Updated: Nov 23, 2020
Multifamily real estate just may be the best investment in the world.
Right now people all over the world are signing closing documents to purchase cash flowing real estate; it could be your neighbor, your family member or even you. Here is why...
Cash Flow - When your income exceeds all your expenses, your real estate investment is paying you profit otherwise called cashflow. Cashflow is the life blood of a good investment. A typical single family home or small apartment building in the midwest or south can produce an 8-12% cash return on your down payment.
Equity Growth - Owning real estate in good markets means the value of that property will increase over time. Historically, the average growth rate across the U.S. is 4%. Now if you only put down 20-25% to purchase that asset, and the entire asset increases 4%, that means your actual growth on your down payment will be 5 times greater.
Principal Reduction - While you focus on operating your investment efficiently, your renters are making your mortgage payment for you. This equates to another 5-10% of return on your initial down payment. Remember this is income so it will be taxed.
Inflation Hedge - Locking in a fixed rate mortgage for a 5, 10 or 30 years means every year in which your tenants experience inflation of goods, you are also raising rents to account for increased costs. However your mortgage payment stays fixed.
Tax Efficiency - Operating a real estate investment property, like a business, affords you tax write-offs for expenses such as interest expense on your loan, operational costs, and a magical expense: Depreciation. Depreciation can be taken over 27.5 years or you can accelerate depreciation with a cost segregation report and smart tax planning to get tax free income on your investment property...all within the tax law.
These 5 aspects of real estate investment can add up to over 40%-50% return on your capital. As a bonus, here are a few more ways to realize real estate investment returns.
Leverage - Using the banks money with a mortgage to buy real estate is pretty magical. Partnering with other investors in a syndication, like our latest Real Smart Asset Opportunity, enables investors to buy larger, more stable, and in some cases higher performing properties, is yet another form of leveraging greater returns.
Forced Appreciation - Real estate is a unique asset class, which you can directly improve, adding digital locks to your tenants doors and then charging $5 more per month in rent. Add new windows, appliances, counter tops, back splashes, and more to find out that your rent may well be justified at 20-30% more than when you bought the property.
Refinancing - When you increase value through forced appreciation (rent growth), and improve your asset's financial performance (net operating income) banks may offer to refinance your stabilized property into a lower rate, with longer amortization schedules and possibly with options to pull out a portion of that forced appreciation in the form of a cashout refinance.
Professional Investing - Advancing to a full-time investor affords you additional tax benefits including taking additional depreciation against other business income or your partners W2 income. Our coaching team can talk about these benefits, also seek guidence from a tax professional with experience in real estate investing.
Thank you to Keith Weinhold, Tom Wheelwright, Liz Nowlan, Casey Meyers and all the early mentors which taught us the foundational lessons of real estate investment.