Updated: Jan 9
Whether you’re new to investing in multifamily properties or you’re a seasoned pro, there are myths floating around that many investors believe to be true. The key is to identify these myths and reveal the truth once and for all. So let’s take a look at some of the top myths that investors still think are true, and bust the misconceptions while revealing the truth.
You Need to Have a Lot of Money to Buy Real Estate
Have you seen the prices of multifamily properties lately? They’ve hit new highs, and people are doing everything they can to get their hands on one. It comes as no surprise, as people who used to purchase single-family homes are now realizing the greater potential in investing in multifamily deals. Plus, there seems to be no end in sight for the demand.
Most investors think it takes millions to get in on the action, based on the prices of these properties. But that’s a myth, because you can get in on a multifamily deal for as little as $25,000. It’s all thanks to syndication, and investing along with others to be a part of the deal. It’s a way to enjoy the monthly income and potential appreciation of a multifamily property without putting up huge sums of money, and the best part is that all of the benefits of owning a multifamily property pass on to the investors.
This includes the many tax benefits of being a part of a real estate syndication. The top benefit would be passive income tax treatment, which means that any income you earn from the property will be taxed at lower tax rates, and any appreciation in the property when it’s sold is taxed at capital gain rates, which are lower than traditional income tax rates.
There are many other benefits of investing in a multifamily property syndication, but the bottom line is you don’t have to have a lot of money to get in the game. Just find an experienced, qualified syndicator who has a successful track record and be sure to do some due diligence on the deal before investing.
New Construction Won’t Impact Your Property
This is almost a no-brainer, but many investors still think that even if there is a lot of new apartment construction underway, there will always be tenants available to rent their property. Sadly, it’s just a myth.
Whenever a market is oversaturated with apartments, there will be a problem. It’s called absorption rates - the relationship of the number of units being leased in relation to haw many are being built. Whenever absorption rates are dropping and construction is climbing, it’s a good time to stop investing in that market.
When doing your due diligence, be sure to analyze the market and see how many apartments are under construction and how many are proposed or in the pipeline. If there is a lot of development activity, it might be better to look at a different market where new construction is not planned in the near future.