Would you be surprised to learn that the majority of millionaires in America have amassed the majority of their wealth in real estate? Now that I’ve got your attention, you might be wondering what type of real estate is the best approach for you and how would the process even start. I’m here to let you know why specifically multi-family is the preferred route.
At a high level, what does a good investment typically entail? Off the top of my head, I can think of low risk level, cash flow, equity & upside potential, and tax advantages, just to name a few. Let’s dig into these characteristics!
Low Risk Level
Multifamily has operational efficiencies due to economy of scale being on its side, for example several units under one roof compared to a single residential home under one roof. One single family house needs a new roof you must expense that in one unit compared to multifamily with that same square foot home could be equal to 5 to 6 units in multifamily to expense out. Housing is an enduring universal need, everybody needs a roof over their head and today more people are renting apartments than buying homes. Additionally, the cost of owning a multi-family real estate property is often low enough to make purchasing several investment units financially feasible.
As you can guess, one of the best parts of owning real estate is collecting the monthly tenant payments and getting cash flow. In single-family housing, if a tenant leaves you are facing some major cash flow uncertainty. With multi-family, you’ve got multiple units to dampen volatility.
Equity & Upside Potential
In multi-family value-add real estate, rehabbing units is the best and most obvious way to create appreciation. However, you can be smart about it, without over committing. For example, better management team, better trash services and parking spaces etc. Within the units, focus on high value items like countertops and higher end appliances. And lastly, it’s completely fine to rehab a few units at a time. Cash Flow creates equity and future wealth for you and your portfolio.
Apartment buildings are depreciated over 27.5 years and with cost segregation implemented we have more forced depreciation, for example 5 & 7 years, which means you get to depreciate the building’s value quicker. So you remember that cash flow we talked about earlier? In many cases, a large part of that monthly cash flow is earned tax-free due to the offsetting depreciation.
Given these factors and the many additional benefits of multi-family real estate investing, revenue-producing multifamily investment properties can drastically impact the success of your retirement portfolio.