Many people who are new to real estate investing may not be sure where to begin with their portfolio. As a result, most people choose to go with single-family residences for their first investment, thinking it will be easier and less costly than any other type of property. An experienced investor, however, will tell you that this is not necessarily the case. In fact, many investors would be better off purchasing multi-family properties for a variety of reasons including cash flow, ease of finance, and the various tax benefits that come with multi-family real estate. There are many benefits to choosing multifamily properties, so let’s discuss why you should go with one for your next real estate investment.
Higher Cash Flow
First and foremost, multi-family properties have the opportunity to generate a very high cash flow because of the multiple units that can be rented out. Even though these properties tend to have a higher cost of entry than single-family homes, the higher cash flow means you’ll recoup your initial investment faster, and you’ll be able to move on to other investments. These properties are also more resilient to economic downturns because of their inherent cash flow, making it a very wise investment.
If you’re looking to grow your real estate portfolio quickly, multi-family properties are perfect for you. With these properties, you can acquire multiple cash-flowing units at the same time, whereas with single-family homes each acquisition will be a separate, time-consuming process. One great way to scale your business with multi-family properties is starting out by acquiring a duplex, then once you have some experience, moving on to a four or five unit property. You may even want to consider a foray into commercial real estate buying properties with more than five units.
Easier to Finance and Manage
Most borrowers don’t know, but it may be easier to secure financing for a multi-family property because lenders view them as being less risky than single-family homes. This is because of things like their inherent cash flow that we mentioned earlier. Plus, even if a multi-family property is partially vacant, the occupied units will still be generating income meaning you’re less likely to miss a monthly payment. These properties also have the benefit of being easier to manage, because it’s simpler to manage multiple units at one location than to manage multiple properties spread in different locations. It might even make sense to hire a property manager to handle the work for you, which is much more practical with a multi-unit property.
Multifamily properties also come with a number of tax benefits to consider. First, you can deduct operational costs like utilities, maintenance and repair expenses, and property management fees. Second, you can perform a cost-segregation study to reduce the taxable value of the property and have depreciation working for you. A cost-segregation study is a method where you depreciate the value of the assets on a property over the usable lifespan of the asset. Everything from the appliances, external improvements like fences, and even the building itself can be included in the study. Each item will have different usable lifespans as well (the appliances may last 10 years at best while the fence could easily last 15). This high amount of depreciation, especially in the first few years, means the owner can report a high net-loss on the property leading to lower taxes.
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. Looking to purchase a multi-family property for your next investment? Connect with us today.