There are numerous ways to invest in real estate in a self-directed IRA (SDIRA). However, multifamily investing has the potential to be quite lucrative when you acquire the right property, have steady tenants, great amenities, and eye-catching curb appeal. Investing in these assets in a self-directed IRA helps you build tax-advantaged wealth for retirement. You also achieve critical diversity in your portfolio, creating a hedge against inflation and stock market volatility.
In this article you’ll learn:
- Types of multifamily investments
- 5 benefits of investing in multifamily property
- Current market trends in this sector
- Advantages of investing through a self-directed IRA
What Are the Different Types of Multifamily Investments?
Multifamily property is diverse. From two-to-four unit single-floor buildings to skyscrapers that house thousands of apartment homes, multifamily property comes in all sizes and price points for beginner to sophisticated investors.
- Duplexes, triplexes, and fourplexes: Small buildings with 2 to 4 units; duplexes and triplexes are often easier to manage and maintain.
- Garden apartments: Low-rise buildings with outdoor access, typically 2–3 stories, and multiple units.
- Mid-rise apartments: Medium-sized buildings with 5–12 stories, often located in urban or suburban areas.
- High-rise apartments: Large buildings with 12+ stories, typically in the centers of cities.
- Condominiums: Larger communities housing dozens or hundreds of units, often with shared amenities.
- Student housing: Properties close to colleges or universities, leased by the bed or unit.
- Senior living facilities: Independent or assisted living communities designed for aging residents.
- Mixed-use buildings: Multifamily units located above or alongside commercial spaces (e.g., retail or office space).
- Affordable/subsidized housing: Properties operating under government housing programs, offering lower-cost rent.
- Mobile home parks: Mobile homes offer diversity for investors. Some own the land and lease lots to tenants; others own the mobile homes and rent them. Both models provide strong income potential.
- Multifamily developments (new construction): Ground-up or large-scale multifamily builds, often structured as part of a syndication.
- Multifamily syndications are an excellent example of a passive investment. Syndications involve pooled capital from multiple investors to acquire larger multifamily real estate.
5 Ways Multifamily Investing Can Strengthen Your Portfolio
1. Earn tax-sheltered income for retirement
While a great number of investors hold multifamily assets in their traditional investment accounts, using a retirement account to invest provides unique benefits. Self-directed IRAs allow account owners to invest in alternative assets—and they get to choose which investments to make. When you invest in real estate with your IRA, all investment income, including capital gains from a property’s sale, is directed straight into the IRA.
If you invest with a self-directed traditional IRA, that income is tax deferred. You’ll pay tax on distributions when you retire. Self-directed Roth IRAs are a favorite plan because income grows tax free—meaning distributions in retirement are not taxed.
2. Greater investment cash flow
More rentals mean more cash coming in monthly. This provides additional capital to reinvest and funds to cover any maintenance issues. Additionally, multifamily investments provide multiple income streams, not just one as you’d have with single-family rentals.
If you continually upgrade the property—whether you add a workout gym, individual storage rooms for each unit, or a safe laundromat area—you’re more apt to attract tenants for the long haul. And top-tier upgrades provide a reason to raise rents when appropriate.
3. Less fear of vacancies
How nice would it be to not worry about a vacancy? If you lose a renter in a single residence, any monthly income comes to a screeching halt until you can rent it out again. With multiple units, if some units are vacant for a while, others continue to generate that critical cash flow. Depending on the location and desirability of your multifamily property, empty units tend to fill up quickly. Everyone needs somewhere to live, and many people either can’t afford a house or prefer multifamily establishment living.
4. Multifamily investments are convenient to maintain
You don’t have to drive around town to check on different properties—your multifamily property is all under one roof at one location. And, while you may have multiple individual units to maintain with separate issues to contend with (like leaky sinks), it’s much easier to keep an eye on one building than multiple properties.
You’ve got one building with one roof sitting on one property that may or may not require landscape management. One location dramatically cuts the time it takes to oversee your investment and can be less expensive to maintain.
5. More bang for your buck
When you sell a single-family home, the sales price is based on the property’s value plus the structure’s value. Multifamily real estate sales also consider the profits the property generates. And more units equal more income! So, depending on the number of tenants you have, if your property is in a good location and is well maintained, you could net a pretty nice return when you sell.
These are all things to bear in mind whether you invest with personal cash for immediate income or with an SDIRA to build retirement wealth. Of course, there are considerations, such as having more people to deal with and multiple possibilities for plumbing issues, leaks, etc. If you invest with your SDIRA, you can’t personally manage or work on the property. But you hire the professionals to do it and oversee their work. If you want less personal involvement, investing in a syndication may be the perfect strategy for you.
Multifamily Housing Trends
As with any investment, you’ll want to do your due diligence to determine if any asset is a good fit for your portfolio. We’ll give you a head start on multifamily investing with some statistics below.
Freddie Mac’s 2025 Multifamily Outlook indicates that while rent growth is expected to be positive, even though below the long-term average, vacancy rates are anticipated to moderately increase. This suggests that despite challenges, the multifamily market remains resilient thanks to sustained demand in this space. In fact, despite ongoing interest rate volatility and a persistently elevated rate environment, multifamily sales activity is projected to rise in 2024—reaching approximately $320 billion. That upward trend is expected to continue into 2025, with transaction volumes climbing to an estimated $370 to $380 billion.
CBRE’s U.S. Real Estate Market Outlook 2025 projects that the average multifamily vacancy rate will end in 2025 at 4.9%, with average annual rent growth at 2.6%. The report highlights that strong renter demand will drive improving occupancy and accelerating rent growth, even in the face of rising interest rates and new supply levels.
Fannie Mae’s January 2025 Multifamily Market Commentary notes that rental demand remained positive for much of 2024 due to ongoing job growth and rising wages, with elevated mortgage rates and continued higher single-family housing prices keeping many tenants renting. This trend is expected to continue into 2025.
The Case for Multifamily Investing in a Self-Directed IRA
When you invest using a self-directed IRA, you combine the long-term income potential of rental properties with the powerful tax advantages of retirement accounts. You capture the potential of a steady income stream that can help build lasting wealth without immediate tax consequences.
- All income your multifamily property earns is deposited into your SDIRA.
- Investment income, including capital gains, is not taxed in the year it’s earned—it enjoys the tax-sheltered status of your retirement plan.
- If you use a traditional IRA, you’ll pay taxes on distributions from your SDIRA in retirement. If you invest with a Roth IRA, distributions of that income are tax free.
Multifamily investments are especially attractive in an SDIRA because they offer scale, stability, and consistent demand—even in uncertain markets. With multiple units generating income, these properties are often more resilient than single-family homes when vacancies occur.
Bonus: You’re not limited to direct ownership; your SDIRA can invest passively in multifamily syndications, offering exposure to large-scale real estate deals without the responsibility of orchestrating the hands-on management of the property.
As always, investments must be properly structured and titled in the name of the IRA, with no personal benefit or use. You must also adhere to IRS rules regarding prohibited transactions and dealings with disqualified persons. If you’re unfamiliar with self-directed investing, this may initially sound intimidating. But, once you learn the ropes and rules, building retirement wealth using a self-directed IRA becomes easy.
Final Thoughts on Multifamily Investing
The sources cited above illustrate the continued strength and resilience of the multifamily housing sector in 2025, driven by factors such as high mortgage rates, affordability challenges in the single-family home market, and sustained rental demand.
While the multifamily real estate market has had its challenges, it appears to be holding its own. This asset class is still a worthy alternative investment to consider if you’re looking to invest off the stock market.
If you have questions about this article or want to know more about how multifamily property and other real estate investments work in a self-directed IRA, please contact Advanta IRA.
