Are Multifamily Real Estate Properties a Good Investment?

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Investors who want to expand their investment portfolio may consider looking into real estate. But there are two major options to choose from: single-family real estate and multifamily real estate. Before you can choose between the two, you should consider all the potential risks and rewards.

Here we will be focusing primarily on multifamily real estate: their benefits, as well as their risks and challenges. Understanding how multifamily real estate investing works can help you develop a proper investment strategy.

Should You Consider Investing in Multifamily Properties?

Multifamily real estate investing is for those who want to purchase a rental property. The concept is easy to understand: each unit can be rented by a tenant who then pays a monthly fee. In a multifamily property, there are multiple units that can be rented. Each unit needs to have a functioning kitchen, bathroom, bedrooms, and a living space. [1]

Multifamily real estate investing is a popular form of real estate investing because the asset class itself is easy to understand. A lot of people have experienced renting an apartment before. In fact, more and more millennials are opting to rent rather than purchase their own homes.

According to data from the US Census Bureau, renting is the most common form of housing for the millennial generation. Whereas the national rate of homeownership for the population overall was 64% in 2016, for millennials aged 25 to 29 it was just 31%. For millennials aged 30 to 34 it was only 45%. [2]

The baby boomer generation is also beginning to rent more. A Forbes report stated that between 2009 and 2015, people aged 55 and older represented the biggest shift from homeownership to renting. [2]

This trend is only one of the reasons why investing in multifamily properties is a good move for investors. But before we tackle the benefits of investing in multifamily real estate, let us first discuss what a multifamily property is.

What is a Multifamily Property?

Any property that has more than one unit is a multifamily property. This applies to apartment complexes, condominiums, duplexes, triplexes, and four-plexes. [1]

For first-time investors looking into handson multifamily real estate, something with two to four units may be a good place to start. These smaller properties are usually financed by banks in the same way as single-unit real estate properties.

Larger properties with more than five units are considered “commercial real estate”. These properties qualify for a different type of financing. They are usually more expensive than duplexes and triplexes. [1]

Multifamily properties can continue to scale to have hundreds—or even thousands—of units. This means high-rise apartments are also considered multifamily properties.

Benefits of Investing in Multifamily Real Estate

Investing in multifamily real estate comes with a number of benefits. This includes cash flow, scalability, easier financing, valuation potential, passive income, and tax benefits.

One of the main reasons why investors love multifamily real estate is because of the cash flow that it generates. With multiple tenants, multifamily real estate can generate a reliable and consistent monthly cash flow. Rents are predictable and can be a steady source of income for the investor. [1]

This gives it a significant edge over single-family homes that have only one tenant or a single group of tenants. When the tenant leaves, the property becomes vacant and the cash flow comes to a complete halt. But this is not a problem for multifamily properties because the other units continue to bring in monthly income while you are looking for a new tenant for the vacant unit. [3]

Speaking of monthly income, multifamily real estate is one of the most effective ways to generate income passively for investors. Unlike flipping houses where you have to get involved in every step of the process, rental properties are much less hands-on. 

Another benefit of multifamily real estate is that they are easier to finance. You will have to secure fewer loans for this type of real estate. It can typically be purchased with just one traditional bank loan. This is much easier than buying and securing loans for ten separate single-family rental properties. [1]

Multifamily properties can also help investors scale their portfolio. This is a much faster way to grow than single-family rentals, which you have to acquire one at a time.

Multifamily real estate investing comes with a number of tax benefits. This type of real estate is highly tax-advantaged. Investors can use a mortgage to finance the property. They can then take a deduction for mortgage interest paid during that fiscal year, which is usually higher in the first years of ownership. Investors are able to depreciate multifamily properties over a significant period, even if it is technically appreciating in value. [1]

Investors can even deduct maintenance and operation costs, including utilities, maintenance expenses, insurance premiums, marketing costs, and property management fees. [3]

Overall, multifamily real estate is a relatively safe investment, which is especially attractive when compared to other real estate classes. This is because people always need a place to live—even during an economic downturn. There will always be demand for this type of real estate.

The Challenges of Investing in Multifamily Real Estate

Despite all of its benefits, no investment type is perfect. You still have to be aware of the risks and challenges that are associated with multifamily real estate. Below, we outline some of the most common disadvantages of investing in this type of real estate, so you know exactly what to expect.

For starters, multifamily properties are generally more expensive than single-family units. The cost is definitely one of the biggest obstacles for investors—especially first time real estate investors. Large multifamily properties have a much greater initial expense. So even though it is very lucrative, the upfront cost is also very high. Depending on the location, even smaller apartment buildings can cost millions of dollars upfront. [3]

Even though banks are happy to provide that amount to the right investor, you still need to come up with a roughly 20 percent down payment—depending on various factors. Coming up with that kind of money is difficult for the average investor.

Another factor to consider before buying a multifamily real estate property is management. Although we mentioned that it can be made into a passive investment, there is still a lot of work that goes into managing a multifamily property. Unless you partner with a multifamily syndicator such as BAM Capital. 

Normally when you buy a multifamily real estate property, you take on the responsibilities of a landlord. You have to manage the property, work with tenants, collect rent, handle repairs and emergencies, etc. Some investors hire a dedicated property management company to help take some of the load off their shoulders, but they still have to make a lot of decisions regarding their investment property.

If you compare this with leasing an office space to a single tenant, multifamily real estate is much more management intensive because there are a lot of tenants and units to take care of. If you do not have the time to manage a property by yourself, hiring a property management company is a must. [1]

For first time investors, this can be an overwhelming endeavor. Because of the high barrier to entry and the fact that it is more management intensive, multifamily real estate is not the best investment for less experienced investors, especially those who have never managed a rental unit before.

Another disadvantage to take note of is the competition surrounding these multifamily properties. Their benefits make them very attractive to many different investors, particularly those who have more experience in the real estate industry. This level of competition usually keeps many novice investors out of the market. [1]

So in conclusion, multifamily real estate—just like any other real estate investment—has its own share of advantages and disadvantages. Whether it is a good investment for you or not depends entirely on your financial goals and capabilities.

However, there is one type of multifamily real estate investment strategy that eliminates most of the disadvantages mentioned above. Multifamily syndication is a good option for accredited investors who want a truly passive investment in real estate.

What is Multifamily Syndication?

Multifamily syndication is a type of real estate investment that involves multiple investors pooling their resources together to buy a single real estate asset. This is usually done in order to purchase properties that are too expensive for a lone investor. [4]

Any type of real estate can be used for a syndication deal. But because of the various benefits of multifamily real estate, it is the most popular type of property for syndication. Apartment complexes and other multifamily properties are known for their reliable cash flow. The fact that there are multiple units that generate income makes this a very lucrative investment.

This also solves the management problem of traditional real estate investing. In a syndication deal, the syndicator who puts the deal together is also in charge of managing the property.

The syndicator, also known as the sponsor, locates the property, puts the deal together, coordinates the transaction and financing, and then looks for investors who will participate in the syndication. Passive investors supply most of the capital required in exchange for equity in the real estate.

The syndicator is in charge of property management, although they may also hire a third party property management company to handle it for them. Either way, investors do not have to take on the responsibilities of a landlord.

Because of the way it is set up, investors can participate in the syndication deal even if they just produce 10 to 15% of the capital. This also lowers the barrier to entry, which is one of the biggest limiting factors for multifamily investors. [5]

It is important to note that many multifamily syndications are accessible only to accredited investors. These syndications are structured under the US Securities and Exchange Commission (SEC) Rule 506(c). BAM Capital is a syndicator that works specifically with these accredited investors.

Although there is no specific process of accreditation for real estate investors, there are certain qualifications that investors must have before they can participate in these syndication deals. Their annual income needs to exceed $200,000. Or if they have a spouse, their income needs to be over $300,000. [6]

Alternatively, if the person’s net worth is over $1,000,000 they can also be considered an accredited investor.

Some syndication deals are accessible to accredited investors as well as sophisticated investors. People who have enough experience and knowledge when it comes to real estate investing are considered sophisticated investors. They are able to assess the risks and rewards of real estate investments before participating, thanks to their advanced knowledge. [6]

Multifamily syndication is a simple yet effective way to add real estate into your investment portfolio. Of course, the best way to participate in real estate syndication is by finding a reputable syndicator that you can trust. This is where BAM Capital comes in.

Work With BAM Capital: The #1 Multifamily Syndicator in The Midwest

It is much easier to locate a real estate syndication deal if you work with a trustworthy syndicator with a track record for success. BAM Capital is an Indianapolis-based syndicator that focuses on Class A, A-, and B++ multifamily real estate properties in the Midwest.

BAM Capital values low risk investments—which is why they use a vertical integration model that creates forced appreciation and mitigates investor risk. [7]

BAM Capital is the best multifamily syndicator in the Midwest. They will do most of the heavy lifting for accredited investors, including property management. With a syndication deal, you no longer have to purchase an asset on your own. They will locate the deals, negotiate the purchasing and financing, and arrange everything for their passive investors.

BAM Capital has a consistent track record that makes them very popular among passive investors. In fact, they currently have $700M AUM and 5,000 units. Schedule a call with BAM Capital and invest today.


BAM Multifamily Growth & Income Fund III

BAM Capital created this fund in order to yield consistent and reliable cash flow, long-term appreciation, and accelerated tax benefits. The fund aligns with BAM Capital’s demonstrated track record of successful multifamily investing by continuing to implement our signature investment thesis, now in fund format. The fund aims for greater overall returns and lower risk through a multi-asset diversification strategy.

  • Consistent passive income
    Lower-risk assets with in-place cash flows with the ability to distribute preferred return after acquisition.
  • Significant tax benefits
    A cost segregation analysis allows for accelerated deprecation to years of ownership. This large passive loss gets passed onto investors through a K1.
  • Vertically integrated company
    In-house property management and construction allow for predictable cost reduction and value add.

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