How to Build Wealth Through Multifamily Real Estate Investing

by | May 30, 2023 | Accredited Investor, Real Estate Investing | 0 comments

A lot of investors are wondering if there is any truth to the stories of millionaires living the good life off of the passive cash flow from their real estate investment properties. Perhaps you have heard of statistics mentioning that 80% of millionaires are passive investors who can attribute their wealth to real estate.

The truth is there are plenty of reasons why wealthy people put their money into multifamily real estate investments. Those who are tired of the unpredictable nature of the stock market may gravitate towards more reliable options. We are here to discuss why you need to put passive investing—specifically multifamily real estate investing—into your radar.

If you want more control over your investments and have the ability to actively grow your wealth, you should look into multifamily real estate investment opportunities.

Why the Rich Put Their Money into Apartment Complexes​

There are several reasons why wealthy individuals and institutions choose to invest their money in apartment complexes.

For starters, you can rely on a multifamily property to generate a steady cash flow. Apartment complexes can provide a steady stream of rental income, which can be especially attractive to those looking for stable, long-term investments.

As long as the units are occupied, the rental income can be reliable and consistent. Because multifamily properties have plenty of units, investors don’t have to worry about one or two units becoming vacant. The property can still produce a steady cash flow, making it an ideal choice for anyone who wants to become a passive investor.

Investing in apartment complexes can also be a way to diversify one’s investment portfolio. This is because real estate tends to perform differently than other asset classes, such as stocks or bonds. By investing in real estate, investors can spread their risk across different types of assets.

Real estate investments even offer several tax benefits, including deductions for expenses related to the property and depreciation.

Compared to other investment vehicles, multifamily investing gives you a certain level of control while you are creating generational wealth. You are able to make decisions on how the property is managed. Through upgrades and improvements, you can even potentially increase its value. This means you can directly influence the investment results. [1]

Investing in apartment complexes can provide wealthy individuals with a combination of steady income, appreciation potential, and diversification, making it an attractive option for those looking to grow their wealth over the long term.

Rising Demand for Housing​​

People always need a place to live. With that in mind, multifamily investing can be even more lucrative due to the rising demand for housing.

The demand for housing usually fluctuates based on various economic factors like changes in employment rates, interest rates, and income levels. For example, low interest rates make it more affordable for people to borrow money to buy a home. This has led to an increase in demand for housing, as more people are able to enter the market.

It can also vary depending on the specific location and demographics. Generally speaking, there is a rising demand for housing due to factors like population growth and urbanization.

In addition, the COVID-19 pandemic has also led to changes in housing demand, with many people looking for larger homes or homes with outdoor spaces as they spend more time at home.

Because there is a growing demand in the housing market, investors can capitalize on this and start investing in multifamily properties like apartment complexes.

Tax Depreciation Benefits of Owning Real Estate​​​

One of the key advantages of owning real estate is tax depreciation benefits.

Depreciation is the process by which the value of an asset is gradually reduced over time due to deterioration or obsolescence. It is the incremental loss of an asset’s value due to assumed wear and tear. [2]

For tax purposes, the IRS allows property owners to deduct a portion of the cost of their real estate investment each year as a depreciation expense. For real estate investors, this means they can reduce their tax liability and keep more of the rental income.

A real estate investor can take the depreciation deduction for the property’s entire expected life. This is currently set by the IRS as 27.5 years for residential properties and 39 years for commercial properties. [2]

So for example, if you purchase a home that you intend to use as rental property, and the building’s value is at $300,000, you can divide that value by its 27.5 year life expectancy, meaning you can deduct $10,909 in depreciation each year.

Do keep in mind that once you sell the property, you will have to pay the standard income tax rate on the depreciation that you have claimed. This is called depreciation recapture. Other tax strategies like a 1031 exchange will help you avoid this. [2]

Appreciating Value of the Property​

Appreciation, in the context of multifamily investing, refers to the increase in the value of a property over time. There are two ways for an asset to appreciate in value. One is through natural appreciation, wherein the market cap rate naturally decreases. The other is through forced appreciation, in which the property is improved through renovations so that it will increase in value. [3]

Forced appreciation is when the net operating income (NOI) is increased by either decreasing the expenses or increasing the revenue. [3]

Appreciation can occur whether you own a commercial multifamily real estate or a residential property.

For multifamily investors, appreciation can provide several benefits. First, it can increase the equity in the property, allowing the investor to borrow against the increased value or sell the property for a profit.

Second, appreciation can lead to higher rental income and property values, which can result in greater cash flow and higher returns on investment.

Finally, appreciation can also provide a hedge against inflation, as property values tend to increase along with the general price level of goods and services.

Investors can achieve appreciation by making strategic improvements to the property, such as upgrading amenities or enhancing curb appeal, as well as by investing in properties located in high-growth markets or areas with strong demand for rental housing.

While appreciation is not guaranteed, multifamily investors can still aim for it by carefully considering market conditions, property-specific factors, and other risks before investing.

Multifamily vs. Single Family Homes​​

Multifamily homes and single-family homes are two popular types of residential real estate properties that are distinct in terms of their size, structure, and the lifestyle they offer.

The main difference lies in the size and structure of the property. As the name suggests, single-family homes are standalone properties that usually consist of a single unit. On the other hand, multifamily homes have several units within the same building or complex.

This means that multifamily homes can accommodate more people and offer more living space. Examples of multifamily real estate properties are duplexes, triplexes, fourplexes, apartment complexes, and condominiums.

Multifamily homes are generally considered to be a better investment than single-family homes because they generate more rental income. In addition, multifamily homes offer the potential for economies of scale, as maintenance costs can be spread across multiple units.

When it comes to maintenance, multifamily real estate properties are naturally more difficult to maintain. But since investors will most likely work with a property manager for this, single family properties are harder to maintain since you have to do it all on your own.

Your choice of investment property will ultimately depend on your personal preferences and goals.

How to Build Wealth Through Multifamily Real Estate Investing​​​

Investors who are looking to build wealth through multifamily real estate investing should know the ins and outs of the industry before getting into it. After all, multifamily properties are larger and therefore will cost more money. This is no problem for rich investors and high net worth individuals (HNWIs), but for regular investors, multifamily real estate investing is a big deal.

You need to educate yourself about the multifamily real estate market, as well as the trends and regulations before investing. Attend real estate seminars, read books on the subject, and talk to real estate professionals.

Next, you need to determine your investment strategy. Decide on your investment strategy and goals, such as your desired return on investment, cash flow requirements, and investment timeline. Determine what kind of property you will purchase and how you will manage it.

If possible, build a team of professionals, including real estate agents, property managers, and accountants, who can help you navigate the multifamily real estate market and provide valuable insights and advice.

Once you are done with the planning phase, you can start looking for properties that fit your investment strategy and goals. Conduct thorough due diligence. Make sure you inspect the property and review financial statements, so that everything is in order.

After choosing your desired multifamily real estate property, secure financing through a lender or investment partner.

Purchasing the property is only one step in the multifamily investing process. Next, you have to manage it and make sure it is profitable. This will ensure that the property generates the expected return on investment. Most multifamily investors hire a property manager who is in charge of the day to day operations of the property. They will collect rent, handle emergencies, manage tenants, and keep a close eye on the finances.

You will have to continuously evaluate your investment and adjust your strategy as needed. Monitor market conditions, property performance, and cash flow to ensure you’re on track to meet your goals.

Building wealth through multifamily real estate investing requires patience, diligence, and a long-term perspective. By following these steps and working with a team of professionals, you can set yourself up for success in the multifamily real estate market.

Try Multifamily Real Estate Syndication​

As you can see, despite the many advantages of multifamily investing, it takes a lot of work to reap all of its benefits. Some investors may choose to go for single-family investing just because it is easier.

But if you want to pursue multifamily investing while avoiding all the headaches that usually come with it, the best investing strategy for you is multifamily syndication.

Multifamily syndication is usually exclusive to accredited investors, meaning people with a certain net worth, income, or credentials.

Multifamily syndication involves pooling your resources with multiple investors in order to purchase a single property. This allows you to participate in large real estate deals without having to pour in as much capital as you normally would.[4]

It is usually too risky to take on such a large project alone. But thanks to multifamily syndication, you can enjoy all the benefits of owning an apartment complex without actually having to buy it yourself.

A syndicator puts the deal together and looks for investors who will provide most of the capital needed to purchase the property. These deals are usually structured as a limited liability company (LLC) or a limited partnership (LP). [4]

While a syndication deal can be done with any type of real estate, multifamily real estate properties are the most popular because of their strong cash flow.

Multifamily properties are known for their ability to generate a steady flow of income through rent. The passive investors usually share in the profits and losses of the investment and, depending on the deal structure, a share of the capital appreciation upon resale.

Because the syndicator is also in charge of property management, investors do not have to worry about taking on the landlord role. This makes it a truly passive investment.

Why Accredited Investors Choose BAM Capital for Multifamily Syndication​

Multifamily syndication can be a great source of passive income, and the best part is that it does not take as much work as purchasing an apartment complex by yourself. You still need to do some due diligence when it comes to choosing a syndicator to work with, but most of the work is done once you have selected a syndicator you trust.

In order to fully enjoy the benefits of multifamily syndication, you need to work with a trustworthy syndicator.

BAM Capital is an Indianapolis-based syndicator that is known for its consistent track record. This syndicator now has over $700 million AUM and 5,000+ units, making it one of the most reliable syndicators for accredited investors.

BAM Capital has a strong Midwest focus, prioritizing properties that are Class A, A-, and B++. They offer properties with in-place cash flow and proven upside potential. Add in BAM Capital’s award-winning approach that creates forced appreciation and you have a recipe for success. BAM Capital makes sure to mitigate the risk faced by their investors. Their goal is to help accredited investors grow their wealth through multifamily syndication.[5]

This is a vertically-integrated company, meaning they can handle every step of the syndication process and guide you along the way. They will negotiate the purchasing of high quality multifamily real estate and also handle property management and renovations. [5]

No investment is without risk. Make sure to consult your investment advisor or speak to a BAM Capital investment team member before making any financial decisions.

For accredited investors who want to enjoy the passive income and all the other benefits of being in a multifamily syndication, look no further than BAM Capital. Schedule a call with BAM Capital and invest today.