Deciding Which Real Estate Asset Class To Invest In - Why Invest In Multifamily Apartments?
Options abound, today’s investors are flooded with opportunities for investing. Among these opportunities real estate has taken the front row and filled it with opportunities. This is due to the many methods investors can use to profit. Note buying, land, fix and flip, ground up development, buy and hold, short term rentals etc. From this family of opportunities, Multifamily has emerged as the darling child- who says you’re not allowed to have a favorite? Maybe you’re wondering what is the one reason investors are so drawn to multifamily? Well, here are 7.
Cash Flow and Appreciation – Money You Can Bank On
Did you have a piggy bank as a child? Or a place to put your savings in? Then, one day after you’ve finally saved up enough you break it open and go on a spending spree? Imagine if your piggy bank also paid you monthly direct deposits, checks in the mail if you’re old school. Those monthly payments would be cash flow. Multifamily investors get income from rent payments, after expenses are deducted the remaining funds are their monthly cashflow. This is what I call money-now. Why? Because you can enjoy it now! Sweet!
Now imagine that you had put $100 into your piggy bank. Years later when you break it open you find $1000. Time and patience have allowed your initial investment to naturally grow in value. This is called appreciation. Multifamily investors get this when their property increases in value due to value of the neighborhood increasing over time or based on inflation. This is what I call money-later, because you must wait to get it and truly appreciate it.
The best part about getting money now and money later is the tax advantages of Multifamily allow you to enjoy all of it!
Tax Advantages – Make the IRS Say Uncle
One of the most sought-after benefits of owning multifamily is the tax advantage. As a multifamily investor you can defer taxes on your earnings through depreciation write offs, repair write offs and a myriad of write offs for costs associated with owning multifamily. These write offs show up as losses on your tax return, potentially cancelling out most if not all the profit you made. These taxes will never have to be paid unless the property is sold. Even then you can continue to defer your taxes via 1031 exchange. Remember all that cash-flow we talked about earlier? You can keep all of it. For many tax-burdened high-income earners and hard-working professionals this alone makes the investment worth it. After all the effort you put in to earn your income, I’m sure you can think of better ways to spend it than the IRS.