For the past several years, multifamily investing has skyrocketed, showing incredible growth with no signs of letting up. The “buy, fix and flip” approach of single family home market’s is giving way to passive investors making solid investments in multifamily housing. With more and more investors wanting to participate, the prices of multifamily properties is higher than ever seen before. However; the demand for multifamily properties hasn’t lessened at all. So, why are so many passive investors seeking multifamily investing?

Benefit 1: Leverage
Think of the root word –lever. A lever is a simple tool used to move more, with minimal effort. Leverage allows you to move more money with less effort. By using leverage to help finance your multifamily investments, you are increasing your average rate of return. In addition, investors benefit from ongoing cash flow, potential asset appreciation and have the opportunity to participate in tax benefits. Lenders are more willing to lend money for the purchase of multifamily properties as their risk is minimized with leverage.

Benefit 2: Tax Benefits
One of the biggest and most attractive benefits of multifamily investing is the tax benefits bestowed by the IRS. Depreciation and cost segregation, repairs vs. capital and interest deduction are the parts and pieces that really make multifamily investing appealing.

Thanks to upkeep and maintenance, multifamily properties tend to increase in value and their useful life goes on for a long, long time. The government allows multifamily owners the ability to take depreciation deductions against current income each year. Allowing for a little unknown secret called cost segregation which is a study that identifies and reclassifies personal property assets to shorten the depreciation time for taxation purposes, which reduces your current income tax obligations.

So what is depreciation? It’s the equivalent of 1/27.5, representing the 27.5-year lifespan the government places on multifamily property. Every time the property is sold, the 27.5-year lifespan starts over again. Multi-family properties classified as residential rental real estate can be depreciated over the course of 27.5 years. Depreciation typically includes the cost of the building and improvements less the amount allocated to the land. Cost segregation allows you to maximize your tax benefits and improve cash flow by accelerating depreciation over a shorter period of time. This allows for the division of property into distinct assets (like those with shorter lifespan), such as carpet, windows and even landscaping, over a shorter life, increasing deductions that offset income and taking advantage of the time value of money.

Lower passive income rates. This income is exempt from employment tax and their rates are lower than current income tax rates. Another tax benefit of owning a multi-family property is the ability to deduct the cost of interest payments made on the loan. The ability to write off interest from taxable income can improve your cash flow by reducing your tax burden. You can also deduct any credit card interest or interest from a loan if the funds were used for property repair, or for some other function related to property ownership or rental.

Benefit 3: Cash Flow
More and more people are choosing to rent vs buy. Multifamily property provides steady monthly income from the tenant’s rent. Due to a tenants limited ability to break lease, properties will continue to generate rental income at set occupancy levels. Unlike single-family, multifamily properties are less influenced by a single vacancy; the more units you have, the more tenants you have, the less risk you carry.

Benefit 4: Stable Value
The fact that multifamily properties hold their value is one of the most appealing benefits to investors. The demand for rental units isn’t expected to drop anytime soon, and as long as rents are reasonable and provide a good alternative to ownership, vacancy rates will continue to be stable. And thanks to security deposits and signed leases, most rental units are kept in fairly good condition by the tenants themselves, meaning less capital costs in maintenance.

Benefit 5: Favorable Market Trends
Home ownership started declining after the “great recession” of 2008, while the desire to rent has continued to increase. We can thank the Millenials and Baby Boomers for this increase as they both make excellent tenants. Constantly rising median home prices are putting ownership out of reach for Millennials, which happens to be the largest generation in history. Renting provides the freedom and flexibility that Millennials are attracted to.

While Millennials are starting families at a later age, Baby Boomers are downsizing or giving up the suburban lifestyle to live in urban areas for more social and cultural opportunities, or selling their homes often mortgage-free to travel and spend time with their children. Baby Boomers also appreciate the luxurious amenities available in many multifamily properties, some of which they couldn’t afford if they were choosing ownership.

Along with the ability to generate more income, these investments are ideal for those looking to not only grow their wealth and success, but offset risks when generating monthly income.

Whether you’re a seasoned investor, passive investor or just starting to think about multifamily investing, CAMBE Capital can help! We’ve successfully helped many investors with a knowledgeable, friendly approach, keeping your goals and future success as our top priority. Connect with us today to learn more about the great opportunities Multifamily Real Estate Investing with CAMBE Capital has to offer!