Thanks for reading our inaugural blog post. We’ll release a new article each week that will teach investors new ways to think about their investments as a whole and real estate in particular.
Wynmor focuses on investments in cash-flow real estate with an emphasis on apartment buildings throughout the U.S.
Multifamily properties are attractive for many reasons but the 5 core advantages of apartment buildings are the following:
- Income: Multifamily properties are currently selling for prices that translate to a 4-8% yield, which is the rate of return you would achieve if you bought the property with 100% cash and did not obtain a mortgage. This means the typical $1,000,000 property will produce cash flow between $40,000 and $80,000 during your first year of ownership. Investments that provide cash-flow can reduce risk as you’re not relying solely on the appreciation of a property in order to make an attractive return.
- Depreciation: The IRS allows investors in commercial real estate to reduce their tax liability by writing off building depreciation, a paper expense. This can help shelter most if not all property income from tax liabilities. (Requisite disclaimer: This is not tax advice, please consult with your tax attorney or CPA.)
- Equity: Most acquisitions are funded through a combination of debt and equity. Lenders will typically finance 75% of the purchase price and require a minimum debt service coverage ratio of 1.25. This means if a property has a mortgage payment of $100,000 per year, it must generate a profit of at least $125,000 in order to pay the mortgage. A typical property not only delivers current cash flow, it also pays down the mortgage, building equity and growing your investment value.
- Appreciation: Commercial properties are valued based on the income they generate, as opposed to residential properties like single-family homes which are valued based on comparable sales and market sentiment. This provides investors the opportunity to “force appreciation” by increasing profits through income growth and reducing expenses. The higher income translates to increased property value even if market values have not improved.
- Leverage: Multifamily properties are seen as the most stable type of commercial property and subsequently lenders are willing to extend very favorable loan terms for apartment building acquisitions. This is in contrast to other property types such as shopping centers or office buildings with less consistent income streams that require larger down payments, often exceeding 35% of the purchase price. The availability of higher leverage allows you to compound your wealth faster than with other property types.
In closing, these are the 5 reasons that we believe apartment buildings are IDEAL investments that provide current cash flow, capital appreciation and tax benefits.
If you would like to learn more about investing in multifamily properties, please reach out to us on the telephone at 212-426-2461 or on our website at www.WynManage.com. You can also reach us via email at JB@WynManage.com.