Investing in real estate is an excellent strategy to start building wealth. Real Estate (at 35%) is the most favored long-term investment among Americans! There are many methods for real estate investing—renting, flipping, and wholesaling, to name a few. But one of the favorites among educated investors is multifamily properties—a.k.a. apartment complexes.
Multifamily investing is the preferred investment vehicle for building massive wealth quickly. You can invest passively through syndications, real estate investment trusts (REITs), real estate exchange-traded funds (ETF) or crowdfunding deals, gaining access to high earning potential with low risk and responsibility, and zero hands-on work!
Why is investing in multifamily real estate so profitable?
Here are five reasons why you should think about investing in multifamily:
1. Passive Income & Cashflow
2. Safer Than Traditional Investments
3. Above Average Returns
4. Amazing Tax Benefits
5. Use Your IRA or Retirement Accounts
#1 - Passive Income and Cashflow
The passive owner can leverage the specialized knowledge of real estate professionals and invest alongside them. This allows the passive investor to enjoy the benefits of direct ownership without the responsibilities of management. Money is usually distributed back to the passive investor every quarter. As a passive investor, you will receive the majority of your investment back after the apartment complex has been sold along with any equity that was made on the property.
#2 - Safer than Traditional Investments
A real estate investor who succeeds in passive investing in multifamily homes can rest assured that this success will continue, regardless of the condition of the real estate market. Why? Because the value of multifamily homes is directly connected to their net operating income. Rather than rolling the dice with a certain real estate market, real estate investor who choose passive invest in multifamily homes can rely on a business model to bring about success and make money. This means a stable and predictable return on investing with the right multifamily homes.
#3 - Above Average Returns
Multi-family investment properties offer the best of both worlds: the potential for high returns and minimal risk, if purchased at a good price and with professional management
Among all real estate investment options, multi-family properties have the highest ROI. And they have the second-lowest volatility.
When it comes to real estate investment, multi-family properties offer the best combination of high yields and low risk. With disciplined buying, conservative use of debt, and diversification of assets, you can achieve consistent quality returns.
#4 - Amazing Tax Benefits
Well, just like any other type of investment property, multi-family rentals come with their fair share of tax breaks. Generally there are a number of tax breaks available for these types of properties including: real estate depreciation tax, tax deductions, cost segregation, 1031 Exchange Tax Benefits, and passive income tax benefits.
Real Estate Depreciation Tax- Arguably, depreciation is one of the biggest and best real estate tax shelters for rental property owners. Depreciation works on the principle that properties depreciate over time. Regardless of whether the property is making profits or appreciating in value, owners can deduct a depreciation expense from their real estate income tax. Clearly, it’s evident that depreciation offers investors a massive tax break.
Tax Deductions - A deduction is an expense that’s written off from a rental property owner’s taxable income. The law allows you to deduct the expenses you incur to manage, maintain, and repair your multi-family property from your total taxable rental income. Generally, this means that you can reduce your tax obligation by writing off expenses from your total taxable income. A smaller taxable income equals a smaller tax burden
Cost Segregation - Cost-segregation is similar to depreciation. The only difference is that it also involves the value depreciation of certain items in the multi-family rental property. According to the IRS, these items have a shorter lifespan. That’s why they allow real estate investors to make depreciation expense write-offs on these items for a period of 7 years.
1031 Exchange Tax Benefits - Under section 1031 of the Internal Revenue Code, a property investor can swap their rental units with little or no capital gains tax obligations. Unfortunately, for one to qualify for this tax benefit, they have to meet a few conditions. The following rules apply to 1031 exchanges: The new property must be equal or greater in value than the old one. The swapped property must be used for productive business purposes. Both properties have to be “like kind.”
Passive Income Tax Benefits - A real estate professional is anyone who spends more than 500 hours on real estate annually. A passive income tax benefit is yet another great tax break for investors and owners who aren’t “real estate professionals.” If you spend less than 500 hours on your business, then you are obligated to pay passive income tax instead of normal income taxes. And when the property appreciates in value, you’ll pay capital gains taxes.
#5 - Using your IRA or Retirement Accounts
This is the most passive and straightforward way to invest your retirement account in real estate. In essence, you can simply find stocks, bonds or mutual funds to purchase, just as you would with other types of traditional retirement investing. The only difference, in this case, would be that you have chosen real estate as the industry in which to invest.
Mo2 Investments is a Multifamily Real Estate Investment Firm. We carefully acquire and manage multifamily apartment buildings in markets with a strong economy, that show consistent job growth. This will allow us to provide a strong return to our investing partners. If you are interested in learning more, schedule a 1 on 1 call now. We would love to brainstorm and see how multifamily can benefit you!