Multifamily real estate has taken a big hit from the COVID-19 pandemic, but that doesn’t mean that it’s not still a profitable investment. Multifamily properties are immensely popular for first-time real estate investors, simply because it’s a class of asset that most people understand. You’ve probably owned a home or rented an apartment before, and you can understand the basics that these units require. Here are four benefits of investing in multifamily real estate.
- Leverage
Real estate is one of the most popular types of investment because they have a high capacity to be leveraged. The mortgage system allows you to invest less initial capital for a high value asset – you’d need $1 million in initial capital to buy $1 million worth of stocks, but you’d only need roughly $250,000 to buy a $1 million dollar rental property.
- Scalability
One huge benefit of investing in multifamily properties versus single-family properties is that they can grow your real estate portfolio very quickly. This is because of the leverage concept we covered above; it effectively allows you to grow a portfolio that’s worth a large amount without investing that amount right away.
- Taxes
Real estate is one of the most tax advantaged classes of assets due to two factors: mortgage interest deductions and depreciation. Large investment properties typically require large mortgages with 5% plus interest rates, so the annual deduction they accumulate ends up being very high. The concept of depreciation helps shelter real estate owners from even further taxes because it assumes that properties depreciate over time due to wear and tear, even if they’re actually appreciating in value.
- Passive Income
Passive income is king in today’s markets, and there’s no better way to set up a passive cash flow than through rental properties. Especially after hiring a property manager, most landlords never have to lift a finger to keep the income flowing in from their properties. Passive income is the best way to build wealth over time, making real estate even more popular with all sorts of investors.