Benefits of Multifamily Investing
Written by Nick Holevas on March 3, 2019
I am knee-deep in tax return preparation for my multifamily partnerships, whose lead investors on these entrepreneurial endeavors need to distribute the K-1s to their passive partners prior to March 15, 2019. 

As I was going through the accounting records of one of these partnerships, I could not help but notice the whopping 187% appreciation over a two-and-a-half year period, which got me inspired to write this post about multifamily investing.

My husband and I invest both in single and multifamily dwellings, both as passive and active investors, depending on the deal. I will go over my reasons for investing in single family rentals on another post, but here are the top 5 reasons I love multifamily investing:

1. Time.   If you are anything like me, who sometimes suffers from deal analysis paralysis, going around looking at twenty houses, I would lose my mind. Not only will I not have the energy to do it all, I would probably get so lost in the research, I would not do the deal at all.  By buying a twenty-unit apartment building, however, instead of twenty single-family homes, the time and energy alone expended on doing research and analyzing each piece of property is cut to 1/20th of the time. That alone is a great reason for investing in multifamily dwellings.

2. Economy of Scale. When I need to replace a roof, for example, on a single family home, the cost per unit is a lot more expensive than replacing the roof on an apartment building with twenty units. Granted, when time comes to replace a roof on this apartment building, the project is much more expensive that an single family roof, but still, it only costs a fraction of the single-family home. 

3. Lower Risk.  When faced with vacancies, a single-family home is terrible, as I sometimes have to wait two or three months to get the right tenant. That three month vacancy takes its toll on my cash flow. I still have to pay the mortgage, the utilities while it's vacant, the landscaping and other maintenance items, as the place needs to be in tip top shape for my prospective tenants. In a twenty-unit dwelling, however, I still have 19 other tenants going to their 9-5 jobs in order to give me their number one payment of each month, their rent. This is what makes multifamily a much lower risk.  

4. Financing. Multifamily deals are priced differently, as they are priced by their net operating income (NOI) and the capitalization rate (cap rate) of the area. Single-family homes are priced based on the market approach, which means we have to look at the comps for each area and what each of our neighbors have sold their homes for, and what the availability is in the inventory of the market. Since multifamily is really considered a commercial deal in the eyes of the bank, it is much easier to get financing, as the amount the debt service the bank takes into consideration is based on the NOI of the building. In addition to that, as a lead investor I am able to raise funds for the thirty to thirty-five percent the bank requires for the down payment through a crowdfunding or syndication deal.  

5. Forced Appreciation. By rehabbing the units, cutting costs, and increasing rents to market, I create what is called a forced appreciation factor.  I will never get this kind of appreciation in the single-family home, because, like I said before, its price depends on the comps of the area. For the twenty-unit apartment building, if the cap rate of the area is 10%, and I increased the NOI by just $10 per unit per month I am looking at an appreciation of ($10 x 12 months x 20 units) / 10% = $24,000. By playing this game, my tax client above was able to sell his apartment complex at 187% appreciation within 2.5 years. 

Nick Holevas, CPA

Nick Holevas, CPA, helps multifamily real estate investors analyze deals and create awesome returns on investment for themselves and their partners, by taking over the back office, accounting, and tax headaches. If you want to get rid of these headaches and create awesome returns on investment, while maintaining your fiduciary duty to your investors and partners and staying compliant with federal and state taxing agencies, schedule your free consultation session today!
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