If you’ve got money to invest, but you’re not sure which route to take, it’s a good idea to consider the pros and cons of your different investment options. Putting your money in the stock market all have their advantages and disadvantages, but multifamily syndications is one of the best options because it is safer, more lucrative and offers unique tax advantages.
While real estate is an illiquid asset, meaning that it is difficult to convert your investment into cash quickly, the benefits of passively investing in apartment syndications far outweigh this minor drawback. So, what are the advantages of putting your money in multifamily?
Multifamily Syndications Are Lower Risk
Perhaps the greatest advantage of investing in apartment buildings lies in its extremely low risk profile. For decades, the multifamily market has proven much less volatile than single family homes, the stock market and cryptocurrency.
When the housing bubble popped in 2008, the delinquency rates on Freddie Mac single-family loans soared, hitting 4% in 2010. By contrast, delinquency on multifamily loans peaked at 0.4%. At its worst, the multifamily delinquency rate was 90% lower than that of residential real estate. So, if you’re looking for a recession-proof way to invest your money, there is no better option than apartment building investing.
Investing in Apartment Syndications Yields Above-Average Returns
Real estate consistently outperforms other kinds of investments. For the last 18 years, housing has generated much higher returns than the stock market, outperforming the S&P 500 2:1 since the turn of the century. According to statistics released by Fundrise, a $10K investment in the stock market afforded investors a 5.43% annual return from 2000-2016, while real estate came in at 10.71%. Even when the stock market is at its best, real estate remains competitive; since 2011, both the S&P 500 and real estate have brought in roughly 12% in average annual returns.
In addition, the cashflow afforded by multifamily investing generates the kind of passive income that leads to financial freedom. (Can you say early retirement?) It is realistic to expect a minimum average annual return of 13%, and this lends itself to the kind of generational wealth your can pass on to your children. The brilliant part is that the multifamily asset itself is appreciating in value over time and can usually be sold for a significant profit.
Real Estate Syndications Offer Extraordinary Tax Benefits
When it comes to navigating the IRS, real estate has advantages over nearly every other investment, from stocks and bonds to business investments to precious metals. Uncle Sam allows multifamily investors to write off 1/27 of the value of the building each year as an expense. Additionally, you can perform a cost segregation analysis, an evaluation that depreciates the property’s constituent parts at individual rates, which typically results in a depreciation of 90% of the apartment building’s value over seven years.
Let’s say you invest $100K and make a 10% cash-on-cash return. This means you are generating an annual cashflow of $10K, yet the US tax code allows you to claim a LOSS of about $7K. And those ‘phantom’ losses carry forward when you sell the property for a profit. (Keep in mind, I’m only using this as an example. Your tax situation will vary, so please check with your CPA or other qualified professional.) The best part? This is just the tip of the iceberg with regards to the tax breaks available to us as multifamily investors! (For more on this topic, check out this excellent article at BiggerPockets.)
Multifamily Syndications: The Best Investment on the Planet!
Yes, you have a lot of choices when it comes to investing. Some offer a high rate of return, but they are also high-risk. Others are much safer investments, yet the rate of return is modest. Multifamily real estate is the one investment that is low-risk AND generates above-average returns. Couple that with the favorable tax benefits and your limited liability as a passive investor, and you would be hard-pressed to find a better investment opportunity.
If you are ready to learn more about investing with us, visit Nighthawk Equity to see our portfolio and receive additional information about the process. Let’s put your money to work for you through multifamily investing!