WHY REAL ESTATE INVESTMENTS ARE SO GREAT

Good, Better and Best

Real estate is the ultimate investment. Nothing else provides the same kind of dollar-for-dollar returns and has the same kinds of advantages. If I had a choice to invest $1 million in real estate or $1 million in Microsoft stock, I would choose real estate, hands down. The reason is simple: Even if the real estate investment appreciated at half the rate as the stock, I would still come out way ahead when taking into account leverage, tax advantages, and cash flow. As one property is good, more is better and multifamily properties are the best.

Personal Plan to Wealth

There are a variety of properties that fall under the category of multifamily. Primarily I focus on medium to large apartment building acquisitions ranging from fifty units or more. But that doesn’t mean investments in smaller multifamily properties aren’t a good move. Even if you purchase a duplex, it’s still a better investment than most other options out there. The principles of cash flow, leverage, and adding value through sound property management are relevant to any property no matter the size.

A distinct advantage of multifamily investing is that you can tap into any of the property sizes out there to start building your wealth. You could acquire a four-plex or a 300-unit building. There aren’t many commercial real estate investment properties that can be purchased for under $1 million. But there are plenty in the multifamily sector. Just think about it. How many commercial properties—even small ones—are there for under $1 million? Not many that I can think of. That makes multifamily readily accessible to just about anyone looking to invest.

If you have a desire to purchase a large multifamily building, all it requires is a great investment team and a little patience and planning on your part. It’s a smart play to invest in any size multifamily property because the returns from that investment will enable you to roll into larger investments down the road.

I have business acquaintances that have expressed a desire to invest in large multifamily acquisitions. Many of them own multiple single- family houses or small multi-unit buildings like duplexes or four-plexes. Thanks to the IRS there are two ways that they (and you) can take existing investments and roll them into larger investments tax-free. You can either:
1.    Pull out equity through a refinance, or 
2.    You can sell your properties and do a 1031 exchange.

Refinancing

Refinancing is a valid option if you have the ability to cover the new mortgage that your smaller properties will have from obtaining new loans. 
Be careful though! Chances are that your smaller properties will not be able to cash- flow once the equity is drawn.

Your property, however, carries its own mortgage. That means that if you were to refinance your loans would be higher. Since appreciation on average is higher than rent growth, you would probably not be able to cash-flow on the properties anymore.

1031 Exchange

On the flip side, by utilizing a 1031 exchange you can roll your properties into one or two larger properties that can sustain the larger debt. Basically using a 1031 exchange as a like-for-like tax-deferred movement of the gains from one property into another.

The 1031 allows you to gradually purchase larger and more expensive deals over a period of time by rolling your appreciation into another property. The beauty of this is that it is tax-deferred and you don’t have to leverage the new property as heavily as you would with a refinance. This will allow you to purchase bigger and better properties that will still cash-flow.

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