As market volatility affects the real estate industry and economy as a whole, investors are looking for more and better ways to protect their wealth. Real estate has always been a good choice for those looking to keep their wealth safe, but with current home prices you’ll need to be smart about which properties you invest in. If keeping your investment safe is your goal, we believe that multifamily property makes for one of the best ways to do that. You get all the benefits of investing in real estate, like appreciation over time, as well as the additional benefits that come with multifamily properties such as rental income and tax deductions. Continue reading to learn how you can build and protect your wealth with multifamily real estate.
Why multifamily property?
You may be wondering: why would I choose a multifamily home over any other type of real estate investment? For starters, multifamily property provides great cash flow since it’s made up of multiple income-producing rental units. That also means it provides a better return-on-investment than other forms of real estate investing. Generally, multifamily property is seen as a stable investment since there will always be demand for housing. For that reason, multifamily homes tend to fair better during market downturns and make for one of the best inflation hedges.
What’s the best way to do it?
Step #1: Set up an LLC
The first thing you’ll want to do when investing in multifamily property is set up an LLC for your real estate business. The main purpose of a Limited Liability Company (LLC) is to protect you from being personally liable in the case of unforeseen circumstances with a property. If you’re trying to protect your wealth, this step will be essential as it separates your personal assets from your company’s. LLCs also add a degree of professionalism to your real estate business, and they may be eligible for certain tax benefits.
Step #2: Calculate your cap rate
After you’ve set up a proper LLC for your venture, you will need to find a property that’s worth investing in. The best way to do that is to calculate the cap rate for the property, which can tell you how profitable the investment will be. You can find a property’s cap rate by taking its Net Operating Income (monthly income – monthly expenses), multiplying by 12, and dividing that number by the property’s overall value. A good cap rate for a real estate property will fall in the 5-10% range. A rate that’s any higher will indicate a very risky property, and any lower will mean it's not a very profitable investment.
Step #3: Invest in a growing market
Did you know that you can make a great return on your real estate property by simply holding it for a period of time? In the US, there are certain markets experiencing high demand which will see property values grow quickly regardless of greater economic conditions. Purchasing a multifamily property in one of these markets can mean your investment will surge in value, on top of the regular income provided by one of these properties. Remember: you don’t have to limit yourself to markets near you. Taking the time to research growing markets can prove to be very beneficial for your real estate portfolio.
Step #4: Make use of tax benefits
The great thing about owning multifamily property is that it provides various tax benefits for real estate investors. For starters, building maintenance and upkeep expenses can be deducted, as can most of the costs associated with running your real estate business. You can also perform a Cost Segregation Study to benefit greatly from depreciation. With a Cost Segregation Study, you depreciate all of the assets on a property at a consistent rate over the usable lifespan of that asset. Almost everything on a property can be included in the study, from furniture and appliances to the building itself. Consider working with an accountant or tax professional to maximize your savings on a property with depreciation.
Step #5: Work with a trusted real estate lender
The easiest way to save on a multifamily property is to find a trusted lender that can get you the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. RCN Capital also has flexible and competitive loan options available. Are you looking to purchase or refinance a multifamily real estate property? Connect with us today.