Why Multifamily?

Category:
Real Estate Investing 101
|
By:
Sam Henry

This may go down as one of the best times in history to invest in multifamily real estate. There are more people renting than ever before which increases demand for apartments. Rents are going up across the country which increases revenues for apartment owners. Meanwhile, interest rates are at historic lows which gives owners higher cash flows than ever before.

We chose to invest in multifamily for several reasons. I'll review a few of them in further detail.

Demographic Shifts are Increasing the Demand for Rental Housing

Across the country, millions of Baby Boomers are looking to downsize as they become empty-nesters. They want less house to take care of, easy access to amenities, and more overall convenience.

Meanwhile, millions of Echo Boomers, also known as Millennials, are entering the housing market for the first time. They are entering as renters. Many studies have shown that while this generation is more educated that any previous generation, they are also saddled with financially crippling amounts of student loan debt. This prevents them from saving up enough for a down payment on a house. They are also making lifestyle choices that are different than what previous generations did. They are getting married later, having kids later, and ditching the suburbs for the excitement of urban living. All of these factors make it more likely for them to rent and stay renters for longer periods of time.

Apartments have the ability to produce Passive Income

Many people do not realize that retirement has nothing to do with age. It has everything to do with income. If you can create enough monthly passive income to meet or exceed your personal monthly expenses, you're retired. No matter what you're age. Since the monthly cash flow from apartment buildings generally produces much higher cash-on-cash returns than other types of investments, investing this way makes it easier to reach the level of passive income you need to retire yourself.

Forced Appreciation

5+ unit multifamily buildings are considered "Commercial Real Estate". Commercial real estate is valued by the Net Income it produces. This means that simple operational improvements that either increase the revenue or decrease the expenses will automatically increase the value of the property itself. You can increasing the revenue by raising rents or billing back owner-paid utilities to the tenants. You can decrease expenses by protesting the property tax assessment or installing water-saving devices in showers and bathrooms.

Apartments Make Excellent Tax Shelters

You'd be hard pressed to find another investment where you can make thousands of dollars annually, write off depreciation, mortgage interest, and capital expenses, and pay little to no taxes at the end of the year.

Apartments are a Great Hedge Against Inflation

When inflation goes up, the price of everything goes up, including rents! Since rental leases are generally adjusted annually, the income of an apartment building can keep pace with rising inflation fairly well.

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