Multi-family properties are one of the cornerstones of some wealth building strategies. Some people wonder how this remains a consistent option, despite shifts in the economy. Despite changes in the economy and real estate market, industry experts like Patrick Carroll stand firm on multi-family properties being a solid investment.
Consider these five reasons to invest in a multi-family property if you’re trying to decide if this type of investment is a suitable addition to your portfolio.
#1: Strong Rental Housing Demand
Rental properties will always be in demand, even during an economic downturn. Some young adults are leaning more toward renting than owning a home because they perceive home ownership as too costly. This is especially true in more urban areas where some multi-family properties will experience low vacancies and a steady stream of tenants.
#2: Leverage of Scale
Another important reason is that you can leverage the power of scale, which means that you can control some expenses by having multiple streams of income all in the same location. This reduces property management costs when compared to the same number of single-family homes strewn across the target area. Leverage of scale enables you to boost your profit.
#3: Stable Cash Flow
Cash flow is a bit more stable when you have a multi-family property because the chance of all units being empty at the same time is low. Even if you have a few units that are vacant for a couple of months, the buffer of cash flow from the other occupied units is beneficial. It’s still a good idea to keep a back-up fund even though you have the stable cash flow.
#4: Appreciation and Value Opportunities
Multi-family properties tend to appreciate in value over time. This is particularly true if you invest in maintaining and upgrading the property. Certain upgrades, such as adding amenities, renovating the units, and adding more green energy options, are typically ideal investments.
#5: Tax Benefits
There may be tax benefits available for investors of multi-family properties. Interest deductions and the potential for 1031 exchanges are beneficial for some investors. By reducing tax liability, you can increase the reinvestment opportunities you have. Being able to reinvest means you can grow your money a bit faster.
Investing in multi-family properties is a possibility for diversifying your investments. Consider the possibilities of the investment so you can determine if this is a step you want to take.
