Building wealth is a key benefit to investing in multifamily properties.
-Fix it Flip is not real estate investing.
Real estate investing is:
- Creating passive income for yourself
- Being able to benefit from tax deferrals, cash flows, the periodic pay down of debt and the ability to take the project from point A to point B
- Use cash to reinvest in other properties.
Fix it Flip it can offer a quick cash multiple but it comes with a lot of risks and more competition.
More Competition = Less Deals
IRR: Measures the efficiency of returns
What Is Internal Rate of Return (IRR)? (Investopedia.com)
The internal rate of return is a metric used in financial analysis to estimate the profitability of potential investments. The internal rate of return is a discount rate that makes the net present value (NPV) of all cash flows equal to zero in a discounted cash flow analysis. IRR calculations rely on the same formula as NPV does.
- IRR is the annual rate of growth an investment is expected to generate.
- IRR is calculated using the same concept as NPV, except it sets the NPV equal to zero.
- IRR is ideal for analyzing capital budgeting projects to understand and compare potential rates of annual return over time.
Example: Promising $20,000 return at the end of a twenty-year period and you have 5 different models that return that $20,000 at a different period of time. That is where IRR helps determine which model is more advantageous.
- Multifaceted – You have more units which decreases the volatility when there is a vacancy.
- Offers a multitude of ways to grow wealth and put your dollar to work.
Fix It, Flip It:
- Limited to one strategy: Buy low, make improvements and benefit from the cash multiples.
- Does not bring in passive income.
Other Key Points:
Having a strategy in investing is a key component to success in multifamily properties.
3 Reasons to Invest in Multifamily Real Estate (Investopedia.com)
- More Expensive, but a Lot Easier to Finance
- Growing a Portfolio Takes Less Time
- You’re in a Position in which Property Management Makes Financial Sense