Seven (7) reasons to invest in multi-family apartments
In this post, I want to give you seven (7) solid reasons why you should invest in multi-family apartments. I hope at least one of these reasons will inspire you to look closer at multi-family as an investment vehicle. If your goal is to achieve financial independence and/or retire early, then you should definitely consider multi-family investment as part of your retirement portfolio.
- Cashflow: Everyone needs a place to live. And investors loves steady cashflow. As the economy expands and the population continues to grow, the need for places to live will always be there. Multi-family apartment buildings produce monthly, steady and consistent cashflow. The higher the number of units, the lower the acquisition price per unit, the lower the maintenance costs and therefore the higher the cashflow via the economy of scale.
- Improvement of Communities. There are lots of multi-family apartments that were built decades ago and are in dire need of upgrades. In addition, many multi-family apartments are not professionally managed. They high number of deferred maintenance items has decreased the quality of these assets. Therefore, they are not up to par, when it comes to the qualify of service offered to residents. The purchase and rebranding of these apartment buildings provides much needed infusion of finances into a lots of assets. Rebranding these units provides a better place to live for the members of our communities.
- Forced Appreciation: The value of a multi-family apartment building is based on the Net Operating Income (difference between income and expenses) and the cap rate. The appreciation of the multi-family assets can be forced through improved management that reduces expenses and increases income. The income expansion can be achieved through rent increases to market levels following the repositioning and rebranding of the asset. The operator of multi family assets has lots of control over these key parameters (income and expenses).
- Asset Scalability: Multi-family apartment buildings are easier to scale than other Real Estate investments. The concentration of apartment units in the same vicinity reduces travel and maintenance costs. Economies of scale allow for explosive growth and lower cost per unit compare to residential units
- Tax Advantages: Multi-family apartment buildings make our communities better and as a result benefit from many tax incentives offered by the government. Cost segregation, asset depreciation and 1031 Exchanges are some of the tax vehicles available to multi-family apartment investors. Understanding how to leverage those provides investors a lot of leverage.
- Hedge against Economic Volatility: Multi family apartment buildings allow owners to hedge potential vacancy levels. Furthermore certain classes of multi-family assets such as Class B and/or C apartment communities continue to be in demand, especially in hard economic times.
- Better Financial Leverage: The cost of capital is currently very attractive for commercial multi-family apartment buildings, and there is a diverse set of multi-family loan products to choose from. Various creative financial strategies are also available to multi-family investors.
I hope that I have been able to provide you enough reasons to consider the benefits of investing in multi family properties. Whether you decide to invest in multi family or not, please leave me a comment below and let me know what argument persuaded you the most. If none of these were able to convince you, share your thoughts as well.