The Top 8 Reasons to Invest in Multi Family Real Estate
There are excellent reasons to consider
1. Multifamily home investment provides immediate income.
Forbes reports that one of the most attractive benefits of multifamily investment is the immediate cash flow. In sharp contrast to most other investments, it is not difficult to buy a multifamily home and begin collecting cash benefits in the first month. Depending on the day you purchase a property, you might actually get paid the first day.
2. Excellent financing options are available.
There is plenty of money available to purchase multifamily properties. Lenders are more eager to invest in these types of properties than many others since it is considered a low-risk loan. With the risk spread over more than one tenant, lenders feel much more comfortable that they will get paid.
While any individual tenant may lose a job or experience some other life emergency that makes it difficult to pay the rent, it is less likely that two, three or four tenants will all go through some financial hardship at the same time. Getting paid one-third or two-half of the rent is much better than losing 100 percent of your rental income on a single-family rental unit.
3. Provides excellent tax advantages.
There is a reason real estate tycoon, Donald Trump, pays little if any tax. Nolo reports that a rental real estate business provides more tax advantages than most other businesses. Substantial tax writeoffs on interest, depreciation, repairs, personal property, travel, a home office, insurance, legal services, professional services, employees, and contractors dramatically reduce taxable income. Many landlords pay little if any tax based on significant deductions that offset rental income earned.
There is also a pass-through tax deduction created by the passage of the Tax Cuts and Jobs Act which will allow many landlords to deduct a substantial amount of their rental income or 2.5 percent of the property’s purchase cost. This generous deduction will expire after the year 2025.
4. Investors can increase their property value with modest improvements.
5. Offers an excellent wealth-building vehicle.
The availability of financing options and tremendous profit potential for multifamily home investments qualifies this type of business as an excellent way to build wealth. The annual appreciation that most properties enjoy coupled with an ambitious investor’s ability to positively impact the value of the property with strategic upgrades makes a multifamily home investment the perfect way to build an empire.
Whether you invest in a duplex, triplex or something larger, there are many options for getting started in real estate
6. Multifamily home investments make it easier to afford to pay a property manager.
Since margins are larger in this type of investment, there is typically enough money to pay a property manager. That is one of the plusses of a multifamily home investment over the alternative of buying and renting out single-family homes. If you aren’t the type who is willing to be on call to fix a leaky sink or toilet, then hiring a property manager is going to make your life a lot better.
7. Multifamily homes are a low-risk investment.
For the same reason lenders are very receptive to making loans for multifamily home investment, investors in this type of income source are unlikely to fail. If you invest in a single-family home and get a terrible tenant, not only are you not receiving rent, you are probably also having to pay for an attorney to get them out, back utilities, and any damage they cause. If you run into this issue with a multifamily home, you likely will still have other tenants paying their rent on time.
Also, millennials are fueling a hot rental market that is currently making investors buckets of money. Realty Mogul reports that over the 25-year period through 2017, multifamily investors averaged returns of 9.75 percent which ranks as the highest return in any commercial real estate category. Another statistic that supports the low-risk nature of this type of business is the 7.75 percent volatility rating reported in Realty Mogul.
8. Provides a passive income opportunity if structured properly.
While many investors like to be intimately involved in managing their properties, it is not mandatory. Real estate investment can be a source of passive income for anyone willing to hire a management staff. Many investors simply buy and sell properties turning over the day-to-day operations to their company of choice. If you want to be more hands-on, there are also some great software options available to make collecting rent and monitoring maintenance much easier.
Not Ready to Invest Yourslef? Try This
If you aren’t quite ready to make your first real estate investment purchase, there are many new options available to get your feet wet with real estate
Fundrise offers investors the opportunity to begin investing in real estate for as little as $10. Directly own a share of their real estate portfolio with their easy-to-use app and follow along with the portfolios you invest in. With low advisory fees (.15% annual) and the ability to invest in a unique mix of cash flowing real estate, Fundrise is a great option for many inestors.
- A unique way to invest in real estate.
- No minimum requirements to invest.
- Web site and app are user-friendly.
- Multiple types of investment options within the fund (Fixed Income - Opportunistic)
- Auto-invest options
- Returns compound.
- Dividends are treated as ordinary income.
- No guarantee of liquidity.
- Only operating since 2017
- Below market returns 4 of 5 years.
Real estate has proven to be one of the best ways to build wealth. Multifamily homes are in high demand for millennials and baby boomers who are opting to rent. Considering the high rates of return and low-risk nature of this type of investment, anyone seeking a business opportunity should research this time-tested type of investment.