Institutions and experts have long recognized the financial value that multifamily properties offer to strategic real estate investors. While investors have a plethora of choices when investing in real estate, if you are looking to diversify your investment portfolio, you should consider income-producing real estate, like multifamily apartment buildings. This is because, according to the latest census, about 37 percent of households in the US are rented, with significant shifts in consumer tastes and demographics predicting continued and rapid growth in the multifamily real estate market.
Over the years, many real estate experts have promoted multifamily real estate investing as the best way to invest and grow money. Some of the benefits of multifamily investments are stable cash flow and tax benefits. Multi-family properties or units, also commonly called apartment complexes, are buildings that have more than one rentable space. This term often includes a wide range of building types depending on the construction style, number of units involved, and amenities provided. Highly preferred among many real estate investors, these properties ensure a lower vacancy rate because of their high demand.
The multifamily investment sector also continues to pique the interest of many big investors, with NREI research indicating it is increasingly their go-to property type.
Here are some reasons why multifamily units are so appealing to real estate investors.
Simple Property Management
There is no denying that managing several single-family homes often brings complications and challenges. Some of these issues include requiring multiple insurance companies, property managers, and other obligations. In contrast, multifamily housing groups all your rental properties into a single location, and this allows for more efficient and easier management as well as economies of scale. What is more attractive… managing 15 single-family homes that are spread out across a city, or 15 units under a single roof?
Note that with the 15 individual properties, you will need multiple property managers; on the other hand, with the one building, you will only need the services of one manager, which makes it simple and convenient. If you own only one property or rental unit, then hiring a full-time property manager may not make a lot of sense, particularly if you take into account the cost of hiring an expert.
And that is not all as the impact of repairs and maintenance is also decreased. Renovation projects could benefit several units at the same time. It’s because most units in a multifamily property share features, like walls, HVAC equipment, roofs, commons areas, and parking.
Lower Investment Risk
Do not get it wrong, there’re still some risks involved when you invest in a multifamily unit. However, these risks are significantly lower compared to other types of property investment, such as single-family homes. Multi-family properties are well known to be quite stable during a poor economy. This is because people like to stay in their homes as long as possible. And as you’re getting rent from multiple separate tenants, usually the risk of a complete vacancy is very low.
As long as you’ve done your research about the property’s location beforehand and have marketed your property, you will not have to worry about vacancies. When everything else fails, usually the value of a multifamily unit grows over time.
Tax Benefits
The US Tax code tends to benefit real estate investors in several ways. For example, there is no limit on mortgage interest deductions as well as depreciation accelerations that help shield a certain part of the cash flow produced and paid out to investors. In other words, the US government rewards you for providing housing for the residents of a specific city. To incentivize these efforts, the US government provides tax breaks and incentives to multifamily property investors, and you can make the most of it. Trump’s Tax Cuts and Jobs Act, for example, introduced a new deduction for qualified income, helping investors and owners of multifamily units.
Easy to Finance
If you decide to apply for a mortgage loan in order to build or buy a multifamily property, you can expect lower mortgage interest rates. Also, the data indicate that multifamily real estate investments enjoy a preferential mortgage market as well as better funding terms compared to other kinds of commercial real estate. This is because lenders, like banks and credit unions, perceive multi-family properties as sound investments since the risk is spread across more than one unit.
In addition, multi-family real estate consistently produces a strong and stable cash flow every month. This is the case even if your property has a couple of vacancies or a few tenants who are a little late with their rent payments.
For example, in case a tenant decides to move out of a single-family home, then that home would become 100 percent vacant. A ten-unit property, on the other hand, with a single vacancy, will only be 10 percent unoccupied. This is why the risk of a foreclosure on a multifamily apartment building isn’t as high as a single-family unit. All of this means a less risky investment for any lending institution, which can result in a lower or more competitive interest rate for an investor.
Multiple Exit Strategies
Multifamily properties usually offer a variety of different exit strategies for real estate investors. You may just sell the property. Alternatively, you may convert units to condos and then sell them individually for a lot more money.
Final Thoughts
The overall consensus for this year and the next is that multifamily properties will be a great investment. The security benefit and tax advantages, coupled with the ease of management that come with investing in multifamily units are what has always captured the attention of many investors.