Brand New Multi-Family Investment Opportunities

Bill Popp probably said it best in his three year economic forecast for the Anchorage economy. He said our current situation is a ‘pinch’ not a punch like we experienced in the late 1980’s. I agree with him. Last year was the best real estate year for sales and higher prices in the past five years so any decline from that may seem like the sky is falling. In reality, the market is making a ‘correction’ to use a catch all phrase normally used to describe the stock market.

I’m not an ‘equity’ investor in stocks. I’ve always placed my bet on the local real estate market either as an investor in small multi-family units or as a residential land developer, providing home sites for builders. But today, I’d place my bet on small multi-family units, particularly brand new ones. For years, I’ve lived in an owner-occupied duplex which has provided me with some tax relief, not a lot but some. As an owner occupant, I’ve been able to deduct advertising, landscaping, mortgage interest, office supplies, professional fees, property insurance, real estate taxes, repairs and maintenance, utilities, as well as depreciation. Not 100 percent of all those items described but enough to make a difference in my tax bill at the end of the year. Much better than the phantom income that comes with being a land developer and selling lots.

For example, an owner of a $660,000 brand new duplex could have estimated total deductions of over $30,000 from their taxable income. Other benefits include the contribution of monthly principal reduction from the rental unit. With a vacancy factor of only 3.9% (still below the national average) and the average age of an Anchorage apartment almost 30 years old, brand new apartments, particularly if they are townhouse style with a garage, will provide the highest rental income. New units are also built to better energy efficiency standards (all buildings are now required to be five star while many older apartment buildings are only four star) which reduces the utility costs for both the owner and the tenant.

While brand new buildings are more expensive on a price per square foot, they also will require less reserves for maintenance and repairs. After all, renters are no different than home buyers. They like laminate flooring, java cabinets and solid surface countertops. If you’re an aging baby boomer, thinking about only living part-time in Alaska, an owner occupied duplex makes sense. A friend, relative, or a good tenant can look after your home while you’re enjoying that Arizona or California sunshine. A duplex or owner –occupied four-plex, is also a good investment for first time homebuyers, particularly if you’re a triple zero down VA buyer. Many home buyers start out with a duplex and after living in it for a few years, move up to a single family home and keep their duplex as an investment.