Article published on November 21, 2022.
You’re probably asking yourself; what is the number 1 real estate investment should I acquire?
Blackstone Inc. is one of the largest asset managers in the world and they recommend multifamily properties as a prime asset for those who want a profitable investment opportunity.
Why Blackstone Thinks Multifamily Real Estate is the No. 1 Asset To Have and Why We Choose California as a Prime Location?
Helps Build Equity
A multifamily property allows you to build equity (the difference between the amount of money you owe and the property value) faster than single-family units. Once you receive your rental income, you can pay a larger portion of the amount you owe. This ensures you build equity faster. If all the money goes towards the mortgage payment, you can build equity without out-of-pocket payments.
Most of the time, the property tends to increase in value. Even when the rental market is on a downtrend, your property will still be profitable in the long run. The way you use the build-up equity is entirely up to you.
The significant shortage is the main culprit behind the surging home prices. The high labor costs coupled with lingering supply chain issues have brought the development of new units to a standstill. Blackstone Inc. believes the property value will continue to skyrocket until sufficient inventory is integrated. A new national report has also shined a new light on the housing market. Since the medium home price has more than doubled, nowhere is the crisis more acute than in California.
The climbing home values are making many would-be homebuyers put their plans on hold. In other words, there’s a larger population that wants to buy but lacks the finances to do so. That’s why many Californians are turning to rentals. If you have the finances to invest in multi-family homes, you’ll have the leverage to set the rental fees.
Grow Your Real Estate Portfolio Fast
California multifamily housing units are profitable for investors. Moreover, they are easier to acquire than purchasing single multifamily homes. If the units are located in the same place, you don’t need to work back and forth with different sellers.
Think about it – if you buy 20 different single-family units, you may need to open 20 separate loans for each unit. You can avoid this headache by simply purchasing a multifamily property with 20 units. Keep in mind that multifamily homes are the perfect investment for folks who want to venture into apartment buildings down the road.
Multifamily Property Is Easier To Finance
In California, a property with more than five units is considered a commercial property. This prevents different rules for financing. If you have a limited budget, you can live in one of the units and rent the others.
Investors looking to purchase different multifamily homes have the freedom to build new apartment buildings in their portfolio. Here is the catch. In a situation where one tenant moves out in a 10-unit property, the occupancy rate is 90%. Therefore, you can still meet your monthly mortgage payments. As a result, the likelihood of foreclosure is very low. This means that you get competitive interest rates from the financier.
Multifamily Property Is Easier To Manage
Every property has a different investment. Since the units are within the roof, you reduce the management load per unit, so you benefit from economies of scale. If you buy several units spread across California, you may need to employ different managers.
Generally speaking, a property manager is paid a percentage of the rental income the property generates. Some of the duties can include collecting rent payments, screening tenants, handling evictions, etc. If you own a two single-family home, you may not enjoy such luxuries. The returns a multifamily unit raises also allow the owners to take advantage of property management services.
Blanket Insurance Policies
Multifamily properties in California have more areas to insure overall. Some investors find specific policies easier to negotiate. Not to mention, insurance companies understand the liabilities associated with multifamily properties. As you grow your portfolio over time, you can group everything under one umbrella.
Multifamily Tax Benefits
Multifamily properties allow you to enjoy the benefit of bonus depreciation. As you model the profitability of a multi-family investment, don’t just focus on rent – the tax benefits can be a critical component of your returns. If you’re a first-time investor, you can utilize different strategies.
Although multi-family unit consists of a complex network including plumbing, roofing, electrical systems, etc., they deteriorate over time when exposed to elements. That said, you can expense a portion of your structure each year for the deterioration. This further reduces the net operating income. The more the depreciation amount, the higher the tax benefits.
While following the IRS accounting rules, you can take advantage of the cost segregation technique to accelerate the amount. For instance, the property can be depreciated over 5 years, while the improvements on the pavements can be depreciated over 10 years. The net result is an increase in allowable depreciation. This means additional tax savings. With single-family units, there are limits on what you can write off your taxes.
California Rental Market is Booming
California ranks among the ten most expensive real estate markets in the US. But as dreamy as it is to live here, everything comes at a price – the San Diego market is no exception. The highly priced rental market creates a massive demand for rental properties.
A recent survey suggests that more than 55% of Californians fear that they can’t pay for mortgages, and that’s why they prefer to rent. With home prices ramping up over 30% in the last year, this dynamic is likely to remain the same in the foreseeable future. What’s more, the geopolitical events show that homes could retain their prices in the long term. If you find the right location, you can charge well over $3,000 in rent per month.
Do you want to sell or acquire property?
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