Why Multifamily Properties are Key for Growing Your Clients’ Portfolios

Today’s real estate investment landscape is more competitive than ever before. Low inventory, rising prices, and a volatile economy have made it incredibly difficult for the average investor who’s just looking to build long-term wealth. These conditions have stressed the importance of high quality, scalable, and resilient asset classes to invest in. As a broker or lending partner, guiding your clients to these investments is one of the most important services you can offer to them.

We believe there’s no other asset class which has exemplified these qualities as much as multifamily property. These properties always seem to be in demand, and there’s good reason for it. In this piece, we’ll cover a few qualities that make them such good investments, along with how you can provide the key to portfolio growth by recommending them to your clients.

The Appeal of Multifamily Properties

Let’s quickly go over why multifamily properties are so profitable:

1. Multiple Sources of Consistent Cash Flow: Having multiple income-generating rental units in the same building means that cash flow and cap rates are significantly better than their single-family counterparts. This also means that vacancies have less of an impact, since the remaining units can mitigate the loss of income.
2. Strong Demand Trends: Limited inventory and strong demand have priced many would-be homebuyers out of the market. Instead, data shows that they are turning to rental properties. Heightened demand means higher rents and ultimately better returns for investors.
3. Economies of Scale: It’s often easier, and more cost-effective, to manage multiple tenants under the same roof than owning several single-family properties. Most often, the cost of the maintenance and upgrades you perform will be spread out across all the units.

Portfolio Growth and Stability

The other thing that makes multifamily properties lucrative is their ability to fuel portfolio growth. Multifamily homes are known to be very stable investments (for many of the reasons we mentioned above) and this helps drive faster appreciation than many other assets classes. Additionally, there are value-add opportunities through renovations and other amenities you can offer to tenants. These qualities make multifamily homes the perfect candidate for a refinance loan. By leveraging the equity built over time, investors can fund new portfolio acquisitions without dipping into their own personal finances. And the best part? This equity is funded by the tenants who pay the property’s mortgage off little by little each month.

Tax Advantages and Financial Benefits

Another major benefit of multifamily investments is the tax advantages they can provide to owners. Many of the expenses associated with a rental property can be written off, including mortgage interest, property taxes, repairs, and operating expenses. You can also conduct a cost-segregation study, where all the assets on the property (including the building itself) are depreciated over their usable lifespan. Combining these tactics can lead to massive savings for multifamily investors, and takes returns even further. Be sure your client works with an accountant or other tax professional to maximize their savings.

Why Lenders Love Multifamily

Despite the common misconception that financing a multifamily home is difficult, it can actually be easier for a borrower to be approved for a loan than with a single-family property. That’s because these homes are typically seen as less risky investments due to having multiple income sources and very healthy cap rates. Lenders view these properties as more stable investments, and this can give borrowers access to more favorable lending terms, especially when utilizing DSCR-based loan options. As a lending partner, connecting your client with the best financing options not only helps them achieve better returns, but it’s also an opportunity to build lasting relationships and garner repeat business.

Guiding Your Clients to Smarter Investments

We want to conclude with some quick tips for guiding clients to better investments. Multifamily properties are meant for those who desire long-term wealth, as opposed to quick returns with home flipping. You should position these investments as a strong foundation of a real estate portfolio, with great returns and appreciation fueling opportunities for further growth. Offer them to clients who are starting to take real estate investing seriously, but also know that experience managing rental properties is preferred before moving into multifamily. For established investors, you can position them as strategic upgrades, often providing a better ROI than other assets. You could even utilize a 1031 exchange to help clients defer capital gains and reinvest profits from a previous project.

RCN Capital

To help your clients maximize the returns on their next investment, partner with a lender that can provide you with 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 and lending partners. If you’re looking to offer multifamily financing to your clients, RCN Capital has competitive loan options and an award-winning broker referral program available to partners.