Everybody invests, and everyone wants to do it right.
The benefits of investing are obvious, but the baseline goal for many people is financial peace of mind. You want to know that the money you’ve worked hard for is working hard for you. Good investments allow you to generate passive income and grow retirement funds or other savings at a steady rate and decent return.
Investing in the stock market — generally in the form of mutual funds or other managed portfolios — is a classic, sound investment strategy. As the economy grows, so does the value of your investment. For those who aren’t looking to micromanage their money, stocks are a tried and true way to earn income on excess capital.
But for many investors — perhaps including you, if you’re reading this with any interest — the stock market simply isn’t good enough. While you can expect a decent enough return over time, your investment at any point is subject to forces outside your control: market stability, fund management, and political whims. Your only path to profit is passive stock appreciation, and there’s nothing tangible about your investment to save you if something goes wrong.
Contrast this with real estate investment: you own something with inherent value (a property) and your equity in that investment only grows over time. If you’re savvy enough to hunt down the right property — it’s a good idea to partner with an experienced real estate agent who knows their way around investment properties — then you stand to gain a lot more from your money than you would through the stock market.
Benefits of Investing in Real Estate
Real estate investments allow you to take a truly active role in growing your capital. While it’s true that properties — like stocks — tend to appreciate in value over time, the best investors are out to generate profit on top of this. In this way, they reap the benefits of passive income while still leveraging their assets to achieve wealth and financial freedom.
If that’s not convincing enough, property investments are looked upon very favorably by the IRS. If you know what you’re doing, your real estate can help you defer more taxes, deduct more expenses, claim bonus depreciation, and even earn tax-free income.
Real estate investment doesn’t mean just buying properties. There are many different strategies for making money, including buying to hold, house-flipping, wholesaling, commercial leasing, and more.
Which of these paths you take will depend on your investment goals, risk tolerance, available capital, time commitment, and other factors. However, if you’re willing to put in the work for the right return, one of the most successful strategies for investors is buying multifamily properties.
Why Should You Invest in Multifamily Properties?
Multifamily properties — for example, apartment buildings — are contrasted with single-family properties in that they contain multiple units that can be rented out simultaneously. This makes them more complicated to manage than single-family homes, but also less volatile. In a multifamily unit, no single tenant, vacancy, or missed rent check can severely disrupt profitability.
And though multifamily properties are naturally more expensive than single-family units, their strength as investment vehicles can actually make it easier to finance them. Lenders, like investors, are attracted by the property’s diminished risk, stronger cash flow, and lower likelihood of foreclosure. This lucrativeness can also translate to a more competitive interest rate.
That’s not the only draw for investors. A multifamily property is a time-efficient way to build a large portfolio and start making real money. And because of the greater rental income, it will often be cost-effective to hire a property manager to deal with the day-to-day operations of the building.
Not only will this free up time to further grow your portfolio, but you won’t have to deal with the headache of advertising, finding and screening tenants, collecting rent, handling evictions, and physically maintaining the property. Now you’re right back to earning passive income — only a whole lot more of it.
What Do You Need to Know to Get Started?
Investing in multifamily properties isn’t just a stroll through the park. Doing so successfully will require a significant amount of capital, attention, responsibility, and liability.
You’ll have to thoroughly understand the market as well as metrics like rental rates, vacancy rates, cap rates, and cash-on-cash returns to find a property with enough potential to make the investment worthwhile. This is especially important for multifamily properties, as the cost of inaccurate projections will be compounded by the higher quantity of units.
You’ll also need to keep bigger cash reserves on hand to cover unexpected events and retain the service of professionals who can verify zoning law adherence and set up the necessary legal structures (like an LLC) to protect your investment.
But if all that work doesn’t turn you off, multifamily property investment could be just the opportunity you’re looking for. To get started, connect with a local Clever real estate agent who understands the investing market. They can walk you through the entire process — from finding the right property to renting it all out — far better than any article.