5 Benefits of Multifamily Investment Properties
As a real estate investor considering building a valuable portfolio, you need to prioritize owning multifamily properties. This real estate vehicle has been proven to be an excellent way of growing wealth compared to most other residential options. Here, we look at the top five benefits of multifamily investment properties.
1. Regular Income Stream
After considering your risks and potential rewards, strategic investment in multifamily investment properties is guaranteed to make this investment vehicle a source of regular income stream. To minimize your risks, it is vital first to evaluate the worth of your investment using the cap rate formula.
This formula is an excellent way to gain valuable insights on potential earnings and attaining a larger picture of market trends. It will also assist you in understanding the value of the property in relation to similar properties in the neighborhood, along with identifying hidden opportunities that you can maximize for a higher return on investment.
2. Easier to Finance
It is easier to secure financing for multifamily properties despite having a higher market value than most single-family homes. Financial institutions consider these properties less risky as they have better cash flow, allowing you to shop for lower interests. For example, if you opt for an apartment with four units and only a single tenant moves, your income will only drop by 25%. If that were to happen in a single-family rental, you would have lost 100% of your rental income.
3. Huge Tax Benefits
Attaining a real estate investor status comes with huge tax benefits that you can utilize once you own multifamily property. These include:
- No limitations on mortgage interest deductions
- Deductible maintenance and operation costs before filing taxes
- Property depreciation and cost-segregation benefits
- 1031 exchange provision that allows you to defer federal taxes when you sell your property and invest in another property
4. Simpler to Grow Your Portfolio
One of the easiest real estate portfolios to build and grow as an investor is a multifamily portfolio. Unlike single-family homes that you would have to acquire one at a time, a multifamily property allows you to obtain multiple units at once.
You will also have the opportunity of upgrading to commercial real estate as large multifamily properties containing five or more units can be categorized as commercial real estate. The ease of negotiating with fewer sellers and financing a new multifamily property while growing your portfolio will further make your journey smoother as a real estate investor.
5. Appreciation of Asset Value
Compared to most investment types, multifamily rental properties offer excellent appreciation in value. All you need to do is invest in a high-value area and ensure excellent property management for your net operating income to improve through the gradual rent increase. Even when the markets decline, most rental rates remain relatively stable as long as there is a high tenancy rate.
Multifamily real estate investing is a decision you will hardly ever regret if you have a smart approach to this investment vehicle. Consider these key benefits and carefully evaluate if it is the best channel for growing your wealth.
This article has been published in accordance with Socialnomics’ disclosure policy.