7 Benefits of Investing in Private Multifamily Real Estate for Doctors

Real estate investment has long been recognized as a reliable and lucrative avenue for building long-term wealth. Private multifamily real estate deals stand out as a particularly compelling opportunity among the various real estate investment options available. Especially for, I dare say, the majority of doctors.

Don’t get me wrong. I love active real estate investing. And, to this point, that is the only way that Selenid and I invest in real estate. We’ve identified a niche in our market that works really well and we love investing that way. But most of the doctors that I speak with are looking for a more passive approach. And while completely passive investing is a misnomer, private multifamily real estate deals can leverage great gains against minimal time outside of initial due diligence.

Learning more about private multifamily real estate investing

Since I don’t have personal experience in this realm, I am always looking for other trustworthy individuals with a lot of experience to help me provide value. And also for me to continue to learn more from. And that is where Glenn Hansen and Julian Vogel come in.

When I attended the Best Ever Conference a few months ago to present (recap of the event here), I ended up at a VIP event a bit early because I read the invitation wrong (don’t even get me started). However, I wasn’t the only one there early. As a result, I met and got to spend a lot of time chatting with Glenn and Julian.

Glenn happens to be the CEO of Colony Hills Capital and was a featured speaker at the event. Julian is their Fund Manager. We mostly spoke about our families, travels, and other experiences but the conversation eventually turned to real estate investing. I was impressed by their experience, honest approach, and long term success with his private real estate deals and funds.

So, I asked them to share their knowledge, value, and even deals via their crowdfunding site. Here, Julian is particular will delve into the numerous benefits of investing in private multifamily real estate deals and why they have become increasingly popular among astute investors including many doctors looking to be relatively “hands-off”.

Benefits of private multifamily real estate investing

1. Cash flow

One of the primary advantages of investing in private multifamily real estate deals is the stable and consistent cash flow they offer.

(You already know that I am adamant that cash flow is king/queen in real estate investing!)

Unlike single-family properties, multifamily properties provide multiple streams of rental income. Think about a two-family property: when one tenant does not pay rent, you lose 50% of your revenue.

With a diversified portfolio of larger property rental units, investors can enjoy a steady cash flow less vulnerable to individual tenants’ fluctuations. Even in economic uncertainty, people will always need a place to live. This makes rental income from multifamily properties relatively reliable – not foolproof – but reliable.

Furthermore, multifamily properties have the potential to generate higher cash flows compared to other real estate investments. Investors can maximize their rental income by leveraging economies of scale. These include things like shared maintenance costs and higher occupancy rates.

Additionally, the demand for rental properties tends to remain strong, mainly as factors like rising homeownership costs and a mobile workforce contribute to the increased appeal of renting.

2. Appreciation

Investing in private multifamily real estate deals also offers the potential for property appreciation over time. Historically, real estate has proven to be a reliable long-term investment. And multifamily properties are no exception. As population growth and urbanization continue, the demand for rental housing will increase, driving up property values.

Additionally, multifamily properties benefit from the ability to generate income through both rental income and appreciation. Rental income provides cash flow in the short term. Meanwhile property appreciation offers the potential for significant long-term returns. Through strategic property management and value-add initiatives, investors can enhance the overall value of their multifamily properties, thereby accelerating appreciation.

This is where I think it is very important to really get to know any deal sponsor for a private multifamily real estate deal that you are investing in. The investment should be long term. Investing short term for appreciation is like stock picking. It’s speculation. And that is how people get burned. Especially if they overpay for the property to begin with.

3. Tax Advantages

Investing in private multifamily real estate deals provides investors with various tax advantages.

These advantages can significantly enhance the overall return on investment. One such benefit is deducting property maintenance, repairs, and management expenses. Additionally, investors, including syndication – private multifamily real estate deal – investors, can take advantage of depreciation deductions. This allows them to offset their rental income and reduce their taxable income. This depreciation deduction can be particularly valuable, as it is a non-cash expense that can generate significant tax savings for you, the investor.

Often times I get asked if these depreciation deductions can be used against active W2 income. The answer is yes. But with a big caveat. You or your spouse have to meet the criteria for Real Estate Professional Tax Status, which I go into in depth here. However, to meet this criteria, you pretty much need to be actively investing. So most “passive” investors can just deduct depreciation from any passive gains that they have. Including passive gains from the real estate deal.

Moreover, real estate investments can also qualify for a 1031 exchange, which allows investors to defer capital gains taxes by reinvesting the proceeds from a property sale into another qualifying property. This tax-deferred exchange strategy provides a powerful tool for investors to continually grow their real estate portfolios while minimizing their tax obligations.

4. Inflation hedge

Investing in private multifamily real estate deals is an effective hedge against inflation.

As inflation erodes the currency’s purchasing power, real estate investments have historically demonstrated the ability to maintain and even increase in value over time. Rental income from multifamily properties tends to rise with inflation, providing investors with an income stream that keeps pace with the cost of living. It is valuable to people who need current pay from their investments. Property appreciation is often positively influenced by inflation. As the general price level rises, the value of real estate tends to increase, offering a potential buffer against the eroding effects of inflation.

5. “Hands-off” management

Investing in private multifamily real estate deals offers the advantage of professional property management.

Unlike direct property ownership, where investors bear property management responsibilities, private multifamily deals are typically managed by experienced professionals. This is possible due to the more significant revenue base of the property versus a duplex.

This relieves investors of the day-to-day operational tasks, allowing them to enjoy the benefits of passive income. Professional property management ensures efficient rent collection, tenant screening, property maintenance, and dealing with legal and regulatory requirements.

This hands-off approach allows investors to focus on other areas of their lives while reaping the benefits of rental income and property appreciation.

This is a big advantage. While Selenid and I have really automated our process to make being a landlord much easier, it is still work. That’s why I say that passive investing in real estate requires some up front work in terms of vetting and due diligence, but then is really hands-off expect for cashing checks (assuming you did good due diligence and joined a good deal!).

6. Diversification

Diversification is a fundamental principle of investing. And private multifamily real estate deals offer an opportunity to diversify one’s investment portfolio in a few ways.

First, by including multifamily properties in their portfolio, investors can spread their risk across different asset classes. This reduces exposure to the stock market’s volatility compared to only investing in stocks/bonds. Real estate has historically exhibited a lower correlation with other asset classes, making it an attractive addition for diversification purposes.

Furthermore, multifamily has consistently withstood the test of economic downturns. For example, the average occupancy for multifamily properties dropped by only 8% during the infamous 2008 crisis.

7. Private deals vs. REITs

Private multifamily real estate deals can offer investors risk mitigation advantages compared to public Real Estate Investment Trusts or REITs.

Public REITs are subject to market volatility and fluctuations, which can impact the value of shares. On the other hand, private multifamily deals offer investors more control and the ability to make informed decisions based on individual property performance and market conditions. This level of control can contribute to risk-adjusted returns and mitigate some of the risks associated with public market investments.

I actually invest in REITs as well as my personal portfolio of properties. I think this provides further diversification of my real estate investing. Because a lack of diversification is a fair critique of my real estate strategy. All of our properties are in one market. Spread out of course. But still in one market. REITs help mitigate that. Additional private deals would as well.

Evaluating private multifamily real estate deals

Investing in private multifamily real estate deals offers a range of benefits that make them an attractive option for savvy investors.

From stable and consistent cash flow to the potential for property appreciation, tax advantages, inflation hedging, professional management, portfolio diversification, and risk mitigation, multifamily real estate deals provide a comprehensive approach to wealth creation and long-term financial security.

By understanding and leveraging these advantages, investors can position themselves for success and unlock the potential of private multifamily real estate investments.

Which brings us maybe to the most important point of this post, just like you still need to understand how stock investing works even if you work with a financial advisor, you still need to understand how real estate investing works even if you are investing “passively.” Because you need to make sure that the sponsor you are giving your money to knows what they are doing, has a proven track record, and a strategy that you agree with. That is why I introduce you to people like Glenn and Julian. If you would like to learn more about them, you can at https://www.colonyhillscapital.com/. You can also see their deal offerings here.

And here are some great resources to teach you what you need to know about real estate investing to begin vetting deals!

What do you think? Does private investing in real estate make sense? Is it truly passive? Have you done it before? Let me know in the comments below!