Multifamily rental properties are a compelling option for real estate investors, and they offer some great advantages both in the short and long-term. These investments provide reliable cash flow to investors with some very attractive cap rates, since having multiple rental units generates more income than a standard single family home. Investors can also benefit from economies of scale and tax benefits to take their returns even further. Additionally, the strong demand for rental homes makes investing in them a smart strategy. Want to learn more? Continue reading as we dive into the benefits of investing in multifamily property.
The greatest benefit of investing in a multifamily property is acquiring multiple income generating rental units at once. Multifamily homes have better cap rates than single family properties, typically ranging from 5-7% as opposed to 3-5%. The income you receive from a multifamily home is also very reliable, and you are at less risk of losing out on income from vacancies when compared to single family investments. You will still have other rental units generating income to compensate for the loss of income, and vacancies present a great opportunity to make updates to the unit, giving you the potential for increased rental income in the future.
Another major advantage of multifamily investments is the cost savings that come from economies of scale. It is often easier, and more cost effective, to manage multiple units in the same building than having multiple separate rental properties. Many of the benefits of taking care of maintenance and repair items are shared across all the units in the building. Additionally, you can make bulk purchases on supplies and other maintenance items to save on operating costs.
Multifamily properties are uniquely positioned to help investors further grow and scale their real estate portfolios. Rental properties build equity over time that is financed by the rental income you receive each month. Additionally, rental homes are in very high demand which means they have strong appreciation potential over time. The appreciation and the existing equity you have built can be taken out of the property with a refinance loan, allowing an investor to finance the down payment for additional property acquisitions.
A hidden benefit of investing in rental properties is the various tax benefits and deductions that come with them. Investors can make use of depreciation for the property and all the assets included on it to massively reduce their taxable income. Additionally, maintenance costs, property management expenses, and mortgage interest can be deducted. These benefits can combine leading to massive tax savings for an investor. Be sure to work with an accountant or other certified tax professionals to maximize these savings.
One thing most investors don’t realize is that securing financing for a multifamily home can often be easier than with a single family property. Lenders often view multifamily properties as less risky investments because of their stability and solid income potential, which can mean more favorable terms and less strict qualification criteria. There are also various government-backed financing options for these properties, such as FHA loans, as it is in the interest of the federal government to provide housing for the population.
And as we mentioned, multifamily investments are a great choice for those looking to leverage equity to rapidly expand their real estate portfolios. These properties build equity fast, and have strong potential for additional gains through appreciation.
Multifamily rental properties are a great way to diversify your real estate portfolio, and also to mitigate the risk of negative economic forces like inflation. The reduced impact of vacancies makes them a very stable investment that continues to provide investors with a consistent return. And by spreading out your portfolio across different locations and property types, you are less exposed to risk in any particular location or investment. Rental real estate also tends to keep up with the rate of inflation, and can even continue to grow in value despite economic downturns.
It’s been proven that younger generations are choosing to rent instead of purchasing real estate property. The growing demand for rental properties can prove to be a very good thing for multifamily investors. Additionally, growing trends in urbanization help drive multifamily real estate growth. These trends are expected to continue into the future, making multifamily property a great investment choice in the long term.
The easiest way to save on rental property financing 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 an investment property?