Diversification is the key to a successful portfolio risk management. As the median household income and savings rates across the United States continue to fall, the stock market continues its volatility, and tax rates continue to rise, prudent investors are seeking alternative investments to maximize their returns.
Multifamily properties are housing schemes where residential inhabitants dwell within one building or several buildings within one complex. The most common (and profitable) of multifamily investment property are apartments.
In terms of investment, multifamily dwellings offer high returns at substantially lower risks and market fluctuations. If you’re looking for a stable real estate investment or planning for investment of your IRA in high yielding projects, here are the reasons why you should consider multifamily investments:
Ever Increasing Demand
In economic terms, shelter is a necessity with an inelastic demand. The housing market is influenced by echo boomers, baby boomers, and immigrants. With over 80 million baby boomers and a large influx of immigrants annually, the demand for housing remains high. This favors strong and stable returns for investors in commercial multifamily.
Furthermore, multifamily projects have a specified life cycle. As more and more young people move out of their parent’s home during college and early career years, the demand for multifamily projects keeps increasing. The ever-increasing demand is reflected in upward valuations of property value, generating higher Return of Income (ROI) for investors with minimal risk of market devaluation.
Better Cash Flow Management
Unlike other real estate properties, the cash flows associated with apartments can be easily adjusted and better managed. Lease term of other types of commercial property such as retail, office or industrial space can exceed several years. This does not allow the investor to take advantage of any favorable market fluctuations. In multifamily investments, leases normally range between 6 to 12 months. This accommodates constant adjustments of rent, thereby maximizing market value. Conversely, long-term leases for a multifamily tenant can be instituted to mitigate any existing (or expected) value loss in open market. This ensures stable and high returns for multifamily investor through rent adjustments.
Leverage provided by financial institutions makes multifamily assets easier to purchase than other types of commercial property. A minimal down payment (often expressed as a percentage of the total value of the apartment) is required at the time of acquisition. Interest rates offered by lending institutions are also generally more favorable than what you would find for other commercial real estate types. This combination of a lower barrier to entry, lower interest and the principal pay down that occurs through operations makes multifamily a viable and desirable asset class in which to become involved.
Unlike other asset classes, commercial multifamily when structured properly can offer investors a tax-advantaged investment. Tax advantages with commercial real estate are not limited to a one-time event either. Commercial real estate offers years of passive income and income offsets that have been structured specifically for the taxpayer by the U.S. Internal Revenue Service.
We always recommend speaking with tax professionals regarding your specific situation before proceeding with an investment of this nature.
With the help of qualified and competent professionals, you can diversify your portfolio risk through investment in multifamily units and earn risk-adjusted and tax-advantageous stable returns with minimal risk exposure. Feel free to contact us for further details!