There are numerous ways to invest in real estate in a self-directed IRA (SDIRA). However, multifamily real estate has the potential to be quite lucrative when you invest in the right property, have steady tenants, great amenities, and eye-catching curb appeal. Investing in these assets in an IRA helps you build tax-advantaged wealth for retirement. You also achieve critical diversity in your portfolio that creates a hedge against inflation and stock market volatility.
In recent years, single-family housing costs have skyrocketed, along with interest rates and inflation. The cost of monthly rent for apartments, condos, and other multifamily real estate properties has also increased. But the fact is—people always need a place to live. Another fact—according to a recent report by Statista, the volume of multifamily dwellings in the U.S. increased from 30.5 million in 2015 to an 115.25 million in 2023.
That statistic alone is reason enough to consider multifamily real estate for your SDIRA.
Multifamily Investment Opportunities
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 both beginner and sophisticated investors.
Multifamily assets include: 
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- Duplexes, triplexes, fourplexes, and even sixplexes
- Townhomes and apartment buildings
- Upscale condominiums and resorts
- Multifamily investment syndications
Multifamily syndications are an excellent example of a passive investment. Syndications involve pooled capital from multiple investors to invest in larger and more lucrative multifamily real estate. An investment sponsor for the syndication handles the operations and details of the asset. This is great choice if you don’t have the time to manage the details or the knowledge to invest on your own.
5 Benefits of Investing in Multifamily Real Estate in an SDIRA
1. Earn tax-sheltered income for retirement
Self-directed IRAs allow account owners to invest in alternative assets—and they get to choose which investments to make. And, when you invest in real estate with your IRA, all the income you make, including capital gains from a property’s sale, is directed straight into the IRA.
If you invest with a traditional IRA, that income is tax deferred. You’ll pay tax on distributions when you retire. Roth IRAs earn tax-free income. Roth accounts are a favorite plan for those who are eligible to use one because your distributions in retirement are not taxed. Other self-directed retirement accounts include SIMPLE and SEP IRAs and solo 401(k)s. Education savings accounts (ESAs) and health savings accounts (HSAs) can be self-directed, too.
2. Greater investment cash flow
More rentals mean more cash coming in monthly. All income is deposited directly into your IRA on a tax-sheltered basis, which provides two benefits: more cash to reinvest and funds to cover any maintenance issues. Additionally, multifamily investments provide multiple streams of income, not just one as you’d have with single-family rentals. If some units are vacant for a while, you have others that continue to generate that cash flow.
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.
3. No 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’re able to rent it out again. But, 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. Plus, if you have multiple renters, you still have income rolling in, which is an excellent place to be.
4. Convenient to maintain
You don’t have to drive all 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 it is 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 maintain your investment and can be less expensive to maintain, all things considered.
5. More bang for your buck
When you sell a single-family home to another investor or individual, that price is based on the value of the property and structure on it. Multifamily real estate sales consider the profits the property is generating, as well. And more units equal more income! So, depending on the number of tenants you have, if your property is in a good location and has been 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 your IRA funds to grow income for retirement. Of course, there are considerations—such as more people to deal with, multiple possibilities for plumbing issues, leaks, etc. If you invest with your IRA, 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 passively in a syndication may be the perfect strategy for you.
Multifamily Real Estate 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 with some of the statistics below.
New construction on multifamily units has slowed quite a bit according to a report by RealPage Analytics. But, Multifamily Executive (MFE) reports that October 2023 could experience a moderate recession with negative annual rent growth between 1-5 percent. However, MFE also states that Origin Investments (a leading multifamily real estate fund manager) predicts rent growth to make a comeback in 2024.
FreddieMac’s 2023 Mid-Year Multifamily Outlook published in August 2023 states the market was slow throughout most of this year. But they see the multifamily market stabilizing and “returning to a more normal seasonal pattern although slightly weaker than the years leading up to the pandemic.” According to this report, the first half of 2023 experienced a growth in demand compared to 2022. While occupancy declined somewhat in 2023, this decrease was much slower than in 2022.
And their prediction is that even though property prices may suffer somewhat due to current market pressures, “multifamily is still among the more favored asset classes due to the long-term demographics — 70 million Generation Z, young adults in or close to prime renting age, an overall housing shortage, and the continued strength of the labor market which is propelling new household formation.” This is encouraging news for investors.
Closing Thoughts on Multifamily Property as an Investment
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.
