Much of the interest in real estate investment is focused on fixing and flipping. This is perhaps unsurprising, seeing as how fixing and flipping tends to be much more exciting than, say, the process of holding on to multifamily properties for renting out in the long run. However, ignoring multifamily properties in preference for other real estate investment options would be a foolish mistake, particularly for people who already have multifamily properties in their investment portfolios. Here are reasons that people should hold on to their multifamily properties most of the time:
Steady Revenue Stream Over Time
The single biggest reason that people should want to hold on to a multifamily property is because of the steady stream of revenue that it provides to the property owner over the course of its existence. Moreover, it should be mentioned that this stream of revenue corresponds to a stream of cash inflows, thus making multifamily properties that much more useful and that much more valuable. On top of this, it should be mentioned that with sufficient passage of time, multifamily properties are bound to provide more revenue than a one-time sale anyways. Yes, a steady stream of revenue over time might not be as satisfactory as a single huge burst of revenue all at once, but in investing, numbers should always beat out feelings.
It Takes a Lot of Time and Effort to Make Multifamily Properties Profitable
Making decisions based on sunk costs tends to be a huge mistake. However, interested individuals should remember that making a multifamily property profitable takes a lot of time, effort, and other resources. After all, while it can be as simple as just buying such a property in its prime, that tends to be very expensive. Instead, a lot of real estate investors prefer to pick up such properties with potential, which means everything from fixing them up to building a capable management team and cultivating a positive relationship with the tenants. In other words, if people end up regretting selling their multifamily properties, they are going to have to struggle if they want to get involved again afterwards.
The Value of Real Estate Is Up in the Long Run
Real estate properties aren't as volatile as some of the other investments that can be found out there. However, real estate properties are by no means immune from fluctuations in their prices. Still, the general trend of the real estate market is upwards in the long run, meaning that someone who holds onto real estate properties for said time frame can see enormous increase in their value. To get an idea of the price appreciation, consider the fact that the median price of a U.S. home was $93,000 in 1980, $101,100 in 1990, and $119,600 in 2000 once adjusted for 2000 dollars. Based on this, it should be clear that someone who holds on to their multifamily properties can expect to see much higher values in the future than in the present.
On a related note, holding real estate properties rather than fixing and flipping them helps interested individuals avoid speculation. This is important because no one can predict the future with perfect accuracy, meaning that it is very common for a wide range of investors to be blindsighted by unforeseen occurrences. Considering the huge amounts of money that tend to be involved in property transactions, real estate investors don't want to be caught by surprise by bad circumstances, as shown by the numerous stories that have been told of those who bought expensive real estate just before the collapse of the U.S. housing market in the late 2000s.
Housing is a critical issue, so it makes sense that there are tax incentives in place to encourage people to make more rental units available to interested individuals. Moreover, it should be remembered that the taxes for multifamily properties are paid over time. In contrast, someone who makes a huge profit from fixing and flipping can expect to have to pay a huge sum of taxes all at once as well, which tends to be much less pleasant for them.
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Written by Garrett Parker
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