Benefits of Passive Investing
We purchase properties that cash flow on Day 1. This not only helps protect the principal investment of our investors but provides a good foundation to grow the bottom line and augment the income stream for our investors.
There are numerous tax deferral and tax mitigation strategies, including bonus depreciation/cost segregation, 1031 exchange, etc that provide additional enhancement to real returns.
Building wealth comes not only from the additional income streams but also via equity growth due to the value add execution strategy and debt reduction. Inflation also contributes to the property appreciation over time.
As a limited partner, you are not involved in the day to day property management, rigorous diligence and acquisition or disposition process, or financing of the property. As such you are protected from personal liability.
Stable Asset Class With Superior Risk Adjusted Returns
Multifamily has historically outperformed other asset classes, including during recessions. Check out our article on the topic with additional data support.
Potential For Multiple Sources Of Return, Including Forced Appreciation
While there are many market factors driving apartment values, as an owner-operator one has the opportunity to force appreciation by improving the profitability of the property – either through revenue growth or through expense reduction or through capital improvements.
Economies Of Scale
Economies of scale are created as there are multiple units under one roof or a portfolio of properties in proximity to one another.
Investing in multifamily comes with the power of depreciation and other tax deferral strategies. This non-cash expense could often result in a paper loss that can either help offset current taxable income or carry over the paper losses to offset future capital gains and thereby defer the tax liability. The benefit of such deferral is the time value of money. If in the end there is still a gain, there may be an opportunity to further defer such again into the future.
On top of the cash flow being generated by the property, improving the property net operating income (assuming all else equal) results in improved property valuation. Over time such real estate appreciation could serve as a hedge against inflation. Other hard assets share the same benefit. In contrast, keeping cash in the bank earning 1-5% or less in interest over time loses value as that cash loses its purchasing power with inflation.
Strong Long Term Outlook
Multifamily (apartments) are serving a basic human need for shelter with increasing demand driven by population growth, declining homeownership trends, and increasing share of renters (millennials and boomers). The most recent housing statistics suggest there is still a 4MM apartment shortage.
As an asset class apartments tend to be less volatile due to diversified tenant base & ability to adjust rents to market (due to one year or shorter leases). Each lease represents a small share of the total units thereby creating less risk should one tenant decide not to renew their lease.
Multifamily investment income is considered passive income, and as such potentially carries a lower tax bracket. As a passive investor, one gets to enjoy the benefit of the additional cash flow stream without having to do the heavy lifting and daily management and with limited liability.