Tax Benefits Of Owning A Multi-Family Home In Ashland, Oregon

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Homeownership remains a pillar of the American Dream. In fact, two-thirds of millennials and 45% of Gen Zs want to own a house one day.

In reality, though, that’s easier said than done. The state of Oregon alone, for example, has a housing shortage of around 111,000 units. Housing construction has not kept pace with population growth, and the current pandemic has also hampered developers’ ability to build new dwellings. 

And that’s saying nothing of the sky-high home prices these days. According to data from Zillow, statewide property values soared by almost 20% in the past year, pricing out many would-be buyers.

One way to ease this problem is to build multi-family rental properties. Not only do they provide quality housing at a lower price, but they also represent a lucrative investment opportunity. What’s more, the tax benefits of owning a multi-family home make it a truly worthwhile investment. 

In this in-depth piece, we discuss the perks potential investors like you can enjoy as well as tips that will help you succeed in this venture.

A primer on multi-family properties 

As the name suggests, a multi-family property is a single structure that houses several dwelling units. These range anywhere from cozy city apartments, to roomy townhouses, to luxurious condos.

Apartment-like dwellings have existed in some form or other since the Roman Empire (called insula), though the modern concept of apartments first appeared in Paris around the 1700s. Townhouses trace their origins to The City of Light as well, with the Place des Vosges, built in the 1600s, commonly being considered the prototype for this kind of housing. Condos are a fairly recent addition, however, with experts saying the first such structure was built in New York City in the 1800s, though it has since been demolished. 

Regardless of their origin, multi-family properties were all built for the same reason: to maximize space. That’s why they’re especially common in urban areas where space comes at a premium.

To help you decide which multi-family home to invest in, let’s take a closer look at the options available to you.

  • Apartments – An apartment is a rented housing unit within a building. This means that residents share common amenities, such as walkways, lobbies, leisure facilities, fitness centers, and the like. As the landlord, you’re responsible for maintaining not just the shared areas but also individual units. You charge rent monthly; leases can be short or long-term, though most tenants stay for at least two years. Before a family moves in, they usually pay the first and last month’s rent, plus a security deposit that’s used to cover necessary repairs or unpaid bills once they move out (any leftover must be returned within 31 days). When crafting your lease contract, be sure to work with a reputable lawyer or property manager.
  • Condominium – A condominium shares many similarities with apartments, but they may not always be located in a single building, since there are detached units more akin to a single-family home. The primary difference, however, is that apartments are rented while condos are bought. That said, you could also purchase a unit or building yourself and then lease it out to tenants, using their rental payments to cover your mortgage. Since there are shared amenities, there will be condominium association dues, but you can include this cost in your rental fee.
  • Townhouse – A townhouse is a multi-level property that sits side-by-side with other units — not unlike the brownstone homes you see in New York. Since they span multiple floors, they offer much more space than apartments or condos, making them ideal for tenants with a growing brood who want a place that’s closer to a standard family abode. They are also attractive to empty-nesters who are looking to downsize but don’t want to feel cramped. Despite sharing walls with other units, townhouses have separate entrances that grant greater privacy. Though they’re usually found in urban areas, there are also townhouse rows in suburbs.
  • Duplex – A duplex is two properties that share a common wall. Among multi-family properties, it has the floor plan most reminiscent of a traditional single-family home. This means tenants can enjoy a house-like environment while paying a lower fee compared to renting an actual house. Since duplexes are often located in more desirable, family-friendly neighborhoods, you could also charge a higher rent. If you’re new to real estate investment and landlording, you could occupy one unit and rent out the other one — a strategy called “house hacking.”

The tax benefits of investing in a multi-family home in Ashland, Oregon

Since your property helps solve the issue of housing availability in Oregon, you enjoy certain tax perks — quite generous ones, in fact.

Real estate depreciation

Real estate, just like any other physical asset, is subject to wear and tear. Naturally, you will need to shell out money to fix things like leaking water pipes, scuffed flooring, torn wallpaper, and loosened bathroom tiles. One of the tax benefits of owning a multi-family home is that you can file this expense as a deduction. 

As per the IRS, most rental properties have a service life of roughly 27.5 years, meaning you can claim depreciation deductions for the next three decades. Your deduction is computed as the value of your rental property divided by 27.5. Furthermore, there are also legal ways to accelerate depreciation so you can enjoy greater tax savings (more on that later).

Of course, your rental property must comply with certain conditions to qualify for depreciation. These include:

  • You must own the property
  • The property must be used in an income-earning capacity
  • It must have a determinable useful life (i.e. it’s subject to wear and tear)
  • The property must last for at least a year

Depreciation starts the moment a property is “placed in service” or when it’s ready to be occupied by a tenant — not when you first collect rent. You can continue claiming this tax benefit until you’ve deducted the entire cost of the property or until it is retired from service. 

Cost segregation

Don’t want to wait 27.5 years to claim your depreciation benefits? No worries: cost segregation lets you speed up that process.

Traditionally, depreciation is assessed by looking at how wear and tear affect the entirety of your property. The reality, however, is that certain parts of your building will degrade faster than others. For instance, woodwork like cabinetry has a shorter lifespan compared to structural features like the roofing system. For this reason, the IRS allows you to claim depreciation deductions for such components over five to seven years instead of 27.5. If you have woodwork worth $300,000, for instance, that’s around $42,000 worth of deductions per year.

Unlike standard depreciation, however, cost segregation must be conducted by an accredited engineer or consultant who will analyze each component of your rental property and certify its lifespan. In general, assets will be categorized into four categories: land, land improvements, structures, and personal property. 

Do note that doing cost segregation now will cause you to pay a bigger tax bill when you sell your rental property in the future. Nevertheless, it’s one of the tax benefits of owning a multi-family home that you shouldn’t ignore.

Passive income tax rates

Many people invest in multi-family properties and live off the passive income they generate. If this is your goal, then you’ll be glad to know that you can enjoy attractive income tax rates.

For reference, you are considered to be earning passive income if you spend less than 500 hours a year on a profit or income-earning activity. If you have a property manager who takes care of the upkeep and handles tenant concerns, you likely check this box.

Why is this important? Because passive income tax rates tend to be lower than federal “active” income tax rates. The result? More money in your pockets, of course!

Property tax exemption

Perhaps the most attractive tax benefit of owning a multi-family home is outright exemption. If your multi-family property is geared towards affordable housing, you could potentially have its real estate taxes waived. This is made possible by Bill 262, which the Oregon State Senate passed in 2019. This perk was originally scheduled to lapse on January 1, 2022, but the above-mentioned bill extends it to 2032.

It’s important to highlight, however, that granting this tax break is at the discretion of cities and counties. As such, you should check if the location you’re buying or building a multi-family property in has implemented this program.

1031 Exchanges

Successful real estate investing isn’t just about knowing when to purchase properties, it’s also about knowing when to cash out. Unfortunately, selling a multi-family rental property often means paying a hefty capital gains tax — sometimes up to a staggering 28%. In short, a huge chunk of your profit would go to Uncle Sam’s coffers instead of into your bank account.

Fortunately, 1031 Exchanges solve this issue. In a nutshell, this rule allows you to sell your property, use the proceeds to purchase another property of similar nature, and defer paying capital gains taxes. For this reason, 1031 Exchanges are often called “swaps” as you essentially trade one rental unit for another. And the best part? You can do 1031 exchanges ad infinitum (or until you’re truly and finally ready to cash out).

If that sounds too good to be true, bear in mind that you must fulfill a number of conditions before you can enjoy this tax benefit of owning a multi-family home:

  • The new property must be similar (“like kind”) to the one you’re selling. 
  • It must be of equal or greater value. If it’s the latter, you will pay taxes on the difference (known as the “boot”).
  • It must be used for business purposes.
  • You must identify a new target property 45 days after selling your current one and the purchase must be closed within 180 days.
  • The new and old property must have a similar kind of title for record-keeping purposes.

Why invest in a multi-family home?

Of course, the tax benefits of owning a multi-family home aren’t the only reasons to invest in such a property. As you’ll see below, it’s a rewarding asset in more ways than one.

  • Competitive rental rates – According to data from, the typical one-bedroom apartment in Ashland rents at just over $900. This amount jumps to over $1,300 if you’re renting a three-bedroom unit. While Oregon has state-wide rent control laws, landlords can increase fees by up to 9.9% in 2022.
  • A glut of renters – It’s tough being a homebuyer these days. Either you don’t have enough money to afford a house or you could afford one but can’t find available listings. As such, many folks simply turn to renting a home until the red-hot real estate market calms down. This is especially true for the millennial generation, of whom only 17% are homeowners despite being the largest chunk of the population. At the same time, the country’s fast-aging population is also opting for more humble homes, and condos or apartments are ideal as maintenance is handled by the landlord. Giving further proof of strong rental demand, CBRE Group believes that occupancy rates will be above 95% for 2022 and the foreseeable future.
  • Easier to secure financing – Between a six-figure rental home and a multi-million dollar apartment building, which do you think is easier to get financing for? You might be surprised to learn that it’s the latter. Multi-family properties are less risky in the eyes of lenders because it has several units that all generate cash flow; the likelihood of the building being completely untenanted is virtually zero. If a tenant moves out of a single-family home, however, the cash dries up immediately until a new renter is found.
  • Rapidly build your property portfolio – In a real estate market as hot as the one we have today, speed is of the essence. While you can purchase one rental property at a time, it will take time to build out your property portfolio. It also means dealing with a different set of sellers and agents each time you close a deal. If you buy or build a 10-unit apartment complex, for example, you immediately broaden your portfolio in one stroke.
  • Easier property management – As a landlord, you have a responsibility to keep your rental property clean and well-maintained. Unfortunately, it is estimated that owners spend four hours per month per unit doing property management. Now imagine if you have 20 properties spread across the city; even if you had a professional property manager, that’s still a lot of hours. When you own a multi-family property, however, maintenance and upkeep are streamlined because all your rental units are in one building. This saves you not just precious time but also a lot of money.
  • Valuation potential – The fact that the real estate industry flourished despite a global pandemic should tell you just how resilient this sector is. And as it happens, the valuation of multi-family properties continues at a record-breaking pace. Indeed, according to data from Real Capital Analytics, the price index for the apartment sector climbed 23.6% year on year in 2021 — the highest jump ever, even beating out pre-pandemic growth rates. In short, you can enjoy steady asset growth without the market volatility of other investment vehicles if you own multi-family homes.

What to consider when investing in multi-family real estate

Now that you have a clear grasp of the many benefits of multi-family properties, you may be eager to invest right away. Before you do, however, be aware of the factors that will set you up for success.

  • Location – As with any piece of real estate, location should be your primary criteria when evaluating potential multi-family property investments. Is it located in a convenient area that’s near schools, workplaces, and shopping centers? Does it provide easy access to key roads and highways? How is the public transportation?  Are the nearby schools top-notch? The location not only affects how desirable the property will be, but will also dictate how much rent you can charge.
  • Number of units – It’s wise to invest according to your level of experience. If you’re fairly new to being a landlord, it might be better to start with a few rental units first so you won’t be overwhelmed. Once you have a better handle on real estate investment and property management, you can begin adding more units to your portfolio.
  • Rental rate – Settling on an ideal rental fee requires a fine balance. Set it too high and you’ll turn away potential tenants. Make it too low, however, and you won’t earn as much profit as you could. One way to settle matters is to look at comparable rental properties and benchmark your rate to them; if you have a real estate agent, they can easily give you a market report. Another popular method is the one-percent rule, which states that your rent should be equivalent to 1% of your property’s value.
  • Associated costs – While being a landlord can be quite lucrative, you also have a lot of expenses to cover. These include property insurance, real estate taxes, property management fees, maintenance costs, and the like. Make sure to budget accordingly so you turn a profit month over month.

Ready to start investing?

There are few investments as rewarding as multi-family real estate. And there’s no better time to get into it than today.

If you need expert advice about Ashland’s multi-family rental property market, allow Marie Donovan to be your guide. Just give her a call at 800.334.7499 or send an email to get started!