The 2016 US Physicians’ Financial Preparedness report by the American Medical Association shows that nearly 40 percent of practicing physicians are behind on retirement. Investing passively in multifamily apartment real estate provides a great avenue to retire or be financially independent within five years or less. Who does not want that?
MD News recently sat down with James Kandasamy from Achieve Investment Group, the San Antonio Apartment Association (SAAA) award winner for Property of the Year — Rehab.
Q: Why is investing in the multifamily asset class better than investing in hotels, medical offices, warehouses, stocks, self-storage, or land?
A: Favorable Investment Metrics
- Multifamily investments potentially can provide a 16–20 percent overall internal rate of return (IRR) for a five-year cycle with a quarterly cash flow payout. Furthermore, real estate values double every seven to 10 years.
Everyone needs a shelter
- Per Maslow’s hierarchy of needs, multifamily provides shelter, which is a fundamental basic need of human beings. Due to this fact, multifamily investments are significantly resilient to economic fluctuations as everybody needs a place to stay.
Force Appreciation
- Multifamily values are based on net operating income (NOI). A skilled operator of multifamily housing can force appreciate the value by executing a well-planned business plan to increase NOI. For example, you can buy a multifamily property that is not performing 10 percent below its potential and execute a business plan to increase NOI by 15 percent to increase your investment return equity by 50–80 percent.
Black Swan Effect That Created Renters Nation
- After the 2008 housing bubble burst, many millennials and baby boomers have decided to become renters. The new thought that renting is easier than owning a home pushed up rental demand to a higher level previously not seen in the nation’s history.
Invest With IRA
- Yes, you can invest using your IRA after moving it to a self-directed IRA or checkbook IRA. The process is easy and we have many investors who do this.
Q: Physicians usually fall into a high personal income tax bracket. Are there any tax benefits to investing in multifamily housing?
A: Absolutely, this is one of the powers of multifamily investments.
Personal income tax reduction with depreciation paper loss
- These depreciations will be shown as a paper loss and flow through your personal income tax as a deduction. The higher depreciation means a higher personal income tax deduction for multifamily property investors.
- The multifamily asset class is the only asset class to get higher depreciation per year as it’s depreciated over 27.5 years. All other asset classes such as office, warehouse, industrial, self-storage, etc., are depreciated over 39 years
- The recent 2017 Tax Cuts and Jobs Act tax reform law introduced “Bonus Depreciation” for multifamily housing investments that allows much higher depreciation in year one for assets acquired after September 2017.
Q: Physicians are busy people. How can they invest?
A: You can get all the multifamily real estate benefits by being a passive investor using syndication. In multifamily syndication, the person putting together the deal is called a sponsor, and investors investing passively are called passive investors. The benefits are:
- You don’t do any work! It’s passive! You can use the sponsor’s time and skills to invest passively and still reap all the benefits outlined above.
- Since you are passive investors, there is zero liability to you.
- Multifamily attracts nonrecourse, long-term loans. That means if the investment goes south due to some issues, the lender can’t come after the investor’s personal assets. Bad boy carve-outs apply.
To learn more about multifamily investments or to join one of our educational road trips visiting multifamily properties, please send an email to james@achieveinvestmentgroup.com or visit achieveinvestmentgroup.com.
