Real estate offers the investor a number of advantages over other classes of investments. Here we will touch on the 6 major advantages of investing in real estate with the focus on multi-family real estate as it is considered the most favorable class for most investors.
Appreciation
Real estate has typically appreciated over time. Different markets and types of real estate at different rates. Oftentimes the appreciation is enhanced by installing better management or amenities. In other situations it is just a matter of improving vacancy and turnover. These actions add value and enhance the rate at which the property increases in value over time. Most syndicated multi-family real estate investments have a targeted holding period of 5 to 7 years before selling the property and realizing those gains in appreciation of property value.
Depreciation
One of the perks of investing in real estate is the ability to depreciate your investment over time. The IRS allows Multi-family real estate to be depreciated on a 27.5 year depreciation schedule instead of the 39 year schedule of commercial real estate. This depreciation can be used to offset income from the property.
The managing partner of a multi-family syndication may opt to have a cost segregation study performed on the property. A segregation study looks at the purchased property and divides the assets into groups that have similar depreciation schedules. For example the appliances are grouped together, the parking area and sidewalks, the mechanical and HVAC, and so on. This allows the owners to accelerate the depreciation due these categories having a 5, 7, 10, or 15 year depreciation schedule by IRS rules. This is a huge advantage to the investor.
Cash Flow
Depending on the size of the property, multi-family real estate will have dozens to hundreds of tenants paying rent each month. Investors in the real estate syndication receive a preferred return of this income (commonly around a 7% annual return) each quarter. Much of this income may be tax free due to the depreciation taken as mentioned above. This makes a more robust income stream than laddered bonds or stock dividends.
Leverage
An advantage of real estate is the ability to invest using leverage – borrowing a large percentage of the funds to purchase a property. This functions to increase the return on your invested capital.
Scale & Stability
Multi-family real estate has scale and stability you do not get when investing in single family homes. Management and maintenance costs are spread out over potentially hundreds of units. Having many tenants with leases renewing all during the year stabilizes income and allows increases in rent to phase in as renewals and new leases come up.
Hands Off and Hassle Free Investing
Investing in a syndicated multi-family property allows you to reap the benefits and have none of the headaches of being an owner/manager. Professional property management takes care of all the property issues. You get timely and detailed reports on the properties performance, a quarterly preferred distribution of income, and K-1 for your tax return on our secured portal.
