Six Strategic Advantages for Investors
As you can see, there are many important benefits associated with multifamily real estate and these benefits create a number of key strategic advantages for those who invest in these properties. Here is a summary of our top six:
1. Strong, Continuous Demand
Across North America, multifamily real estate plays an important role in providing essential affordable housing for those entering the multifamily rental market out of necessity rather than choice. This in turn generates continuous demand for multifamily rentals in virtually any economy, particularly for those properties that are well situated, reasonably priced and well maintained.
2. Enhanced Economic Vitality Boosts Demand
The construction of multifamily properties enhances the economic vitality of a neighbourhood or region by creating jobs associated with designing, building, managing and financing these projects. As well, a balanced mix of housing options helps make a region more attractive to businesses looking to expand or relocate in order to reach a wider market, with multifamily properties playing an important role in housing a large segment of their workforce.
3. Diverse Demographic Appeal
Multifamily rentals serve a variety of lifestyle needs, making these properties the best or preferred housing solution for many people at different stages of their lives. From the vast pool of immigrants entering Canada and the US, to the children of baby boomers (echo boomers) who are beginning to form their own households yet may lack the finances needed for homeownership, the broad appeal of multifamily rentals attracts highly diverse demographic groups.
4. Cash Flow Advantage
Owning a multifamily investment unit often costs significantly lower than a single-family home, which can result in net monthly revenue, or cash flow, even after the mortgage, taxes, repairs and maintenance costs, and management and condo fees are paid. This greater affordability typically results in lower financing and operating costs and often translates into lower rents, which can create the added advantage of increased demand.
5. Lower Cost of Ownership
The cost of owning multifamily real estate 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. The long term performance of your real estate investment portfolio can be strengthened through geographic and economic cycle diversification because the risks associated with market fluctuations during the course of ownership and when it comes time to sell an investment unit is reduced.
6. Preferred Tax Treatment
Similar to a RRSP, the value of your investment property appreciates tax free until it is sold. Then, when you do sell, any gain you have enjoyed is categorized as a capital gain, which receives preferred tax treatment. For example, under Canadian legislation, when you sell your investment property for a profit, just 50 percent of the capital gain is taxed at your marginal tax rate and the remaining 50 percent is tax free. This often translates into far higher after-tax returns than a RRSP.
Learn more about other key considerations before becoming a real estate investor by clicking here.
