Learn the ways a multifamily investment can generate good cash flow and increase your wealth over time.
With multifamily property investments, you have the potential to benefit from not one, not two, not three, but four sources of revenue that contribute to your ROI.
In this article, I’m going to cut right to the chase and break down the four sources of returns associated with multifamily real estate investments. Buckle up.
If it’s cash flow you’re after, commercial real estate is a pretty attractive option, and multifamily properties are arguably the strongest investment.
A quality, well-managed, strategically located multifamily property provides a steady stream of cash in the form of rental income. I’ll quickly run over how to calculate the cash returns generated from your multifamily investment. Start by multiplying the monthly rent per unit by the number of units to get the gross monthly cash flow. Then, take that gross monthly income and subtract money held back for reserves, in addition to expenses like marketing, maintenance, management fees, and mortgage payments.
Multifamily property rental income returns are usually higher than dividend yields. Although returns may vary widely due to variables like location, you can expect early cash returns to fall between 5 and 8 percent and rise to 10 to 12 percent after a few years. By comparison, stock market returns average between 6 and 7 percent.
As you likely already know, price appreciation refers to the value of a property over time. When it comes to multifamily properties, there are two primary types of appreciation that can affect the value:
In real estate, appreciation is often where you generate the largest returns. That said, appreciation is also most prone to market fluctuations of these four return sources.
This is an automatic perk of owning multifamily real estate that often gets overlooked. Principal pay-down is the reduction of the amount owed on a mortgage by partial payments made towards the debt. When you own a multifamily property, your loan or mortgage balance is effectively paid off by your tenants each month with their rent payments. With each principal dollar that is paid on your mortgage, you increase your equity in the property. The rise in equity can amount to a 2 to 4 percent annual return. It’s a slow-but-steady benefit that can really add up over time.
Last but definitely not least, the tax benefits associated with multifamily investments are numerous and can be a major component of total returns. Here are two specific strategies I encourage you to take advantage of:
Within our Global Investor Alliance, we help educate you on how to analyze and invest in multifamily apartment syndications to retain and grow your wealth over time. It doesn't take any special skills, just some time and dedication to do the work and take action.
If you want to talk more about the different ways to realize a superior return on your multifamily investments, feel free to book a free chat with Karen and I.