There are a few aspects that make them so appealing
The following article has been provided by RCN Capital.
Real estate investment trends are seemingly always changing to keep pace with the conditions of the housing market, and it forces investors to adapt on the fly often multiple times throughout the course of any given year. One of those specific investment trends that investors are tracking and looking to add to their portfolio is multifamily investment properties. There are a few aspects of multifamily in particular that make them so appealing in today’s market.
Less buyers, more renters in 2023
Interest rates across the board have gone up and the profit investors make from a multifamily outweighs a smaller 1-4 unit building. With rates increasing, an investor is better off securing more units at a higher rate, rather than just a single-family investment at an interest rate currently above 6%. Just one multifamily investment property can turnaround a struggling, underperforming portfolio. Investors that have missed out on numerous properties throughout last year can also make up for that loss of opportunity with only one multifamily property. Interest rates are also tipping the scales towards multifamily investing because in a market where rates are scaring away everyone, an investor with a multifamily investment property with multiple units for rent just found themselves in a high leverage situation. In an article found on wealthmanagement.com, this sentiment is echoed, “As homes become more expensive to buy, and new product more expensive to build, the existing inventory of rental housing becomes more valuable and in-demand.”
Portfolio scalability achieved much faster
Multifamily investment properties are crucial for a number of reasons but mainly for investors the most attractive aspect is the scalability opportunity it creates for them. The money generated from a rental property, sometimes referred to as passive income, is amplified greatly by owning a multifamily property. With this money coming in due to volume of units, it is easier for investors to expand and make down payments on investments. Any investor will take you through their journey that usually starts with modest fix and flip projects, shifts to owing single family rentals and jumps to owning multifamily properties. Investors are always looking for the next challenge and a chance to earn the greatest ROI. With multifamily investment properties, the path to financial freedom has never been easier. With a partner or two and a few trusted property managers, investors can cross the 50–100-unit threshold with ease.
Liquidity equals flexibility
Liquidity is another attractive reason why investors want multifamily investment properties in their portfolio. Unlike stocks and bonds, a multifamily investment property holds its value at a much more reliable rate than an investment in the stock market. That value makes these investment properties much more appealing and offers flexibility to an investment portfolio. If a new property comes on the market and an investor needs to liquidate soon to free up some cash to make a down payment, a multifamily investment is just the asset they would need. Whether it’s selling off a certain number of units to make it worthwhile or unloading the multifamily property entirely, an investor can come up with that down payment money. Stock market conditions may cause an investor to miss out on an opportunity if the market is down, so having that multifamily property can prove to be much more reliable.
Tax benefits to boot
With tax season fast approaching, closing this article with some multifamily investment property tax benefits seems fitting and something all investors should be aware of. One tax break that every investor needs to take advantage of is the real estate depreciation tax. This specific tax works off the idea that properties decrease in value over time, but investors know this not to be true. Essentially, there is a tax-deductible real estate tax in place that covers the property’s decrease in value and investors can write this off. However, with home improvements as well as community improvements, properties tend to always increase in value or appreciate. An article on managecentralfloridaproperty.com explains this perfectly, “Regardless of whether the property is making profits or appreciating in value, owners can deduct a depreciation expense from their real estate income tax. Clearly, it’s evident that depreciation offers investors a massive tax break.” With a multifamily property, this depreciation tax is amplified and becomes more beneficial to an investor. In addition, there are also real estate investment tax deductions and passive income tax deductions. The real estate investment deductions come from expenses related to your investments and can range from maintenance and repairs to marketing costs. The passive income tax benefit is trickier to take advantage of but still worth noting. If an investor can spend less than five-hundred hours a year on their investment business, they can pay a passive income tax rather than a federal income tax on their earnings from their property. A tax is still paid, but a much smaller one.
The supply and demand in relation to inflation in the housing market alone is enough for real estate investors to target multifamily properties in 2023. With buying out of the question for most, affordable rent is the next best option. From an investor’s perspective, the scalability and liquidity appeal as well as the tax benefits make owning a multifamily investment property a must-have for any portfolio. No investment comes without challenges, but the multifamily properties put an investor in the best position to offset them. Still not sure if a multifamily property is right for your next investment? Reach out to us at RCN Capital and we’ll be happy to continue this conversation and put an investor’s mind at ease.
