As tax time approaches once again, we thought we’d share some of the tax advantages of multifamily real estate investment, courtesy of BAM founder and CEO, Ivan Barratt. Ivan clarifies some common misconceptions, as well as what makes multifamily investment end up with some great tax benefits for investors. Read on for the scoop on multifamily investing tax advantages in today’s BAM Blog…
Not a REIT, It’s Like a Real Estate Deal
Ivan says that many people think that getting into a multifamily deal is like buying into a REIT or even a share of stock. According to Ivan, buying into an apartment investment the way that BAM is set up, is pretty much the same as if you and a partner went out and bought a duplex. He says it’s similar in that you own it together and share in percentage ownership of the tax advantages, such as: depreciation, amortization, interest expense, etc.
Bigger Deals, Bigger Tax Advantages
According to Ivan, the tax advantages with real estate are good but only get better with bigger deals. For instance, Ivan notes that in a 300-unit deal, you can undertake a cost segregation study, where you’ll accelerate the depreciation schedules of most of the components of the building and amenities. The benefit here is that it adds larger passive losses for tax purposes. Here’s a concrete example, using our 300-unit deal again:
- Each investor receives 72% tax losses
- For an investor who put in 100,000, that investor received a $72,000 tax loss
- The investor was already receiving about 11% cash-on-cash return
The investor in our example was already receiving positive cash flow from the first day, and now has these tax losses that s/he can take advantage of, or that can sit on the books until the investor is ready to offset those losses with future gains.
Think About Multifamily Investing Like a Dividend Stock…
Ivan says that another way to think about it is like owning a dividend stock or a bond paying cash flow. As he says, imagine getting 15% a year on your investment and paying zero taxes! Well, when you think about it that way you can see that larger-size real estate investing has benefits for your portfolio as well as huge tax advantages.
Want to learn more about the interesting, complex world of multifamily investing? Head over to ivanbarratteducation.com! You’ll find a free video library featuring Ivan Barratt, designed to help you navigate the industry by making his insider information accessible to everyone. You’ll also find informative articles, some written by Ivan, all about multifamily investing.