TOP 10 REASONS TO INVEST IN MULTI-FAMILY APARTMENTS
Hello!
We are excited at Jameson Asset Management, LLC (“Jameson Asset Management) as real estate is truly the best asset class to invest your hard earned money in!
Why you ask?
Well… below our the Top 10 reasons we believe multi-family apartments are the best asset class:
1.) DEMAND FOR HOUSING — Today more than ever more people are renting as opposed to buying. There will always be a shortage of housing with a growing population. Housing is a crucial component to our infrastructure. The supply cannot keep up with the current demand!
2.) CONVENIENCE — Baby boomers prefer renting for ease of lifestyle as opposed to owning a home. Tenants who rent do not have to worry about landscape and maintenance issues. Who wants to spend their day addressing leaky sprinklers and washer machines. Tenants who rent need not worry about these kinds of issues.
3.) LEVERAGE — You can use other people’s money [OPM]. For every $1 the bank will loan you $3-$4 dollars. This is how you can scale into larger apartment complexes. This is one of the reasons real estate is so powerful. For example, if you buy $1,000,000 worth of shares in Bank of America you get exactly that, $1,000,000 worth of shares. Bank of America will not give you a loan to buy those shares either. However, if you buy a piece of real estate you have leverage. Going back to our example, you have $1,000,000 to invest in a property. Bank of America will give you an additional $2,000,000 as debt to assist in purchasing the property. You bought the property for $1,000,000 and used the bank as leverage for the other $2,000,000. You now own a $3,000,000 piece of real estate that cost you $1,000,000 (THAT’S LEVERAGE!).
4.) PRINCIPAL PAY DOWN — By owning an apartment complex the tenants pay down the debt on the property. Someone else is paying your mortgage every month while your equity position in the property grows. This starts to add up in the long run. Think in terms of 5,10,15+ years, the debt on the property has been paid down by someone else and your equity has gone up! In 30 years time, the property is now owned free and clear!
5.) BARRIERS TO ENTRY — New housing cannot be built affordably. Real estate being a physical asset does not just disappear over night like the value of a stock. Real estate cannot be replaced by technology either, people will always need a place to sleep at night. To quote MARK TWAIN, “Buy land, they aren’t making it anymore.”
6.) PRESERVATION OF CAPITAL — Real estate acts as a hedge against inflation. The initial invested amount of money (capital) is used as a downpayment. That capital is being deployed and put to work. When the time is right that capital is returned back to the investor. Real estate investors have their money working for them. In short real estate allows you to make money in your sleep.
7.) COST OF LIVING — It’s cheaper to rent than buy. The average price of a home in the United States in 1963 was $19,600. The average price in 2020 was $393,300. Home prices continue to increase thus the amount of money needed to purchase a home as a down payment continues to rise. To continue with this example if someone were to purchase a home for $393,300 they would need at least 20% down to avoid private mortgage insurance [PMI] or roughly $78,660. Not to mention all the associated closing costs. However, a renter would be looking at (depending on the market) $1,500-$2,100 a month. How many people have roughly $80K sitting in their bank account?
8.) TAX BENEFITS — Real estate utilizes what is known as depreciation. Depreciation is the act of spreading out the cost of the property over it’s useful life for tax purposes. In short, you can depreciate a property to pay less in taxes each year. This is what allows real estate investors to pay no tax. Why do you think the IRS incentivizes real estate investors? It’s because as a real estate investor or better yet ENTREPRENEURS we create jobs and opportunities where the public sector cannot! Not only does multi-family apartments provide housing they are given huge tax breaks to do so!
9.) APPRECIATION — The value of multifamily apartments is determined by the Net Operating Income [NOI]. Through a value-add [forced appreciation] business plan, you can dramatically increase the value of the property. At a later time, you can refinance the property and take the newly created equity tax free.
10.) CASH FLOW — Apartments provide cash flow the holy grail of all investing! Every month investors are paid a return on their investment. Jameson Asset Management believes investing for cash flow the payoff with appreciation down the road is like icing on a cake! Just think you get paid every month to be patient and wait.
These 10 reasons together make investing in multi-family apartments worthwhile. Banks know it, Insurance companies know it, and so does the U.S. Government. It’s why all these other entities are in someway involved.
If you are curious about real estate investing or have questions send us an email at invest@jamesonassetmgmt.com or schedule a call
I look forward to hearing from you.
~ Sean
P.S. Louis Glickman once said, “The best investment on Earth is earth.”