For residential real estate investors, there is usually a pull between single-family and multifamily real estate. Some investors believe that single-family properties are easier to maintain and offer greater opportunities while remaining relatively risk-free. However, there are several reasons that multifamily properties are a wiser investment.
More Cash Flow Potential
While the obvious increase in cash flow comes from owning a rental property with multiple units versus a single unit, there are other ways to increase value for tenants and increase money coming in. For instance, you can add a laundry room with coin-operated machines, or you can provide a gym, or even added security. Any of these amenities can increase the level of tenant satisfaction as well as cash flows.
Retention of Value
Multifamily real estate can hold its value better than single-family housing because it is more attractive to multiple tenants and other investors. However, to capitalize on that sustained value, you, as the owner, must maintain the property. Hiring a maintenance crew is an excellent way to keep the facility and grounds looking pristine.
Having one property with multiple units is easier to manage than having several properties spread out across the city. If you invest in a multifamily property, then you only need one property manager, but with several separate properties, you will likely need more.
In real estate investing, two ways of building appreciation requires active participation from the owner: (1) forcing and (2) phasing. Forcing refers to performing rehab work, like putting in new HVAC or upgraded floors. Phasing applies to the phasing in of amenities, like laundry. In a single-family home, there is only so much forcing and phasing you can do. However, in a multifamily property, you have several opportunities, from upgrades in individual units to establishing community amenities.
Another excellent benefit of investments in multifamily real estate are the tax breaks and incentives that are available. Mainly, owning a multifamily property is considered a type of business and that equates to a lot of deductions. Also, you can record depreciation from two to three decades, depending on the property classification. The complexity of real estate taxes means that you may be wise to hire a highly experienced CPA or CFO.
Potential to Change Lives
Lastly, investing in multifamily properties allows you to give back to a community. Many cities offer great amenities but not enough safe residential areas. By purchasing and investing in a multifamily property, you can change that.
Multifamily real estate is an excellent investment. Stop teetering, and find a property that suits your investment strategy today.