All real-estate investments aren’t created equal. Most investments in single-family and smaller multi-family units like four-plexes and eight-plexes are tied to the market’s ups and downs. Their value is based on comps of near-by property sales and you just need one distressed property owner to sell at a discount to bring the prices down for that community. Apart from this, a single unit vacancy could cause a big impact on the overall cash flow.
On the other hand, multi-family real estate is valued on the efficiency at which it runs (measured by NOI – Net Operating Income) and the risk of the market you are investing in (measured by CapRate). High number of units in the apartment buildings reduce the impact of a few units running vacant on the cash flow. This provides diversification to your portfolio that is typically not possible with your regular real-estate investment.
In commercial real estate, apartments have been the best asset class amongst other asset classes like office, retail, industrial etc.
Multi-family apartment investment provides cash flow through quarterly distributions from operations and equity upside on sale. It also provides tax advantages through bonus depreciation and cost segregation which potentially could offset your other passive income like rents from existing properties.
The demand for apartment units is at an all time high (ref: FRED) driving low vacancy rates, making the segment more attractive for investors.
Amazing thought for investments