How does Multifamily make money?
One thing I want to make sure to do, is to educate everybody about what I do. I feel like it’s a mystery to most people how multi-family investments make money. There are four different sources of returns.
There are many, and I will go ahead and say I’m not a attorney or CPA but there’s a couple of advantages you get being involved in a multi family project.
Tax law lets any apartment owner depreciate the building’s value over a 27 1/2 year time span. You can deduct 1/27.5th (3.64%) of the value from your current income each year. This eliminates some or all of your income would you have to pay taxes on in the current year.
This can be used for certain items like cabinets, appliances, and items that are not the core structure of the property. A cost segregation engineer would be able to run a study which identifies these items and their value.
As a passive investor, passive income tax advantages are a great, great thing about in multifamily investing. Any income that is real estate related is taxed at passive tax rates and not subject to social security taxes.
Any appreciation is taxed at capital gain tax rates, which are lower than income tax rates.
What’s really cool is income or cash flow which reduces the loan balance. This usually gives us 2 to 4% annual return.
Otherwise called mailbox money. This is the money you get from your multi family investments. To understand where this comes from, look at gross income for the property minus operating expenses, capital reserves, mortgage principal and interest, asset and management fees. This number gives you your return or cash flow.
And I don’t mean the kind of appreciation for someone sends you love letters but this is the biggest way to create long-term wealth in multifamily investing. There is the market appreciation from population increase, job growth, demand versus supply, and there is forced appreciation caused by the active management team to increase income and decrease expenses.
Here’s a very simple example-
We own a 100 unit apartment complex with a 6% cap rate. Each year, we increase rents by $25 per apartment (25x4x100=10,000). At the end of four years, the net operating income increases the value of the property by $2 million!
Are you as sold on multi family investing as I am?
If you were a passive investor in this deal who owned 10% of the company, you would receive 10% of the net proceeds from the increase of the value at sale!!!
If you’re interested in more information about upcoming multi family investment project opportunities, email me at
Or book a call with me calendy.com/Kaylee-6