Enclave at Oakhurst, Charlotte, NC
Create steady cash flow with multiple streams of revenue. Implement a plan for building generational wealth and a family legacy. Enjoy tax benefits. Invest hard-earned money into a recession resilient and inflation protected asset. Diversify your portfolio.
Sounds like a dream, doesn’t it?
Fortunately, when investing in multifamily properties, that dream can become a reality. Whatever your motivation or level of experience in this arena, investing in multifamily properties opens a variety of opportunities. Multifamily real estate has been shown to be one of the most recession resilient and inflation protected assets and is one of the best ways to grow your assets!
So, what is a multifamily property and why might it be beneficial to invest in one?
Multifamily simply means a property where multiple residents/families reside. When investing in Multifamily properties, most vary in size ranging anywhere from 2 to 200+ dwelling units – with some in excess of 1,000 units feeling more like a small city.
Everyone needs a place to call home and with the cost of housing constantly increasing, more people are choosing to rent somewhere. When you invest in that somewhere, you participate not just in the growth of your own portfolio, but in providing a home for someone else.
Whenever you’re investing, it’s always nice to have the big picture in your favor. With multifamily, at a macro-economic level, the continued demand for rental housing, combined with limited supply, has led to a massive imbalance in favor of multifamily investors. That’s in addition to the following intrinsic benefits:
More units create multiple streams of revenue. The smaller streams of revenue (the individual units) are flowing into the larger investment (the property as a whole) to create an even larger stream (or river) of revenue. When you merge streams of revenue into one larger source, they combine their force to work harder for you.
Furthermore, you reduce your risk exposure and here’s how. Think about owning a duplex. Two units, two streams of income. If one resident leaves, your income drops by 50%. Now consider a 400-unit property. If one resident leaves it’s almost immaterial and the consequences are negligible. This is what we call lower risk through diversification.
Building generational wealth is about sending those streams of revenue into the future. What would you rather pass on to your family, friends, etc? A savings account or a cash flowing property? Smart investors choose the latter, and for good reason. It’s an amazing way to provide long term cash flow while protecting your asset from inflation.
Multifamily real estate multiplies, remains steady, and can generate passive income. These three attributes make it a lucrative option for building generational wealth. Your money works for you consistently and has the potential to grow steadily.
Trends come and go, but real estate exists from generation to generation, no matter what the market is doing. And that hard asset benefits you and your family, allowing you to give beyond your own lifespan.
You’ll enjoy tax benefits when you invest in multifamily properties.
A cost segregation study dissects the construction cost or purchase price of the property that would otherwise depreciate over time. This allows an acceleration of that depreciation on property-based costs that depreciate in less than 27 years. The acceleration captures the massive tax losses that are then passed through to you as an investor. You can use that depreciation to offset a part of the rental income you collect every year. This generally means that your first five to seven years of profit distributions are tax free to you.
With multifamily investing, the IRS allows what is called a “1031 exchange”. It’s a section of the IRS code that talks about deferring sale profits in one real estate investment as long as the proceeds continue to be re-invested in the next one. That means that as we sell our properties, we will roll the profits into the next property tax free. Imagine the compounding effect of not paying taxes on your profit each time you re-invested it! It’s huge.
There are two keys to why multifamily properties are more resilient than either single family or commercial properties. The first key to resiliency is the consistent demand. Despite harsh economic conditions, people still need a place to live. In tough times, some of the first items cut from the budget are the ‘entertainment’ and ‘vacation’ categories. But most people don’t sacrifice their home to go to the movies during a recession. The demand keeps your asset safe and productive.
The second key to resiliency is a cash flowing, hard asset. These kinds of assets are the best hedge against inflation. If interest rates increase, the value of money and non-fixed assets erodes over time. The nature of a fixed asset like multifamily properties protects you against that inflation. Over the last four decades, housing has fared better than any other asset class over the long run.
If you’re only invested in the stock market, consider real estate as a fundamental portion of your portfolio. The choice to diversify with a multifamily property investment does several things for you as an investor: it lessens the risk of loss for the entirety of your assets, it defends your assets in a volatile market, and it provides opportunities to compound returns in a different asset class.
The same economic event can spurn different responses from different types of assets.
We’ve already been over the fact that multifamily investments are resilient in tough market conditions. Ideally, we want to make more money and avoid losing it no matter what the market does. Diversifying your portfolio with multifamily properties allows you to do both. It is both protection against loss and a purposeful strategy to multiply your income. The future is uncertain, but more people have become millionaires through real estate than any other investment vehicle.
Specifically, large multifamily properties (of 100+ units) provide an exceptional diversification opportunity. Regardless of the size, all properties require a high level of service and ongoing upkeep via dedicated staff in order to keep residents happy. This high level of service can be more easily provided through larger properties due to their more beneficial economies of scale which allows for dedicated onsite staff. This is a huge competitive advantage over smaller properties.
It may be time to diversify your portfolio and start capitalizing on the benefits of investing in multifamily properties.
Whether you’ve been working at building a real estate portfolio for a while or you’re just starting out, multifamily property investments offer many tremendous benefits.
It might still be overwhelming to think about it given the options, but everyone has to start somewhere! That’s why we focus on getting to know you, helping you to get to know us, and ensuring we provide a high level of transparency and mentorship throughout the process. For more information about investing in multifamily property, give us a shout or set up a call.