Why Invest in Multifamily Properties
Investing in real estate is a great way to grow wealth if done responsibly and with an understanding of the risks and rewards involved. It is an even better investment for those who wish to take an active role in growing their capital, rather than passively putting their money into a managed account.
One of the beautiful things about real estate investing is its flexibility and scope of strategies employed. You can create your own wealth by flipping houses, buying single-family rentals, investing in apartments, mobile home parks, retail, industrial, or many other properties. The goal is to slowly acquire income-producing properties. Now the question comes down to, which one is the better investment?
Investing in apartments is one of the best investment strategies for investors who want an additional source of monthly income with a slow but steady appreciation in the value of their portfolio. Multifamily properties, or apartment complexes, are buildings with more than one rentable unit. While there are fewer restrictions to build a portfolio of small homes, multifamily real estate investments have several advantages. Here are six reasons why you should consider investing in apartments.
Dependable Income Stream
Rental property investments provide a regular and dependable income stream that produces positive cash flow that is higher than typical stock dividend yields. Especially for apartments since you have multiple tenants paying you rent, if one unit becomes vacant, you do not lose all your income.
Reduced Debt by Property Income
The amount of the property’s net operating income (NOI) reduces the debt on the property. The NOI is calculated by the gross income less all expenses before debt. It will sufficiently fund the debt payments, thus reducing the debt balance and creating equity.
The US Tax Code benefits real estate owners in several ways. This includes no limit mortgage interest deductions and depreciation accelerations that shield a portion of the cash flow generated and paid out to investors. At the time of sale, the IRS also allows investors a 1031 provision, which allows investors to exchange into another investment property and defer all taxable gains into the future.
Appreciation of Asset Value
Multifamily rental properties provide excellent appreciation in value that meets and exceeds other investment types. As such, apartment complexes increase in value as the net operating income of the property improves through rent increase and more effective management of the asset. This means that you have more control over the value of your property.
Remember, you should maintain your property so it retains its value over the long haul. Managing the building professionally, making minor repairs and ongoing maintenance are key factors to ensure the property’s success. Do your due diligence when selecting those who will work for you. You want to employ people who share your core values, the desire to serve the residents and provide a safe and clean community.
Portfolio in Less Time
Multifamily real estate is suitable for investors who wish to build a large portfolio of rental units. For example, acquiring and managing a 20-unit apartment complex is a lot easier and much more time-efficient than purchasing 20 different single-family homes. An investor would need to negotiate with 20 different sellers, conduct inspections on 20 houses located in different areas, and open 20 separate loans for each property. To avoid this headache, investors purchase one property with 20 units. Considering commercial real estate tends to be more complicated than a standard real estate transaction, there will always be a learning curve.
Consolidated Property Management
Many investors who own single-family homes do not have the luxury of contracting an external property manager because it would not be a financially sound decision due to their portfolio size. Multifamily real estate investors, on the other hand, produce more income each month and have the flexibility to outsource property management services without the need to significantly cut into their margins.
Real estate investing has a ton of benefits, but the time, energy, and money that goes into getting started can be overwhelming. Finding the right property, negotiating terms, getting financing, then managing the property is a lot of work. This is one of the main reasons people may choose to invest passively!
Vecno Capital allows you to receive all of the benefits of investing in real estate without all of the efforts.