The Multifamily asset class is rapidly expanding and becoming increasingly popular amongst investors as it offers numerous benefits and, with a skilled sponsor, presents a low-risk profile. There are ten advantages we think are the most important for an investor to understand when deciding if Multifamily Investing is right for you.
Passive Income
What is passive real estate investing? Passive Real Estate Investing refers to investing your money in a property with the help of an experienced sponsor, without having to do any ongoing work. As a Limited Partner, you own a portion of the property and receive passive income while the sponsor or asset management company handles all the management tasks. It’s a fantastic way to enhance your wealth and enjoy more time freedom.
Higher Potential for Asset Appreciation
What makes Asset Appreciation important? Over time, the value of an asset can increase due to several factors such as decreased supply, increased demand, or changes in interest rates. While many types of investments can appreciate in value, real estate has a higher potential for quicker appreciation through forced appreciation. At Viking Capital, we usually obtain value-add properties as part of our business strategy to achieve maximum appreciation. By enhancing and improving the physical property, we can increase rental rates, resulting in higher net operating income (NOI) and overall property value.
Cash Flow
Multifamily properties generate cash flow through rental income, the total rent collected from all units. In the present market, the demand for rental housing is high, resulting in the potential for high occupancy rates in strategic locations like growing metropolitan areas and college towns. How does an investor benefit? Investors in Multifamily Investments such as Viking Capitals’ deals, are considered Limited Partners. As a Limited Partner, you share in the overall cash flow of the property.
Another important factor to consider in Multifamily cash flow is the growth of rent prices. Since the pandemic, these prices have been increasing naturally, which is beneficial for both investors and properties as it leads to a stronger yield similar to asset appreciation (above).
Top 20 Markets for Forecast Rent Growth, Q1 2023 – Q1 2025
Note: Excludes markets below a 100,000 unit inventory threshold.
Source: CBRE Research, CBRE Econometric Advisors, Q2 2023.
Tax Benefits
When it comes to making investment decisions, most investors prioritize cash flow and returns. However, multifamily investing offers an additional advantage of mitigating tax liabilities, which can lead to higher overall returns. To create tax benefits, there are three strategies that can be employed:
- Depreciation
- Cost Segregation
- 1031 Exchange
These strategies are most effective when a sponsor takes a proactive approach to managing the investment, allowing profits to grow tax-free over time.
Risk Mitigation
One advantage of investing in Multifamily properties is inherent risk mitigation. Unlike other types of real estate investments, multifamily properties have multiple units, which reduces the impact of vacancies. For example, a single-family home with no occupants has 0% occupancy, while a building with 10 units and one vacancy still has 90% occupancy. This means that cash flow is more stable and risk is minimized. The second benefit of investing in multifamily properties is that despite the state of the economy, there will always be a demand for shelter.
Scalable Portfolio
Diversifying your investment portfolio is an investment strategy recommended by financial advisors in order to mitigate risk as well as achieve greater profitability. When investors invest in multifamily properties, they can expand their portfolio quickly since they require less equity compared to acquiring a single-family property. Moreover, the sponsor takes on the majority of the deferred maintenance and expenses associated with the new property. This enables investors to have more funds available to expand their portfolios and continue building wealth through various avenues.
Demand is High
With the market constantly changing and mortgage rates on the rise, purchasing single-family properties is becoming more expensive. As a result, many are turning to renting as a more viable option. The demand for residential homes is exceeding the supply, resulting in a shortage of available properties. For investors, this means that investment assets are less likely to remain vacant for extended periods of time, resulting in a loss of income.
Easier to Obtain Financing
When seeking a loan for a new property, the level of risk is evaluated by banks and government agencies. It is important to note that buying a multifamily property is less risky than buying a single-family property due to its consistent cash flow and increased number of tenants. This reduced risk makes it easier for investors to expand their portfolios, as banks and government agencies are more willing to provide financing for multifamily properties.
Physical Asset
Multifamily properties are undeniably valuable as they offer a physical presence that can be seen and touched. Unlike intangible assets (stocks or crypto), real estate maintains its value over time, making it a wise investment choice. Even in the face of market fluctuations, an apartment building remains a stable investment as rentership remains high. Here is an example of Viking Capital’s latest physical asset, Park 33.
Current Market Gives New Opportunities
Finding good deals in our current market can be a challenge with high interest rates driving up the sale prices, but when you do find the right one, it can be very profitable. What does the right deal look like? A strong deal should have the following qualifiers:
- A purchase price that is better than or reflects the assessed asset value
- A location that has a market that supports rent and population growth
- Has positive cash flow
- A strong Return on Invest (ROI)
In today’s volatile market, some property owners may need assistance to overcome past unwise financial or management decisions. However, these circumstances also present unique opportunities that are not available during more stable economic times. At Viking Capital, we are experts in identifying these opportunities and have developed innovative deal structures that allow us to secure the best deals in the current market. Our approach includes targeting properties that permit loan assumptions, which offer more favorable terms than those provided by traditional banks.
The Takeaway
Multifamily investing offers many financial benefits. This passive investment is a strategic way to build long-term wealth through tax benefits, cash flow, and asset appreciation. Through organic rent growth, high demand, and limited supply it is clear that this is a strong, low-risk investment class that allows investors to diversify their portfolios.
Visit our website to view our open deals and find your next Multifamily investment. https://vikingcapllc.com
