8 Reasons Why Multifamily Real Estate is a Solid Investment

multifamily real estate

Investing in Commercial Real Estate is a great doorway for passive investors that offers a diversified investment portfolio. Among all the real estate investment options available, Multifamily Real Estate has repeatedly proven to be the most attractive option.

According to CBRE, the Multi-family sector has been the top performer in terms of average annual returns over the last 25 years. This study alone is self-explanatory why multifamily is preferred by most real estate investors. However, other significant reasons make multi-family a solid investment choice.

What is MultiFamily Housing?

Multifamily housing is classified as a type of commercial property that consists of multiple dwelling units. Apartments, duplexes, townhomes are a few examples that fall under this category. It is a great tool for building wealth in the commercial real estate industry. 

In today’s article, we’ll discover why Multifamily can prove to be such a great asset class. 

8 Reasons Why Investors Should Add MultiFamily In Their Real Estate Portfolio 

1. Getting A Hand On Multifamily Unit Is Pocket Friendly

When it comes to purchasing a residential property, it is more economical to buy an apartment compared to single-family homes. In a multifamily apartment, you can use a unit as your residential place and rent the others.

The market value of multi-family apartments is generally higher than single-family homes. However, securing funding for multifamily properties is comparably easier and quicker. 

Mortgage loans are easily available to real estate investors since banks are readily providing more debt capital for apartments.

Moreover, government-sponsored enterprises have encouraged the liquid loan market by contributing around $142 billion in multifamily loans.

Multifamily properties are capable of generating regular cash flow from monthly rents. Therefore, banks find them a safer form of investment property, hence they provide lower interest rates compared to single-family properties.

2. Multifamily investments keep The Money Flowing

Cash flow is the biggest reason why multifamily units are a reliable investment opportunity. Unlike single-family properties, multifamily apartments collect rent from multiple units resulting in a substantial monthly income.

If a tenant moves out of single-family rental moves out the property is 100% vacant. Whereas in multi-family rentals if one of the units suddenly becomes vacant, cash flow from the rest of the units can support this vacancy loss. However, with the proper investment strategy, it is unlikely that a unit will remain vacant for a long period of time. 

To avoid this scenario, the tenants have to follow various types of lease agreements. As a result, it ensures that the investor’s cash flow is secured for the leased term.

In addition to cash flow from monthly rents, investors can also turn to other sources of income by providing additional services. For instance, installing vending machines for snacks and coin-operated laundry machines.

On top of that, 2022 is set to see some new trends in multifamily investments, such as pet-friendly apartments and wellness areas. Investors and landlords can increase their cash flow by including pet deposits, gym fees, wellness and fitness session fees, etc. 

3. Demand For Better and Affordable Living Is Sky High

Irrespective of any kind of disruption in the economy or environment, people will always require a roof over their heads. And compared to buying a single-family home, renting a multifamily property is more affordable. 

Moreover, millennials and GenZ who are the present and future customers of the real estate industry prefer renting to purchasing.

Multifamily units are closing the gap between normal apartment feelings and high-end homes. The quality of construction has vastly increased along with a more sustainable approach focusing on eco-friendly living. Thus, apartments now provide the satisfaction of condominiums at affordable prices.

According to CBRE multifamily investment volume will increase by 10% in 2022. The NOI is anticipated to increase by 8%, and cap rates are expected to remain stable throughout the year. 

4. Delegate All The Heavy Lifting To A Property Manager

When it comes to single-family homes, each unit is considered a single property. Therefore, acquiring more single-family homes means acquiring more properties. Thus, managing each property is more troublesome and expensive even after hiring a property manager.  

On the other hand, multifamily housing has gathered all the rental properties in one single destination. As a result, managing all the properties is much easier and more efficient. 

Since cash flow is significantly higher in multifamily apartments, it is cheaper to hire a property manager. Moreover, apartments require less maintenance and a single renovation can increase the value of multiple apartments at the same time.

Passive investors can delegate all these tenacious tasks to a property manager and can invest their passive income elsewhere.

5. Rents Keep Up With Inflation

We all know that real estate is a hedge against inflation. Hence, it is a lucrative investment opportunity.

However, certain real estate sectors are leased for the long-term (generally 5 years), such as office spaces, retail stores, industrial warehouses, etc. Therefore, these asset classes are more prone to inflation risks.

Whereas rental properties like multifamily apartments are leased for the short-term generally for one year. Therefore, apartment owners have the opportunity to increase rents at frequent intervals. This enables them to ride the inflation waves safely.  

6. Just Like Gold, Property Value Increases With Time

Due to high demand, multifamily apartments have higher appreciation than any other asset class. As we’ve already discovered inflation leads to a hike in rents, therefore property value of multifamily apartments increases with time.

Any kind of improvement or renovation of the building or adding amenities add value to the property. 

7. True Passive Investment With Multifamily REITs

If you are a truly passive investor and do not wish to take any responsibility for tenants or property management. In that case, multifamily REIT is the perfect investment choice for you.

Generally, REITs payout 90% of their income to investors. In this case, the rent is divided among the shareholders based on the percentage of their investment.

8. And Lastly, The Icing On The Cake – Tax Benefits 

The main attraction of investing in multifamily real estate is the tax benefits. Depreciation of multifamily properties can offset a significant portion of the rental income received from the property.

In addition to that, the 1031 exchange lets investors reinvest their capital gains in other real estate properties without imposing any taxes. 

Multifamily- The Perfect Asset Class For Perfect Returns 

Other than returns and steady cash flow, multifamily housing is a great investment opportunity to diversify your real estate portfolio. Its high returns and low vacancy rates help offset mortgage installments.

However, it is crucial to chalk out the strategy and run the numbers before you invest in a multifamily unit apartment building. If executed properly, multifamily properties can be a great source of passive investment.