Investing in real estate can provide you with an abundance of opportunities like financial growth and security. When choosing to invest, there are endless possibilities like single-dwelling properties, condo buildings, commercial and more. It is essential to understand the differences between each type of real estate. Commercial is a property someone usually rents from the owner to make a profit by selling consumer goods and services. Single dwelling refers to single detached; sometimes bungalow homes. When looking into multifamily properties to invest in, you will notice that this includes housing where multiple separate units are within one building, such as the condominium, as mentioned above. Let’s take a look at the top 10 reasons you will want to invest in real estate, focusing on multi-family housing locations.
When you compare the prices of single detached homes to those of multiple dwellings, you might want to turn the other way instantly. Investors looking to get a loan to purchase the properties of investment will find that your lender is more likely to approve a request when these funds are going towards a multi-family property.
Lenders tend to look over your income, among other things, when making the decision to approve potential loan holders. When you bring forward a property like an apartment building with 100 units or more, this will show the lender you are likely to have a steady form of cash flow. This proves your loan has the potential of not being a risky investment.
Potential for Extra Help
Homeowners know the upkeep of their home, and the land it lays on can be time-consuming at times. You also have maintenance issues like fridge and stove repairs, painting, to name a few; the same goes for your investment properties. In fact, it may be more of a task if you have new renters annually. Landlord etiquette will include fresh paint and a clean house for the new tenant, and any extra repairs the previous tenants may have left. Being the owner of a multi-family home offers the ability for you to take advantage of additional funds you will be receiving every month.
Some of these advantages include hiring a property management company. When you bring on these companies, they usually get a percentage of the monthly income your investment generates. In return, they take care of all upkeep and maintenance. If a unit has a stove that breaks down, your property managers will be called, and they take on the responsibility of finding a contractor to come in and make any needed repairs. Buildings such as condos and apartment buildings will have lawn care and snow removal, which will also now be the responsibility of the property managers. This added benefit allows you more time to search for other investment properties and handle the logistics of your business.
Investing can be a gamble, more so when investing in the stock market, bonds, and more. Real estate, on the other hand, is usually more secure. Multi-family homes add security because of the multiple units a building may offer. The economy isn’t a guarantee and when it is going down, being an owner of a multi-unit property allows you to offer to house to many individuals. We are a species that needs a roof provided to us.
During recessions, many are forced to sell their homes and are looking for rental options, which gives you an advantage as an investor. Rather than having to sell, you can provide members of your community a place to live. So even during an economic crash, chances are you will be receiving a steady income.
American Opportunity Tax Credit, Lifetime Learning Credit, and Savers Tax Credit are just some of the few benefits Americans could qualify for. Being an owner of multi-family homes gives you the added benefit of increased deductions. Accountants can take off the interest paid in mortgage during the last fiscal year, which tends to be higher in the first year as your loan will begin to amortize. In addition to interest deductions, you also have the ability to claim depreciation value. You will be allowed to use this as a deduction for a 27.5-year period. As someone who is claiming their taxes, you can use your depreciation value to offset a significant portion of your income you made off the rentals each year.
Multiple Investment Partners
A reason people gravitate towards multi-family investments is because of the countless one can do this. There can be a group of investors when discussing ways to invest in a property with multiple units to rent out. This allows you to invest via syndication, which is the transfer of something for control or management by a group of individuals or organizations. This will enable investors to reap the benefits while taking on a more passive role in the partnership.
You can also invest in a multi-family fund that has the potential to invest in properties all over the country. There are more ways to invest in such properties, so it is essential to do your research to find the perfect investment opportunity for you.
It is important to diversify one’s portfolio to lower your risk. This allows you to put your eggs in more than one basket, so to speak, so you don’t create any unwanted risk to your capital. This will keep your investments protected by companies that aren’t necessarily doing their best.
People may think they should steer clear of real estate investing because they worry about the length of time before seeing profits. This may be especially true for people looking at a property with more than two units that came with a high price tag. It is essential to know that while you will wait for your return on investment, the appreciation value of multi-family homes is higher than those of a single dwelling.
When we think about investing in real estate, looking at the different options can be intimidating and nerve-wracking. We have discussed several reasons to invest in a multi-family property but let’s take a look at further options someone can obtain.
Other types of residential real estate include our single-dwelling homes. You will find many added benefits that include some of the following:
Homeowners get the luxury of building equity. Equity can be defined as the difference between what you owe on your mortgage and what the house is currently worth. Let's say you owe $150,000 and your home is worth $200,000, then you will have an equity of $50,000. Over time the value of your home can increase and be worth more, especially if you do renovations, add a pool, etc. Once the value of the property increases and your balance owing decreases, your equity will rise.
Equity can be used as leverage when looking for another loan to invest in more property, purchase a car, among other things. When having equity to leverage and the ability to invest in more homes for extra income, you are adding cash flow and wealth—a win-win for investors.
Real estate is considered one of the investments that are an inflation hedge, making it so appealing. Economies are expanding, which allows for an increase in rent prices, giving you higher capital values.
How inflation hedges work:
They help protect the value of your investment. Real estate tends to bring investors a great return, but inflation increases, you could be at a loss. When an asset is an inflation hedge, you generally keep the value of the investment high while the intrinsic value is lower.
Homes are tangible assets made up of several products: Wood, brick, Glass, and more. Making changes to your property is sure to increase the value. Cosmetic changes that can have your home looking beautiful and modern can increase the value of your investment. Changing the paint, adding modern light fixtures, updating kitchen cabinets, floors, and basic hardware are some of the less inexpensive ways to make cosmetic changes. A new roof is a prime example of structural repairs that can be done to increase the value. Having the freedom to improve your tangible assets is a reason many find real estate investment so attractive.
Many people gravitate towards real estate investing because of the many added benefits and the return on investment you get with such minimal risk. You can start small and gradually work your way up the ladder when investing in multi-family homes while reaping in all the benefits, which makes this a well-loved way to increase your monthly cash flow.