The multifamily market is booming. In 2021, the value of multifamily lending reached over 487 billion U.S. dollars. For those looking to capitalize on a lucrative investment opportunity, here are 7 reasons to Invest in multifamily real estate.
1. Easier to finance
Multifamily real estate might cost more upfront, but this commercial property is typically easier to finance than single-family homes. This is because multifamily properties generate rental income, which investors can use to cover mortgage payments. In addition, multifamily properties are often less expensive per unit than single-family homes, making them a more affordable investment. As a result, lenders often see multifamily real estate as a less risky investment.
2. Grow your portfolio (Fast)
By purchasing a multifamily property, you’re getting multiple units in one purchase, which can help to increase your rental income and ROI. Instead of spending time and cash on purchasing 200 individual, single-family properties, you can buy one multifamily property with 200 units – a quick and effective way to grow your real estate portfolio.
When it comes to commercial real estate investing or managing single-family rentals, multifamily real estate is relatively straightforward. It’s possible to purchase multiple units with a single loan (unlike a single-family home). Since insurance companies are familiar with multifamily properties, you can get an insurance policy in no time.
4. Forced Appreciation
Forced appreciation can create a surge in property value over a fixed period of time. Multifamily properties offer several ways to drive up appreciation. Minor changes can boost property value while benefiting multiple families and provide many options that can help to increase cash flow. Enhancing communal spaces and amenities like the pool, gym, and outdoor spaces are simple renovations that can force appreciation. Looking to boost curb appeal to scale your profits? Here’s a list of improvements to get you started:
- Update or add on to existing facilities
- Paint the walls, swop out old furniture, and offer advanced technologies
- Tack on extra fees
- Add security features, such as a gate, security guards, etc.
5. Less Risky
Investing in multifamily real estate is generally considered less risky than investing in other property types, such as commercial or industrial properties. This is because multifamily properties are typically less volatile and tend to hold their value even during economic downturns. There will always be a demand for rental units, meaning you can still find tenants for your property even when the market is sharply declining.
6. More Cash Flow
With multiple units under one roof, multifamily properties can generate high profits due to low operational expenses. Other factors contributing to excellent cash flow include consistent management teams who help property managers boost profits while reducing costs—and consistently forcing appreciation, which results in higher rents, more cash, and a better bottom line.
7. Tax Benefits
Debating whether investing in multifamily real estate is the right move? Consider the attractive tax benefits. Investors can look forward to a long list of deductions, from maintenance to operation costs, utilities, and more. You can also take advantage of real estate depreciation and cost-segregation tax during construction and when appliances become outdated, regardless of if the property’s fair market value is rising.
Because multifamily properties offer lots of value to their investors, it’s common to see sophisticated investors with years of experience in a good rental market. Developers and property management will compete for the same buildings or land, driving prices to rise even higher. Some investors can even buy in cash, making it challenging for rookie investors to break into the market.
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