When you go into investing in real estate, the options can be limitless. There are dozens of types of real estate, many financing strategies, and hundreds of promising markets.
But if you’re specifically hoping to build wealth, many people choose multifamily real estate for several very good reasons.
A Quick Word on Wealth
In the current culture, wealth often gets a bad rap. People talk about money in hushed tones and cast judgmental glances at people who have a lot of money.
There’s a notion that wealth is bad and, as a result, people who have lots of it must be exceptionally evil. But this is a foolish idea … and one most people don’t think through fully before they form their opinion.
The mass media gets traction from encouraging readers and viewers to believe that wealth is evil and the pursuit of it is a futile endeavor that leads to wickedness. But the reality is that wealth creators are value creators.
If there were no wealthy individuals in a capitalistic society, that would indicate that no value was being created there. Thus, there would be no worthwhile products or services for consumers to purchase and enjoy.
Can wealth be attained via unscrupulous means? It certainly can. Can it be generated honestly as well? You bet. The choice is up to the individual.
If you study some of the wealthiest individuals and families in the United States, you’ll find they aren’t dealing drugs, running illegal operations, ripping off consumers, or stealing from honest people. In most cases, they’re running fair and plain-dealing businesses that serve their customers’ needs.
Then they take the money they earn and expand it through high-return investments.
The Appeal of Multifamily Real Estate
Now that we’ve addressed the wealth factor and (we hope) given you permission to crave and pursue wealth, let’s dig in and look at the investments that successful people use to multiply their money. In particular, we’ll focus on real estate.
Most people know that real estate is one of the highest-returning investments out there, but are you aware of the fact that multifamily real estate is the preferred niche of the smart investing class? Here’s why.
- Economies of Scale
There’s nothing wrong with owning a dozen different single-family real estate investments all over the country, though the separation can make it harder to manage these investments cost effectively. Dealing with maintenance, rent collection, accounting, taxes, and all of the other responsibilities for a wide range of properties is challenging (even if you retain a property management company).
It’s far easier to handle the needs of a 12-unit apartment. When all your units are located in one complex, you have only one lawn to mow, one garbage bill to pay, and one (or at most a couple) large roof(s) to maintain.
Everything becomes considerably more manageable and, as a result, far more cost-effective.
- Greater Organization
Financing is usually the toughest obstacle in real estate investment. Paying for a large project is understandably more challenging than for a single-family rental property, but it’s easier to keep it organized than if you compile a dozen independent loans spread across as many properties.
As this comprehensive guide on loans for apartment buildings shows, financing can be tricky for those who don’t know what they’re doing. There are multifamily construction loans, Fannie Mae multifamily loans, Fannie Mae guaranteed loans, Freddie Mac multifamily loans, multifamily bridge loans, traditional bank loans, and an array of other products.
Once you figure out which will be the best for you, the paperwork side becomes a lot easier than trying to manage loans for a variety of properties. There’s only one lender, one mortgage bill, one closing, etc.
- Emerging Trends
To be honest, now is the best time to invest in multifamily real estate. That may sound like hyperbole … or something a late-night TV guru would tell an audience in order to sell a 12-disc real estate investment course.
But it’s an accurate statement. A number of emerging trends make the present the single best time in all of human history to invest in multifamily properties. Here’s why:
- As many as 75 million baby boomers are currently on the brink of retirement. Many of these individuals will be looking to downsize out of their current single-family home and move into a multi-family property that’s easier and more cost-effective to maintain.
- It’s possible that many of today’s apartment complexes will be converted into retirement communities in the future.
- Millennials aren’t buying single-family homes at nearly the same rate or volume as previous generations did. Instead, they’re opting to rent apartments and condos.
- It’s getting more and more expensive to build new apartment buildings, which will increase the value of existing multifamily units.
All these factors create what is essentially a “perfect storm” for multifamily properties. By getting in now, you have the opportunity to ride these trends (as opposed to catching them at or after their peak).
Diversifying Investments to Overcome Instability
By definition, investing is laced with risk. One of the key differences between wealthy individuals and the middle class is that the former take on healthy risks that offer the potential for high returns.
As you seek to expand your own funds and build wealth, look for investments that create solid opportunities for high returns. Make sure you’re diversifying these investments to limit risk, however, and increase your chances of coming out way ahead.