At Investar USA our focus is education. We have compiled a list of 19 reasons why investing in apartment buildings can often be the best Real Estate investment for passive investors .
TOP 19 Reasons Why
Historical performance shows that investing in well selected apartment buildings produces returns not commonly seen with other forms of investing such as mutual funds and stocks and here’s why.
1) Leverage – Banks lend money on apartment buildings thus you don’t need to use all of your own money, thus maximizing your return on equity . Real Estate is one of the few investments that offers the power of leverage.
2) Tax Benefits –There are many tax advantages with Real Estate however the main benefits are capital depreciation, 1031 exchange (U.S. only), and deductable mortgage interest .
3) Transparency – The buildings are already built, through proper due diligence prior to buying the building you can conduct a series of inspections that will provide a solid understanding of the asset. From these inspections you can build the required budget for immediate and future repairs or simply decide to walk away.
4) Property Management –Due to the number of units in an apartment building we can afford to have professional property management that handles the on-site and tenant matters.
5) Diversification –You can invest in different buildings even in different cities.
6) Market Cycles – If you watch the real estate market cycles you can time your purchase so you can maximize your short term appreciation by buying at the bottom of the real estate cycle.
7) Appreciation – Real estate will always appreciate over time and you don’t have to pay for the increase in value until you sell the building. Since 1968 historic appreciation level for real estate have been 6.7% per year according to the National Associate of Realtors.
8) Cash Flow – Acquire buildings where the income exceeds the expenses thus providing cash flow for our investors.
9) In Control – With apartment investing we are in control, we can improve these assets, improve the management, improve the rental income etc. (tough to do this with a Mutual Fund!)
10) Deprecation –The IRS and Revenue Canada allow apartment owners to deduct a “Deprecation Expense” from our annual income to lower your net operating income from a taxation perspective thus you pay less tax.
11) Refinance – We are able to withdraw cash through periodic refinancing and this is tax free money back to the investor.
12) Asset Protection –Building Insurance – if the building is destroyed insurance coverage willpay to have it replaced.
Rental Loss Insurance – If you have interrupted income due to part or all of the building being destroyed the Rental Loss Coverage which is part of your insurance coverage will pay you money on a monthly basis until part or all of your building is replaced and income is re-stored.
Limited Liability – through proper corporate structure you will be sheltered from 3rd party law suits
13) 1031 Exchange (U.S. Corporations Only) –This allows us to not pay tax on the sale of a building so long as we invest in another like asset within 190 days. This means you use money you would normally pay to the government in tax and buy another building. This is simply a great investment tax savings tool !
14) Inflation Hedge –Real estate investing is one of the few investments that are a hedge against inflation as the cost of goods go up so will real estate.
15) Physical Asset –Real estate is a physical asset. It’s not some cerebral investment that is traded by a click of a button on an online brokerage. You can walk on the grounds, smell the tree’s, talk to tenants and staff, and inspect the buildings. There’s piece of mind knowing you can touch and feel your investment .
16) Demand – People always need a place to live. Shelter is one of the basic requirements of life. You can be assured knowing that there will always be demand for residential housing weather the market is up or down.
17) Affordability –Apartment Rentals are considered affordable accommodation thus will always be in demand. Also with the use of Leverage apartment buildings can be acquired using 50%-75% of the banks money .
18) Business Cycles – Multifamily investments are one of the few sectors of the investment space that are sheltered by traditional business cycles. As the economy slows people need affordable housing and as the economy pick up landlords typically increase rents as demand increases through this cycle. Note: rising interest rates are great for landlords as homes become less affordable which simply increases the demand for rental housing.
19) Maintenance – With apartment investing our maintenance costs are spread over a number of units thus utilizing “Economies of Scale”. We will have our onsite maintenance person who will look after repair issues on an as needed basis.
1) A big advantage of real estate over any other investments is the triple threat of tax advantages, refinancing, deprecation, and the deductible mortgage interest.
2) Besides the fact that there has always traditionally been a huge demand for rental housing, there are a number of factors that will cause demand to go even higher in the next decade; Echo Boomers – This group is comprised of individuals born between 1982-
1995. Over the next decade approximately 4 million “Echo Boomers” will become adults each year. It is estimated that there are around 80 million which will make them the largest demographic group in North America since 1960.
Baby Boomers – Until their children come along (Echo Boomers) baby boomers were by far the largest demographic in history estimated at 78 million. Baby boomers are generally considered to have been born between the 1940’s 1960’s. Over the next decade the largest demographic group in forty years will be flooding the rental market”.
For more information of how to buy and Investar USA property contact an Investar USA representative today.