Among the different types of homes on the market, single-family properties are decidedly the most popular, owing to the quality of life benefits they offer. However, just because you want to live in one, doesn’t mean they are truly the best properties in terms of investments and growing your money. Investors in the know are turning their sights on the multifamily sector that offers huge potential for returns and cash flow – and it isn’t just for big business and corporate investors. You too can grow your wealth by investing in multifamily real estate and today we will cover some of the appealing reasons why you should.
We spoke to Seth Ferguson, Chair of The Multifamily Conference and an investor with over 13 years of real estate experience. Through his podcast, cable TV show, and investor conferences, he aims to share the many opportunities and benefits of investing in multifamily properties.
Multifamily properties are composed of multiple separate residential living spaces. This category covers a wide range of styles ranging from multiplexes with a few units to high-rise condominium towers with hundreds of units, and everything in between. Generally, these investments work a lot like your standard residential investment: being used to generate rental income and potentially price appreciation over time. However, rather than a single unit and a single source of rental income, multifamily properties offer multiple streams of rental income, which can make a huge difference in your returns and cash flow capabilities.
Though you may face some new challenges when looking to expand your portfolio with multifamily properties, there are also a number of benefits that should be considered. Ferguson highlights three benefits in particular that are most pertinent for investors.
“Number one would be strong cash flow that you don’t find in single-family homes and many other types of real estate assets,” said Ferguson. “Multifamily is incredibly strong when it comes to cash flow.”
“Second, It’s also incredibly stable in economic downturns. We saw that happen during COVID and over the past two recessions when multifamily outperformed all other real estate asset classes. It’s not always about how your investment does in the good times – you also need to focus on how your asset performs in the bad times.”
“Number three would be tax benefits. Through cost segregation and depreciation, multifamily investors can take advantage of a wide range of tax credits to minimize their tax liability and put more money in their pocket to spend or reinvest.”
Another important message that Ferguson emphasizes is that any investor can begin investing in the field of multifamily properties, even with little or no experience with other real estate investments.
“It is 100% possible, and I would even highly suggest it from past experience,” said Ferguson.
“I think a lot of people get into single-family investing because a lot of people live in homes and it just seems to be a natural progression. But, people need to actually sit down and think about what they want their life to look like in a decade and map that out.”
“When I got started investing, for example, I started acquiring single-family properties, because that’s what I thought I knew best. But, I quickly ran into issues: the cash flow was not strong, financing was incredibly challenging, and scaling that portfolio felt like I was banging my head against the wall. I was investing in something that was taking me away from my goal, not closer to it. Multifamily avoids all of those issues.”
Another common concern that investors have before beginning in multifamily properties is the property management needs of larger properties being prohibitive and requiring a lot of work and money. Ferguson explains how, in some cases, the opposite may be true with increased management for multifamily properties actually serving as a net benefit for investors and consumers.
“With a single-family home, you’re going to be paying 10-12% of your gross rent just for management. Your property manager is going to visit the property a couple of times a month or less, so you don’t have a lot of hands-on control,” Ferguson explained.
“When you get into larger multifamily properties, you can have on-site staff, you can have full-time leasing agents, you can have full-time maintenance staff. This means, not only do your residents get a better product and better customer service, you end up with better cost controls because you are on top of every issue as soon as it comes up.”
For those looking to get started in multifamily investing, there is no shortage of opportunities. For one, properties in the multifamily segment come in a variety of different styles offering numerous price points. And, when it comes time to financing, it can often be even easier to secure a loan than with a single-family home. This is due to the increased cash flow potential of multifamily properties.
Furthermore, the multifamily segment is increasingly popular as cities grow and become more densely populated. Investors can find multifamily properties in nearly any market, adding even more depth to the range of options and strategies available to multifamily investors.
“There are so many different strategies and there are so many different ways to participate in multifamily investing,” says Ferguson. “Whether on the active side or on the passive side, it’s all about getting the word out. The truth is, big players like Wall Street and the banks will never talk to you about alternative investments because they want to keep your money in their products. But most of the time, alternative investments like multifamily actually produce stronger returns and better cash flow than their options. So, we’re all about educating people and getting the word out there because most people just don’t know.”
Visit sethferguson.org to learn more about getting started in multifamily investing and to sign up for the Multifamily Conference, an in-person investor event coming to Toronto in May.