When it comes to real estate investing, many first-time investors tend to put their money into buying single-family homes. But one type of real estate property often overlooked is apartments. These multi-family residences are commercial properties with more than five units. It offers a good return on investment and it allows you to build and protect your wealth. Here’s why:
Apartments generate positive cash flow
If managed correctly, your apartment can generate positive cash flow from its rental income. Positive cash flow happens when more money flows into your rental business rather than out of it. With positive cash flow, you’ll be able to pay off your debt and expenses. And since apartments have more than five units, you will still have rental income even if not all units are occupied.
Apartments appreciate over time
In the United States, the value of real estate has been steadily increasing over the years. This trend is most evident in income property such as apartments. These properties increase in value when the rent is raised, the expenses are reduced, and the property is physically improved. As long as you buy in the right neighborhood and location, your apartment property will have great income potential.
Apartments have tax benefits
Investing in apartments also comes with certain tax benefits. The Internal Revenue Service (IRS) allows apartment owners to reduce the amount of taxes on their rental income by writing off certain rental expenses such as operating expenses, repairs, property tax, mortgage interest, and depreciation. These deductions also cover the amount spent on maintaining and managing the property. The only item not deducted from your tax return is the cost of improving your rental property.
Another tax benefit of owning an apartment rental is property depreciation. The IRS states that rental properties depreciate over the course of 27.5 years. During this period, property owners can deduct the apartment’s purchase price from their taxes. This tax benefit allows you to save a certain amount of money on federal income taxes.
Apartments are in demand
Apartment living continues to be a popular choice among millennials and baby boomers. According to a 2017 web article by CNBC, the number of renters has increased over the past 50 years since 1965. Many of them have chosen to move to or stay in the city instead of living in the suburbs. For them, apartments offer a convenient, affordable, and low-maintenance type of living that is not possible with a single-family home.
The Upper Kirby apartments in Texas, for example, are located in Houston’s commercial district. Aside from their prime location in the upscale neighborhood, these apartments are sought after for their stylish interiors, luxurious community amenities, and proximity to the area’s top restaurants and shops. Other popular Houston properties are the Rice Village apartments and Highland Village apartments.