Top 5 Reasons For Investing In Multifamily

by | Nov 4, 2023 | Investing Advice

In the ever-evolving world of investments, there is one stalwart that continues to shine through the test of time – Real Estate. And within this domain, the enduring assets of Multifamily and Apartment Investing stand out. Today, we’re excited to delve into the 5 reasons why we remain in love with this sector.

1. Investors Preferred Return: You Get Paid First

One of the foremost reasons that keeps investors drawn to Multifamily and Apartment Investing is the promise of getting paid first. It’s the investment world’s equivalent of a red-carpet treatment. As the owner of these properties, your returns are prioritized, and you enjoy a steady stream of quarterly income, ensuring your financial stability even when markets fluctuate.  Our current investments range from a preferred return of 7% to 9%….respond to this email if you want to learn more!

2. Depreciation Magic: Unveiling the Power of Cost Segregation

Depreciation is a valuable tool, especially when enhanced through cost segregation. For those new to this term, cost segregation involves a detailed analysis of a property to identify components that can be depreciated more quickly. This strategy can lead to significant tax benefits in the first year.  As an example, a recent $4.1M purchase in April of this year, that we enhanced with $500,000 in capital improvements and renovations, is estimated to have depreciation of $1.6M in depreciation.  On average, our investor K-1 will show about -$200,000 in losses for the year, even though they collected preferred returns of $16,000 on average.  That loss of $200,000 can be used against other taxable income…..if you are in the 35% tax bracket, that is a tax savings of $70,000!  So, you saved $70,000 in taxes you do not need to pay, you were paid $16,000 on your 8% pref……that is a pretty good return on that $200k for year 1!  You still have 4-6 years of preferred returns coming to you, more depreciation and the “up side” of the asset’s sale coming your way~

3. Appreciation of the Asset: Watch Your Investment Grow**

Real estate has historically proven to be an appreciating asset. The value of Multifamily and Apartment properties tends to rise over time, contributing to long-term wealth accumulation.   In fact, between the years 1992 and 2017, the multifamily asset class generated average annual returns of 9.75%. These returns were higher than the average annual returns of any other type of commercial real estate. From 2017 – 2023 appreciation skyrocketed by 20% plus, however that may be an anomaly that will not repeat itself soon.

On the other hand, another important statistic about multifamily properties is that there are now more U.S. households renting than at any point in 50 years. The demand for multifamily properties is increasing and this trend is not expected to change for at least the next ten years. Every year, roughly 350,000 fewer apartment units are built than the amount required to meet demand. This means that every year, there is a deficit of approximately 350,000 multifamily units.  

4. IRR – The Stock Market Slayer**

The Internal Rate of Return (IRR) in Multifamily and Apartment Investing has consistently outperformed the stock market. In a world where financial stability is paramount, this investment sector continues to provide solid returns, often with less volatility than stocks.

5. Diversity of Portfolio: Don’t Put All Your Eggs in One Basket**

Your 401k is an essential part of your financial future, but diversity is key to long-term success. Multifamily and Apartment Investing offer an opportunity to diversify your portfolio, reducing risk and increasing the potential for financial growth. We’ll explore how to balance your investments effectively.

Thank you for joining us in this exploration of why we still love Real Estate Investing, particularly in Multifamily and Apartment properties. Be sure to join the Village Capital Investor Club to gain access to our investment opportunities.