So you want to invest in multifamily real estate, but you’re worried about how you’ll actually make money. You’ve probably heard that apartment real estate can generate better returns than the stock market. Here’s how real estate investments can earn you those high returns you’ve heard about.
Monthly Rental Income
One of the most obvious ways to make money with apartment real estate is monthly passive income. Every month, your multifamily property makes you money.
The more properties you have, the more money you make.
One way to measure your monthly rental income is using the cash-on-cash return formula. This formula, which is expressed as a percentage, compares the amount you invest and how much net cash flow is returned to you.
Divide the cash returned by the cash invested to get your cash-on-cash return percentage.
Let’s say that you put $30,000 into a property and your net annual cash flow is $4,000. Your cash-on-cash return would be 13%.
- $4,000 cash returned / $30,000 invested = 13%
Even if your cash returned stayed the same each year, you would continue to see a 13% return on your investment. Multifamily properties offer high returns that just cannot compete with the stock market.
Use Equity to Purchase More Properties
Another way to make money with multifamily real estate is to use equity to purchase more properties. The more properties you own, the more money you’ll make.
Some investors get lucky, or they’re great at finding up-and-coming markets. They invest in properties in certain markets, and within a few years, the value of these properties skyrockets. This makes it easy to take equity out of these properties and use that money to fund more investments.
Even if you’re not one of these lucky (or savvy) investors, your multifamily properties will likely increase in value over time and allow you to leverage your equity to purchase more properties.
When you take this approach, you never have to use your own money to expand your real estate investment portfolio. This allows you to keep more money in your pocket while still generating more monthly income through your properties.
Sell Your Properties
Of course, multifamily properties can also make you money when you sell them. Investors may choose to sell their apartment real estate for a variety of reasons, and like single-family properties, multifamily real estate typically increases in value over time.
When you sell the property, you make money that you can put towards other investments to grow your money even further.
Investing in renovations, or “value adds,” can help you make more money with your multifamily properties. A simple rehab can add value to your property, allowing you to raise rents and attract better tenants.
Value adds can be simple, such as repainting the interior or installing new energy-efficient appliances. Larger, more costly renovations can potentially yield larger returns.
Real estate investments offer tax advantages that can put more money in your pocket. For example, the IRS allows non-cash deductions for depreciation, which reduces your personal tax burden and may push you down into a lower tax bracket.
The costs of owning and managing your multifamily properties are also deductible.
There are many ways to make money with multifamily real estate investing. If you’re ready to start investing, contact us today at OvaliaCapital.com to set up a call and learn more about our investing opportunities.