As of April 2025, 23.4 million apartment homes exist in the United States. [1] According to We Are Apartments, “The operation of the country’s apartment homes contributes $199.6B to the local economy each year (including $66.1B in property taxes), creating 389K jobs.” [1] This is a significant statistic as it reveals the impact of this investment vehicle on local economies, ultimately informing investors’ portfolios and the outlook on multifamily real estate. 

Many people choose to invest in real estate because of the long-term wealth creation it can offer. This is particularly true for multifamily properties, which can generate a steady income stream through monthly rent. [2] Multifamily properties can provide higher returns in several ways, including cash flow strategies, appreciation, equity growth, and tax advantages.

CASH FLOW

Real estate is a cash-flow business. The strategy is to underwrite a property not on in-place cash flow but on stabilized cash flow. Cash flow is a catch-all term typically used to describe the income a property produces after all operating expenses and debt service have been paid. [3] This includes mortgage payments, property taxes, insurance, maintenance, utilities, and property management fees. [4]

• In-place cash flow: the cash flow a property generates at the time of purchase.
• Stabilized cash flow: projected cash flow once a property has reached its full potential in terms of occupancy and income.

Whenever you read “stabilized” attached to a metric (cash flow, NOI, etc.), understand that it is interchangeable with “projected.” For example, stabilized NOI (net operating income) is the same as NOI once the property has reached market potential. [5] As you build up your equity and pay down your mortgage, your cash flow tends to strengthen. Positive cash flow occurs when the income generated from the property exceeds the total expenses, while negative cash flow occurs when expenses surpass the income. [4][6]

Cash flow is generated in different ways in multifamily real estate. The most common method is rental income, which property owners receive from residents, typically monthly. [4][6] Another way is through appreciation, or the increased value of a property over time.

APPRECIATION

Real estate properties tend to increase in value over time through natural appreciation due to factors like inflation and demand for housing. [4] Natural appreciation is heavily driven by population or economic growth in desirable markets. 

Property owners can also create forced appreciation by renovating or improving the property. When the property is eventually sold, the owner can “realize” a profit from the appreciation, thereby increasing their cash flow. [4]

EQUITY GROWTH

Multifamily investment deals typically combine equity and debt. For a commercial multifamily property, debt is generally materialized as a mortgage. As residents pay rent, a portion goes to paying the mortgage principal, increasing equity.

Operators can compound equity growth. Compounding is a process where investment earnings, like distributions or capital gains, are added back to the principal amount (paying down the mortgage); the earnings can also be reinvested. Those newly generated earnings then generate further earnings over time. You may have heard of compounding interest. Michelle Clardie dives into how compounding works in real estate for Gatsby Investment, stating, “When you keep your money safe in an interest-bearing savings account, you’re essentially earning money on your money; this is called interest. And when you keep your earned interest in the account and start earning interest on the original interest, you’re essentially earning money on the money your money is earning! This is called compounding interest.” [3] 

It is best illustrated as a snowball rolling downhill or a flywheel that starts turning and does not stop—a 100k investment can turn into 200k in returns, 200k becomes 400k, 400k becomes 800k, 800k becomes 1.6M, and so on. With multifamily real estate, investors have the opportunity for outsized returns, so even if you start small, get outsized returns, and reinvest, it can compound over time, thus illustrating how multifamily can help build wealth.

Operators can also refinance, pull out equity, and reinvest that in something else to generate returns. Converting equity into cash via a mortgage is called cash-out refinancing. Standard refinancing involves replacing an existing mortgage on a property with a new one to improve the terms of the original loan, whether it be the interest rate, the loan term itself, or the extraction of equity.

TAX BENEFITS

Investing in real estate comes with many tax advantages. For example, several expenses associated with owning an investment property, such as mortgage interest, property management fees, property insurance, ongoing maintenance costs, and property taxes, can be deducted from your tax obligations. [7][8] This is outlined on K-1 tax forms for passive investors in private placements. Successfully navigating balanced cash flow, capital preservation, and capital appreciation while providing risk-adjusted returns could result in long-term capital gains. 

Partnerships can also lead to tax advantages by sharing costs. A partnership in multifamily real estate can take several different forms. One typical partnership structure involves a developer, a company managing the construction of a commercial multifamily property, and an owner/operator. The partnership is called a joint-venture development deal. Joint-venture development deals can add value to the property and the parties involved. They promote the development of new multifamily communities and address the supply/demand imbalance currently happening nationwide. In other words, developers might have a lot of deliveries (completed properties) today, but shovel-ready (under construction) projects could be much higher. [6]

Other tax advantages include depreciation and 1031 exchanges. Investors can deduct the cost of acquiring and improving rental property over time through depreciation, a non-cash deduction that allows them to write off a property’s cost over 27.5 years for residential and 39 years for commercial properties. Investors can even depreciate improvements made to the property to enjoy more tax benefits.

Investors can also defer taxes through a 1031 exchange, which allows investors to sell a property and reinvest the proceeds into another like-kind property without immediately paying capital gains taxes on the sale. By deferring these taxes, real estate investors can leverage their capital more effectively, increasing their potential return on investment (ROI). [9]

In private placement, however, investors may not benefit from a 1031 exchange. Private placement in multifamily is a real estate deal where multiple investors pool their money to buy a property, usually an apartment building, condo, or townhouse (multifamily). The investors are led by a general partner, also known as a sponsor, who is responsible for finding the property, managing the transaction, and managing the property after the purchase. Funds can be structured as partnerships, corporations, or trusts. [10]

WORK WITH BAM CAPITAL FOR MULTIFAMILY REAL ESTATE INVESTING

Multifamily private placement ensures that passive investors (LPs) will not need to locate and purchase an apartment building. They also do not have to handle property management since the sponsor will.

Passively investing in multifamily private placement typically requires less upfront capital from each participating entity because the costs are assessed, and your risk is limited to the amount you invest, allowing investors to partake in deals they otherwise couldn’t. [11]

Actively investing in multifamily real estate takes significant time, energy, and resources. If you are interested in passive income, consider working with an established sponsor with a proven track record to arrange your deals for you.

BAM Capital partners with accredited investors who want to enjoy passive income and all the other benefits of multifamily private placement. As the private equity arm of The BAM Companies, BAM Capital has been focusing on buying the most profitable assets and staying disciplined in its investment thesis. BAM Capital’s investment strategy aims to create forced appreciation while mitigating investor risk. To date, the brand has successfully managed over $1.7 billion in assets across ~9,000 apartment units.

Remember that no investment is risk-free. Before making financial decisions, consult your investment advisor and schedule a call with a BAM Capital investment team member.

Disclaimer: All investments carry risk, including potential loss of capital. This content is for informational purposes only and is not financial, legal, or investment advice, nor an offer or solicitation to buy or sell any security. Consult an independent advisor for personalized guidance and contact BAM Capital for details on current offerings. BAM Capital and its representatives are not fiduciaries or investment advisors. The information provided is general and may not reflect individual financial goals. Any financial terms, projections, or forward-looking statements contained herein are hypothetical in nature and should not be interpreted as guarantees of future performance or safety. Such statements reflect Bam Capital’s opinion and are subject to market fluctuations, economic conditions, and investment risks. Past performance does not predict future results. BAM Capital and its affiliates do not guarantee the accuracy or completeness of this information. Bam Capital offers investment opportunities under Rule 506(c) of Regulation D exclusively for accredited investors as defined by the SEC. Verification of accredited investor status is required prior to participating in any investment.

© 2025 Bam Capital. All rights reserved.

SOURCES:

[1]: We Are Apartments. (n.d.). “National Data.” https://www.weareapartments.org/data/

[2]: BAM Capital. (2022). “How BAM Capital Creates Positive Leverage.” https://bamcapital.com/how-bam-capital-creates-positive-leverage/ 

[3]: Gatsby Investment. (2023). How Compounding Interest Works in Real Estate.” https://www.gatsbyinvestment.com/education-center/how-compounding-works-in-real-estate-investing 

[4]: BAM Capital. (2024). “What is Cash Flow in Real Estate?” https://bamcapital.com/cash-flow-real-estate/ 

[5]: A.CRE. (n.d.). “Stabilization.” https://www.adventuresincre.com/glossary/stabilization/#:~:text=Stabilization%20refers%20to%20a%20point,is%20assumed%20to%20be%20stabilized. 

[6]: BAM Capital. (2025). “Operational and Physical Value-Add Strategies in Multifamily Private Placement.” https://bamcapital.com/operational-and-physical-value-add-strategies-in-multifamily-private-placement-32-union-apartments/

[7]: BAM Capital. (2022). “Can You Build Wealth from Real Estate Syndication?” https://bamcapital.com/can-you-build-wealth-from-real-estate-syndication/ 

[8]: Rocket Mortgage. (2024). “Why Invest In Real Estate? 10 Reasons And Benefits.” https://www.rocketmortgage.com/learn/benefits-of-real-estate-investing 

[9]: BAM Capital. (2021). “How Do You Qualify for a 1031 Exchange?” https://bamcapital.com/1031-exchange/ 

[10]: County Office Property. (2024). “Can You 1031 into a Real Estate Fund? – CountyOffice.org.” https://www.youtube.com/watch?v=5AQYx9I-W68 

[11]: Janover Multifamily Loans. (2024). “Advantages and Disadvantages of Multifamily Syndication.” https://www.multifamily.loans/apartment-finance-blog/advantages-and-disadvantages-of-multifamily-syndication/