Cashing In: Why Investing in Multifamily Properties Makes Financial Sense

March 8, 2023

The demand for rental housing continues to outstrip supply by hundreds of thousands of units each year across the United States, according to The National Multifamily Housing Council and The National Apartment Association. This trend is set to continue for the foreseeable future due to shifting demographic preferences, with both younger and older individuals favoring renting over owning property. This surge in demand for rental properties provides a strong indication of sustained revenue growth in the multifamily sector, making it a wise investment choice.

Below are four reasons why investing in multifamily property makes good financial sense:

1. Economy of Scale

Multifamily investing offers an advantage known as “economy of scale,” meaning there are cost-saving benefits to being bigger. For example, if a multifamily property requires roof repair, the owner would be collecting 10 rents for 12 months, making it a better scenario than a single-family property where only one rent is collected for 12 months. Managing multiple single-family properties would also be costlier and less efficient than managing a single multifamily property.

2. Greater Control of Property Value

Multifamily properties are perceived differently than single-family properties due to their commercial nature. They are run and managed as businesses, and their value is largely determined by net operating income. As a multifamily property owner, there are numerous ways to increase the property’s value independently of the surrounding property market, such as adding amenities like laundry facilities or paid parking.

3. Positive Cashflow

Multifamily property owners can increase cash flow by adding amenities to the property. Additionally, tenant vacancies in multifamily properties have less of an impact on cash flow than in single-family properties, where a vacancy can significantly decrease cash flow.

4. Tax Benefits

Multifamily property owners are eligible for tax advantages, including the “depreciation deduction” and the ability to use rental income to pay down the property’s mortgage. These tax benefits, along with other deductions and incentives, can significantly impact the profitability of a multifamily property.

In summary, multifamily properties are a tangible asset that can represent a sound focal point for investment and wealth creation. They offer less risk than other commercial real estate investments due to shorter lease terms, and the favorable demographic trends, such as an increase in professionals and empty nesters, make them an attractive investment option. Multifamily properties are a solid strategy for investors looking to achieve financial freedom through strong investment returns with low risk.