5 Reasons to Invest in Multifamily Properties
If you have previously purchased single-family homes to rent to tenants, then your next step may be to invest in multifamily properties. While there are similarities between the two, there are also significant differences. Here, we take a look at 5 reasons why investing in multifamily properties could make sense for you.
Managing Multifamily can be Easier
For those real estate investors that don’t have the time or desire to manage their properties, there are property management companies for hire that will take care of daily operations. However, if you own single-family homes, then you may not be able to afford a property management company. This means that tasks such as maintenance, repairs, collecting rent payments or evicting tenants is your responsibility.
Multifamily properties, however, may produce enough money to cover the cost of a property manager. So, while you may have more tenants, you just might have fewer headaches with someone else taking care of the day-to-day.
Better Financing Options
Contrary to what many people think, getting a loan for a large apartment complex is often easier than getting one for a single-family home. That’s because multifamily real estate generates reliable cash flow month after month.
If the tenant moves out of a single-family residence, then the property is 100 percent vacant. With multifamily residences on the other hand, even if there are some vacancies or a few tenants are behind in paying rent, cash is still coming in.
Thus, the risk of foreclosure is actually less on multifamily property than on single-family. This makes banks and other lending institutions more confident in their investment and possibly willing to offer a better interest rate.
Tax Incentives for Investing in Multifamily Properties
Providing a city’s residents with housing that is affordable, well maintained and safe is something the government likes. Therefore, tax incentives—also called tax breaks—are offered. Because you are in the real estate investment business, there are many deductions to take. In addition, there is the matter of depreciation, which affects the value of property for tax purposes.
The moral of the story is make sure you have your CPA on board when you invest in multifamily properties. This way you’ll be able to get as many tax breaks and deductions as allowed.
Forcing Appreciation and Creating More Cash Flow
You cannot solely depend on the passage of time to increase a property’s value. As an investor in multifamily, you must take steps to force appreciation. Consider adding amenities such as a laundry facility, an exercise room or a playground to attract families with young children.
In the case of a laundry facility, you’ll also be creating another avenue for cash flow besides rent. Providing a clean and secure place to do laundry within an apartment complex is attractive to tenants without washers and dryers in their units. Coin operated machines quickly pay for themselves and soon begin to make money for you.
Multifamily Real Estate Holds Value
At the same time that you are adding amenities to attract tenants, you are also appealing to investors if you should ever decide to sell the property. Upkeep of the grounds and tending to repairs in a timely manner are also important. Then, the assurance of steady cash flow from multiple tenants’ rent and income generating amenities—combined with the presentation of a well-maintained property—will help retain the value of your real estate investment and interest potential buyers.
The information contained in this article is general in nature and should not be construed as financial, tax or legal advice. As with any financial or legal matter, consult your tax advisor and legal counsel.