Like many investors, I initially chose to invest in multifamily because I was investing in single family homes, and I wanted to grow my portfolio faster than that asset class would allow. What I didn’t know was that multifamily investing offers many more benefits than just scaling fast. We’ll dig into some of my favorite benefits about multifamily below.
Risk Adjusted Returns
Multifamily investing provides excellent returns compared to many of the other asset classes available. The value-add business plan allows operators to purchase distressed or tired assets, fix up the exteriors to drive immediately value, and then fix up the interiors of the units to drive up rents resulting in higher net operating income and investor returns. Once those items are completed, good operators will continue to add value through many different strategies. One of the operators I work with shared that by simply painting a number on 100 parking spots and charging a reserved parking fee, he was able to raise the value of the asset by $1.5MM. You simply do not have as many ways like this to drive value in other asset classes.
Tax Benefits
Everyone knows that there are great tax benefits to investing in real estate, but I would encourage you to talk with your CPA to get all the details on exactly how beneficial investing in multifamily can be for your specific situation. You’ll want to get a good understanding of accelerated depreciation, cost segregation, and passive losses to have a full understanding of how this will impact you come tax season. At the end of the day, it’s not how much you earn, it’s how much you get to keep that drives your quality of life. Taxes are the single largest expense you likely have in your personal finances if you are not already investing in real estate.
A Plethora of Options to Choose From
There are over 21MM apartment homes in the US, and many of those are owned and operated by groups that provide investment opportunities to investors like you and me. With a little research, it’s not too hard to find 5-10 operators in this space that have or will soon have investment opportunities available. In addition, decreasing cap rates and increases in apartment values has created a surge of new operators to the space, so be careful to ask about experience when you schedule your first call with these groups.
As you spend more time researching multifamily investments, you’ll find several other great benefits of investing in this space. These are just a few of the reasons that top my list. I encourage you to continue your research, talk with other real estate investors, and dig in and look at some actual opportunities. I’m convinced you’ll see what I’ve seen in multifamily, or you’ll find another great place to put your capital. Either way, you win!
