Investing in real estate is a brilliant and smart way to make money. It is passive income, which means you don’t have to do much work once you buy it, and it has the potential for huge returns over time. If you are looking for a specific investment or something new that might not be on your radar yet, consider multifamily real estate investing!
As we look for more secure and profitable investment options – unlike volatile stocks and equity – it is a good time to look into multifamily properties for capital gains through a stable asset.
There are many reasons why multi-family apartment investing is a good idea. Some of the main reasons are:
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Higher Returns
Let’s understand this with an example. If you invest in a $1 million apartment building, which increases 5% every year for the next 10 years, at the end of those 10 years, your investment will be worth about $1.4 million. If instead, you had invested that money in bonds or stocks and earned only a 4% annual return on your money (a pretty standard rate), it would have been worth less than half as much: just $600,000 after 10 years!
This explains why multifamily housing investment is an attractive option for investors looking to grow their wealth quickly and steadily. You can increase your returns by using leverage (which means borrowing money) to buy properties with higher cash flow than the amount of debt used to buy them.
Leverage allows you to put down less cash upfront when purchasing real estate so that more funds are available for other investments, such as stocks or bonds, without sacrificing any liquidity or equity (the amount owned by an investor). This means that you can diversify your investments after buying multi-family properties.
Economies of Scale
Economies of scale is a business concept that states that the cost per unit decreases as the volume of production increases. Basically, it means that you can spread out your fixed expenses over more units, making them more manageable. It is easier to manage contracts with utility companies when they only have one customer instead of 10 or 100.
You also only have one management staff, making it convenient for you to take care of your property! With multiple properties in one place and all your resources focused there, you generate higher returns on investment that can be reinvested!
Better Debt Management
Debt management is an essential part of multi-family apartment investing. Debt can be used to purchase more properties, improve existing ones and generate more income.
If you have a bad debt-to-income ratio, it may limit your ability to borrow money further down the track. However, with proper planning and financial management skills, you can use debt in a way that makes it work in your favor. You need to figure out the areas where you can cut your expenses and have more economical options for maintenance without compromising the quality of repair and renovation.
Profitability is Easier to Predict
In a multi-family building, you can predict expenses more accurately. This is because you don’t have to worry about the cost of repairs or maintenance on an individual property. Instead, these costs are spread across multiple units and, therefore, easier to predict.
Similarly, you can predict income from your multifamily housing investment more accurately since your tenants are paying rent for multiple units instead of just one single-family home (which would result in a larger vacancy rate). You don’t need to worry about managing different leases for each unit as this can be taken care of by your Property Management Company or “PMC”. Because there are fewer properties with less management overhead, you earn greater profits!
Consistent Cash Flow
If you worry about how much money you need to cover your monthly expenses, you must know that it depends on the quantity and variety of your income sources. If you only had one property, then all your income comes from that one source; but when you invest in multifamily properties, then you will receive rent from multiple units. So imagine having 10 properties under management versus just a single-family home – do the math!
You can learn about how multifamily properties bring you a steady flow of income on the Multifamily Podcast. With this income, you can expand your investments or save for unforeseen expenses and retirement plans.
Lower Risk
Multifamily properties are a good investment because they are less risky than single-family homes. If one property goes down in value, you won’t lose all of your money – you can spread it around to other properties that help offset the loss. Plus, when you use an experienced property manager, they can keep your tenants happy and provide added insurance against damage or theft.
Moreover, when a single-family home becomes vacant, your source of income is taken away. You will find it more difficult to find tenants for a single-family apartment than for multi-family units.
Larger Tax Deduction
When it comes to taxes, multifamily real estate investing is a great opportunity. For example, you can deduct the cost of repairs and maintenance as an expense on your rental property tax return. The IRS allows rental property owners to claim a deduction for expenses such as repairing a broken furnace or replacing a bathroom sink fixture.
You also have the opportunity to take advantage of depreciation benefits by depreciating your property over 27 ½ years instead of 39 years (for residential). This means that you get to write off part of the value of your building each year instead of waiting until it is fully depreciated before claiming any tax breaks from it at all (if you own a single-family home).
If you want to learn more about multifamily housing investment, you can reach out to The Multifamily MIndset for any questions regarding such investment. Learn all about multifamily properties, which one is the most suitable for your unique requirements, and how you can profit from them. You can see their expertise through the Multifamily Mindset Reviews!
As you can see, there are many benefits to investing in multi-family properties. With multiple properties in one place and all your resources focused there, you generate higher returns on investment. And because of their increased cash flow, these properties are easier to maintain than individually owned units would be. You also benefit from having a greater asset base and a larger tax deduction for depreciation expenses over time.
Multifamily Real Estate Investing will reap you many benefits!
