offering frequent rental rate adjustments through shorter lease terms. Unlike retail or office buildings that often have longer leases of 3-10 years, multifamily leases are typically just one year. This means that investors can respond quickly to market changes by adjusting rent prices, providing a greater level of flexibility in managing their investment. In today’s volatile market conditions due to the COVID-19 pandemic, flexibility should be something that all investors should value.
Lowered Risk: Multifamily properties have been found to be more resilient in comparison to other commercial real estate asset classes, especially during times of economic downturn. This is because regardless of the state of the economy, people still need a place to live. In fact, during a recession, there may be an increased demand for multifamily properties as people may find it harder to repair their credit and opt for rental properties instead of homeownership. On the other hand, other asset classes such as office or retail properties tend to experience a decline in demand during economic downturns. This stability and predictability in cash flow is one of the key features that make multifamily properties a secure investment option.
Reliable in economic fluctuation: The pandemic has demonstrated the reliability of multifamily properties as a solid addition to a real estate investment portfolio. Despite the challenges of slow economic growth, multifamily investing was able to thrive during the pandemic, with notable rent growth, low vacancy rates, and increased migration to multifamily housing. A survey of 1,240 investors during the pandemic revealed that 90% of the group planned to increase their multifamily real estate investments during that period. This highlights the fact that even in difficult economic times, multifamily properties can still be a viable and profitable option for real estate investors.
In conclusion, multifamily investing can be a great option for real estate investors looking to diversify their portfolio, generate cash flow and build wealth over time as it offers several benefits. However, as with any investment, it’s important to do your due diligence and understand the market in which you’re investing. It’s also recommended to consult with professionals such as experienced multifamily investor-operators, multifamily brokers, property managers, and financial advisors to help you navigate the process. Despite the potential benefits, multifamily investing also carries certain risks such as property management, tenant turnover, and changes in the housing market. It’s important to understand and mitigate these risks as much as possible.
Multifamily investing can be a great long-term strategy but it’s also important to proceed with caution and have a well-informed decision before making any move.
Interested in learning more about passively investing in multifamily properties?
Click here to schedule a call with our team so we can discuss how to best assist you in achieving your goals.