4 Key Benefits of Investing in Multifamily Real Estate

Posted on May 27th, 2022

Growing Long-Term Wealth

nvesting in real estate as a passive investor is a great way to diversify a portfolio and profit as investors seek to grow long-term wealth. One can choose to invest in retail, industrial, single-family homes, or my area of expertise, multifamily real estate. As with any investment, your risk tolerance and goals should be defined first.

Below I share why investing in multifamily housing, also known as investing in apartment communities or apartment complexes, is an excellent investment. So we're on the same page, I define multifamily housing as a building or group of buildings with more than one unit for rent.

Like any investment, risk is involved, however, after investing in multifamily real estate for over 25 years, I've learned that when done correctly, there are four key benefits investors attain:

1. Apartments Provide Steady Cash Flow

Rental properties provide steady cash flow as rents are collected every month, and leases generally are for a year. Unlike the unpredictable stock market that only pays cash when the stock provides dividends, an apartment complex can provide consistent cash flow to an investor. That said, this is not an investment for a quick windfall. An investor should plan on having money invested in the multifamily real estate for an average of five to seven years and expect to see an IRR of 15 to 20 percent on average.

2. Huge Tax Benefits

Investing in real estate is unique from a tax perspective. When you can claim real estate investor status as defined by the IRS, there are several ways you will benefit. For example, investors have access to no limit mortgage interest deductions and depreciation accelerations that can counter a portion of the cash flow profit. Investing in multifamily properties provides for the benefit of bonus depreciation when used in conjunction with cost segregation. We recognize this is not an easy concept to understand and we are always available to answer questions as we are very well-versed in this topic. Finally, the IRS allows investors a 1031 exchange provision on gains when selling the investment property. In this case, investors can move into another investment property and defer all taxable gains into the future.

3. Get A Portfolio In A Day

By buying into a multifamily real estate investment you can jump from owning nothing to many homes in a day. Many rents can be collected and provide steady cash flow quickly. Also, you attain a cost-benefit in labor and per-unit cost savings with your units in one location. They are managed more efficiently by a small experienced on-site team, and in certain instances, team members can perform multiple roles.

Buying individual properties requires at least three times the staff to manage because they are dispersed and thus more time-consuming. It adds up to a considerable amount of extra expenses.

A multifamily investment does require a property management team to market the property and ensure vacancies remain low, while rents are kept at a premium. After all, you want tenants in place as they're paying down the mortgage. It may also require a team to renovate the property in a quick, efficient manner, and then staff to maintain the grounds and apartments to standards. Because of those mentioned above, aligning yourself with an experienced team that has the same standards and goals that you do is critical to successful investing in apartments. Vetting your syndicator or sponsor is vital.

4. Physical Asset

An apartment complex is an investment that is a hard asset. You can see it, touch it, and oversee that it is maintained and improved. Unlike a paper investment, the value of the building will never go to zero. There will also always be a demand for apartments. Not everyone can afford to buy or wants to buy. When managed, marketed, and maintained, your investment will usually go up.

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