Benefits of Multi-Family Real Estate
There are many key benefits to multi-family real estate investing and as a real estate investor, it is important to understand these benefits so you can make sound investment choices. Not only does multi-family real estate play an ongoing role in providing essential, affordable housing for people across North America, but it is also often the best or preferred housing solution for many people at different stages throughout their lives.
Given these factors and the many additional benefits of multi-family real estate discussed below, investing in strategically selected, revenue-producing multi-family investment properties can drastically impact the success of your retirement portfolio.
On a per-unit basis, multifamily residential construction is generally more affordable than single-family home construction. This makes it more cost-effective for purchasers, who wish to either rent out or live in the unit. The lower cost of construction often translates into lower mortgage financing and often reduced operating costs for the landlord, which in turn makes the unit more affordable to renters, when compared to single-family dwellings.
This decreased cost of ownership can also result in positive net monthly revenue, or cash flow, even after the mortgage, taxes, repairs, maintenance costs, management, and condo fees are paid.
Additionally, the cost of owning a multi-family real estate property is often low enough to make purchasing several investment units in a variety of geographically diverse markets financially feasible. This both maximizes your exposure to different economic cycles and creates the potential for multiple revenue streams. Through the geographical diversification it reduces your overall portfolio risk should one market experience an economic decrease.
In the North American housing market, multi-family rental units play an increasingly important role by providing necessary housing solutions to those entering the rental market out of necessity, rather than by choice. For instance, the vast pool of immigrants entering both Canada and the US often lack the capital needed to sustain home ownership and thus will remain renters for more than 10 years (on average) before home ownership becomes feasible.
There is also a fast-growing segment of the population choosing multi-family living for reasons other than affordability. The aging baby boomer population continues to downsize from single-family homes as their children leave the nest. This increases demand for both owner-occupied and rental properties in familiar neighbourhoods that offer service clusters and convenient transportation.
Meanwhile, when the children of these baby boomers (often referred to as echo boomers or millennials) reach the traditional age for renting or purchasing, more and more will choose affordable multi-family rental properties as they begin to form independent households. This is due to improved design, new technologies, more attractive amenities like gyms, pools, playgrounds and common rooms, and a focus on resident satisfaction.
In addition, these properties are ideally being constructed in close proximity to transportation hubs and retail shops, while also adapting to the technological advances of the upcoming generation. Add these factors together and you have a recipe for continual increased demand at the top end of the multi-family market.
Sustainable and Environmentally-Minded Living
Multi-family housing is also a critical part of environmentally-minded growth. Multi-family property development is generally less environmentally disruptive than a comparable number of single-family units spread over a larger area. The neighbourhoods where newer apartments and condos are built can often be considered more pleasant because of the of the requirement by city planners for the preservation of open spaces, parks and natural features like hillsides, streams, and trees, as well as the creation of pedestrian-friendly areas.
In fact, concerns over urban sprawl have renewed public and private interests in the role apartments can play in creating more livable communities, since these properties tend to require less public infrastructure, including roads, sewer and water pipes, and electrical and gas lines.
Multi-family investment properties also tend to be located within close proximity to employment centres, public transportation, and neighbourhood services when compared to areas primarily consisting of single-family homes. Since retail and commercial development requires high concentrations of housing units within a short commuting distance, multi-family housing makes it more financially feasible to incorporate these services into the neighbourhood. All of these factors in turn help to reduce the amount of traffic congestion and air pollution, while also creating more free time for residents.
Enhanced Economic Vitality
Another reason to invest in multi-family real estate is this: multi-family real estate investment has a positive global impact. Multi-family real estate fills a diverse and significant market need while enriching the communities where they are located. The construction of multi-family properties enhances the economic vitality of a neighbourhood or region through the creation of jobs. More jobs are created as building supplies are needed for construction, and workers are needed to complete the design, financing, and management of building projects.
Multi-family housing growth also fuels the demand for goods and services that both workers and residents need nearby.
A balanced mix of housing options also makes a region more attractive to businesses looking to expand or relocate. Not only does this level of density provide businesses with opportunities to reach a wider market, but the apartments and condominiums in the area can also play an important role in housing a large segment of their workforce.
Tax Advantages of Multi-Family Real Estate Investing
The Canadian government encourages and incentivizes real estate investment by allowing the value of your investment property to appreciate tax-free until it is sold. If you are investing for the long term and choose to sell your property, like single family homes, when you sell a suite within a multi-family property in Canada, any monetary gain you have enjoyed is categorized as a capital gain, which receives preferred tax treatment.
Under current the Canadian legislation, when you sell your investment property for a profit, only 50% of the capital gain is taxed at your marginal tax rate and the remaining 50% is tax-free. This often translates into far higher after-tax returns than a RRSP.
Please note that the Canadian Government views real estate investing for long term versus flipping for a gain very differently. The tax treatment for both is very significantly different. Please consult with your accountant to ensure that you know the difference before you start investing.
Should You Invest in Multi-Family Real Estate?
As you can see, there are several incredible benefits of multi-family housing, including increased economic vitality in our communities and cities, increased environmental sustainability, and affordable housing opportunities for a large segment of the population at various times throughout their lives. There are also significant tax advantages and decreased risks to investing in multi-family real estate investment properties vs. single-family homes.
To find out if multi-family real estate investing is right for you, speak to one of our STRATEGIC INVESTMENT REALTORS® TEAM advisors. Fill out our online contact form or give us a call at 1.855.876.7334 today.