August 10, 2021

5 Attractive Attributes of Multifamily Investments

Multifamily real estate is one of the most attractive asset classes within commercial real estate. There are a number of reasons why it is a highly sought investment by individuals, REITs and pensions funds. This article will highlight the top attributes and why multifamily needs to be part of your investment portfolio.

1. Financial attributes

Multifamily is considered the best investment out there. When bought or developed right, this asset class provides steady monthly cash flow, long-term appreciation and is very tax efficient. Real estate has always been attractive for high income earners due to the high yields and low volatility compared to the stock market that come with investing in multifamily real estate.

2. Stable values

Real estate, specifically multifamily, attracts many people because of its low volatility compared to other asset classes. This is why it can be considered one of the safest investments within the various real estate options. In the event of a crash, multifamily real estate is not as likely to lose value as quickly as stock markets are. Here is why, the value of the asset is based on the reliability of the income stream. Multifamily provides affordable housing which is always in demand especially in strong metro areas with growing populations. In the event of a financial and hence real estate crash multifamily assets historically are able to retain their tenant base and corresponding cash flow compared to say industrial, retail and office. The income of the property is what drives the value, not the comparable sales alone. Of course, comparable sales can help determine the price of the asset, but again it is not the only method, therefore giving multifamily assets more stability during a real estate crash.

3. Provides Diversification

Multifamily real estate is also a good investment because it is well-diversified. Diversification is a cornerstone of prudent investing. If you spread your wealth out to several different assets, you will be in better shape should one of them take a downturn in value, or experience any other negative economic indicator, such as increased vacancy or bad debt. Real estate also tends to hold up well when stock markets experience problems and is not subject to as much volatility. During times of inflation, we see more investors attempting to acquire tangible assets.

4. Increase cash flow

Savvy operators are able in add ancillary services and increase cash flow. There are a number of ways to do this. You can charge various amenity fees such as landscaping and pool service can be billed back to the tenant as an “amenity fee”. Operators can charge for things like pet fees, parking, washer dryer rentals, security packages, cable packages, utility and insurance packages, etc. By boosting the income of the property you are increasing its value.

5. Low mortgage rates and leverage

Multifamily real estate is financed with debt at low-interest rates and longer amortization periods. Compared to other real estate asset clasess interest rates are considerably lower for multifamily. This attribute amplifies your levered returns on your equity. Interest paid also acts as a tax shield since the CRA allows you to deduct interest and reduce the taxable income.

These are only a few of the many benefits to investing in real estate. Multifamily continues to be one of the strongest asset classes within the sector. Investors who are looking for well-diversified, low volatility returns need to consider multifamily.

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Chris Chornohos is a leading real estate consultant, investor and developer with extensive experience within the commercial real estate industry. Contact me today.

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