Create Passive Income While You Sleep
Numerous studies have shown that when compared to office retail hotel industrial multi-family has had the highest average returns per year over the last 25 years with the lowest volatility here are 10 reasons why many invest in multi-family for passive income.
#1 - We need 300,000+ units to be built through the year 2030 just to keep up with demand
#2 - Multifamily was the first asset class to recover after the 2008 financial crisis and has been largely immune during the covid pandemic, which cannot be said about office, retail, or hotels.
#3 - 96% of multi-family investments are owned by US investors. And of that 70% are owned by private companies. So, plenty of opportunity for the average investor.
#4 - The liquidity in multifamily is the best among all the asset classes because it's so sought after. You can sell a multifamily investment in under 120 days from the start of marketing to closing. And if you hire me, I’ll do it even quicker and get you multiple offers (shameless plug 😊).
#5 - For the US millennial population, which is roughly those aged 22-37, renting is now the most common form of
housing and that's a big population.
#6 - Multifamily is way easier to turnover and lease to a new tenant when they move out and it costs way less to make the unit ready for the next tenant than any other commercial real estate asset.
#7 - Rising land and construction costs have driven up the price of homes. Not to mention the higher credit standards banks are looking for and how high the down payments need to be, have made it prohibitive.
#8 - The income risk is so much less in multifamily because you have so many tenants, all with different jobs in different industries. This is a huge advantage over any other commercial real estate investment. Think about it. Would you rather own an office building that has one tenant paying you $300,000 a year in rent but goes out of business because maybe that industry's not doing well? Or would you rather have 25 apartment tenants that are in 25 different industries each paying you $1,000 a month?
#9 - The debt availability is the best in multifamily especially if you're working with Fannie Mae, Freddie Mac or FHA. Typically, you can get better loan to value, better rates, better amortization periods, and lower debt coverage ratios that you have to cover.
#10 - You can increase rent annually and at whatever increase the market will bear. There are even revenue management systems in multifamily that allow you to increase rents daily. With other commercial real estate assets, you're stuck at a predefined rent for years into the future. Now, while multifamily is considered a passive income, the reality is it requires a lot of your time to research the market, the property, get equity, find debt, manage people, manage the assets itself, etc. Generally speaking, the more passive the real estate investment is, or the more hands-off you are, the lower the returns are because the risk and your time involvement is less. For instance, if you were buying a CVS investment and they were paying you on a NNN schedule, which means that CVS is basically paying you a base rent and they're taking care of taxes, they're paying the insurance, they're mowing the lawn, they're handling the repairs and maintenance, so you as the landlord do nothing except walk out to the mailbox and collect a check, the returns are typically less in this type of investment than multi-family because your risk is less. CVS is probably going to pay their rent and your involvement is less. So, while multifamily isn't completely passive, you do get handsomely rewarded for the efforts you put in.
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