6 Reasons Investors Love Multifamily

Enjoy the financial benefits of real estate without ever having to deal with the headaches of being a landlord.

CASH FLOW

One of the reasons people are drawn to multifamily investing is for the cash flow it generates each month. Rents tend to be predictable and in strong markets, units can be turned over easily and re-leased to ensure steady cash flow year in and year out. When investing in multifamily properties, either directly or through syndication real estate, investors will collect that cash flow each month, often in the form of investor distributions.

RECESSION-RESISTANT

Eliminate the stress of the stock market rollercoaster. We strategically source multifamily properties that are designed to perform well in all market cycles. Multifamily investing is considered relatively “safe” compared to other real estate asset classes. That’s because even during an economic downturn, people need somewhere to live. In fact, during a recession, many people are forced to sell their homes and in turn, move into rental housing. It can take a while for people to rebuild their credit after an economic downturn, which creates prolonged demand for multifamily property. Compare this to office or retail properties, for example, in which demand almost always decreases when the economy slows.

PASSIVE INCOME

As a passive investor, you can create ongoing income streams without all the hassles of managing the property – it’s truly passive. Investing in multifamily properties is a great way to generate additional income without exerting much day-to-day effort. It is easy to hire a property manager who manages the property on your behalf. That said, direct ownership still requires some active effort, including identifying deals and running due diligence on properties, then managing the property manager, and compiling all tax documents and other records.

Those who want a truly hands-off approach, those who want to explore passive real estate investing in earnest, may want to consider syndication real estate. Syndication real estate is when a sponsor pools capital from investors, and then collectively invests that money in a deal that the sponsor then manages on behalf of investors. The sponsor is responsible for all decision-making and reporting back to investors, which frees the investors from having to be involved in the minutiae of owning the property.

TAX BENEFITS

You can achieve significant tax benefits through accelerated depreciation and cost segregation, possible 1031 exchanges into new projects, and tax-free return of your initial investment. Investing in multifamily properties comes along with many tax benefits. Most investors will use a mortgage to finance the purchase of multifamily property. They can then take a deduction for mortgage interest paid during that fiscal year, which tends to be higher in the first years of ownership as the loan begins to amortize. Multifamily properties can be depreciated over a 27.5-year period, even if the property technically appreciates in value. There are also strategies we can implement to accelerate depreciation taking the majority of it in the first year.   Depreciation can be used to offset a significant portion of the passive rental income collected each year, making this a highly attractive form of passive real estate investing. Investors can also benefit from tools such as the 1031-exchange, in which the owner can sell a property and roll the proceeds into another like-kind asset (e.g., another multifamily investment property) and defer paying capital gains tax. This is how many investors scale their multifamily portfolios over time.

REWARDING RETURNS

Multifamily offers rewarding returns so you can grow your wealth, without exposing yourself to unnecessary volatility most investors experience with traditional investments and stock market risk. While there is no guarantee that multifamily properties will always appreciate in value, they do tend to hold their value well compared to other asset classes. Those who have a long-term investment horizon will find that typically, multifamily properties appreciate over time. Real estate values ebb and flow, but over the course of multiple real estate cycles, values tend to continue their upward climb. Multifamily investors benefit from the higher value upon refinance or sale, which is passive income generated in addition to the ongoing cash flow noted above.

FUNDING OPTIONS

As an investor, you have multiple funding options – Cash, Self-Directed IRA, Solo 401K, SEP IRA, SIMPLE IRAs, Trust, and LLC.

If you are interested in learning more about passive real estate investing as a limited partner, enroll in my Investor 101 course https://senateeskridge.com/course/