5 Benefits to Multifamily Real Estate Investing

5 Benefits to Multifamily Real Estate Investing

Sanjay Sharma MD Sanjay Sharma MD

Sanjay Sharma MD

Co-Founder at Titan III Capital

Published Jun 2, 2023
+ Follow
No alt text provided for this image
No alt text provided for this image
Cash flow lets you know that the syndicator operates the building correctly. To generate cash flow, the rent from the building pays for the mortgage and anything additional goes to the investors as profit. You will see in our projected investment returns model that the cash flow starts lower in year 1 and increases thereafter. At the beginning of the business model, we allocate funds to the value-add business plan whether it means interior & exterior renovations, increased marketing, etc. Once this business plan finishes, the income increases allowing returns to go higher year over year.
No alt text provided for this image
You are probably used to property valuation, i.e. your home’s price, being based on local comps. Commercial multifamily properties however derive their value from the income it produces. By improving the building's appearance, function, and desirability, rent can be raised. By improving property management, expenses can be decreased. Now that the net operating income has improved, the building is worth more. We “forced” appreciation as opposed to waiting for the surrounding buildings to go up in price. In the hands of an accomplished sponsor, this mechanism results in large profits and returns.
No alt text provided for this image
Because the IRS recognizes that buildings and the components that make up the building decay over time, the IRS allows for paper loss or depreciation. Over 39 years, a building depreciates. To oversimplify, a $1m building, depreciates $25k per year ($1mm/39yrs). That $25k/year depreciation can offset the taxes normally taken out of cash flow. In some instances, an investor can keep her/his cash flow close to tax-free. Secondly, the tax code allows for bonus appreciation. Other components of the buildings, ie windows, HVAC, and carpet, have a shorter life span than 39 years. The tax law for 2023, allows one to group these together, add them up, and take 80% of the deduction year 1. This tax law phases out in the next few years but currently offers substantial savings. Investors will get a negative K-1 for the tax year they invest. Lastly, the 1031 exchange exists. This situation allows you to roll your profits (normally taxed at capital gains if held greater than 1 year) at the time of sale into the purchase of the like-kind property. Of course, for any tax questions, please refer to your own CPA. We are in no way offering you tax guidance.
No alt text provided for this image
Passive Returns: Think of your current active real estate portfolio and what is involved in managing it. Most people want to avoid the three “T’s:” toilets, tenants, and termites. But, we all want to take advantage of the strong returns real estate gives. As a passive investor, you do none of the three “T’s.” We as sponsors do all of it. You as investors can enjoy the cash flow, tax advantages, and profits.
No alt text provided for this image
In your overall portfolio, many recommend diversification. Multifamily syndication allows you to add efficiently run, top-of-the-class real estate to build your net worth You Don't Have to Put Much Time... You Get to Diversify Your Investment Portfolio... You Get Pass-Through Tax Benefits... You exponentially reach Freedom...



Chelsea Garber

I help top-earners and property owners maximize their ROI through strategic design.

1y

The benefits of multifamily investments to create and maintain wealth are outstanding. Specially when paired with with strategic design, which the ROI-ByDesign team is an expert at! :)

Like
Reply
▪️Kunal Dewan▪️

Founder of Liberty Capitus | Experienced Commercial Real Estate Investor | Licensed Structural Engineer | Helping Busy Professionals Spend More Time With Family & Leave Their Legacy With Hands-Off Real Estate Investing

1y

Excellent article Sanjay Sharma MD!!

Like
Reply
1 Reaction
Andrew Shaw, MS

Saving Lives with MCED | Empowering Genetic Counselors and Scientists in Sales | Father | Outdoor Enthusiast | DJ

1y

Looking forward to continuing to learn about this fascinating subject! Thanks for passing along info

Like
Reply
1 Reaction
See more comments

To view or add a comment, sign in

More articles by this author

Insights from the community

Others also viewed

Explore topics