Multifamily Commercial Real Estate
Multifamily real estate has long been one of the most effective ways to build wealth through income, appreciation, rent growth, leverage and tax advantages. But as an investor's portfolio grows—or priorities change—the right strategy may be to buy another apartment property, sell an existing asset, complete a 1031 exchange into another multifamily investment, or transition some of that equity into more passive Triple Net (NNN) real estate.
Highwater Partners, led by commercial real estate broker Mercedes Shaffer, helps multifamily owners and investors evaluate those decisions from the perspective of the entire investment strategy, not simply the next transaction. We advise clients on multifamily acquisitions and dispositions, valuation, 1031 exchanges and the potential transition from management-intensive real estate into NNN investments.
Buying Multifamily Real Estate
Multifamily can be an attractive investment because owners have multiple ways to influence performance. Increasing rents, improving operations, renovating units, reducing expenses and repositioning a property can potentially increase both cash flow and value.
That opportunity also comes with responsibility. Apartment ownership involves tenants, turnover, repairs, capital improvements, insurance, property management and ongoing operating decisions. Investors should evaluate existing and market rents, expenses, unit mix, property condition, location, financing and future capital requirements—not simply the purchase price or current income. Highwater Partners helps investors evaluate these factors when acquiring apartment properties, including acquisitions being completed as part of a 1031 exchange.
Multifamily vs. Triple Net (NNN): What Are the Pros and Cons?
Multifamily and Triple Net real estate can both be excellent long-term investments, but they offer very different ownership experiences. Multifamily offers greater control and potential upside. Owners may be able to increase rents, renovate units, improve operations and create value through active management. Apartments also provide diversification across multiple tenants rather than relying on the income from a single occupant.
The tradeoff is that multifamily is generally more management-intensive. Tenant turnover, repairs, renovations, operating expenses, insurance, utilities and capital expenditures can all affect actual cash flow. Even with professional property management, the owner ultimately remains responsible for the performance and condition of the property.
Triple Net real estate can offer a more passive ownership structure. Depending on the lease, the tenant may be responsible for property taxes, insurance, maintenance and other property-level expenses. Long-term leases can also provide more predictable contractual income without the constant leasing and operational decisions associated with an apartment building.
The tradeoff is less operational control and greater concentration in a single tenant. The strength of the tenant and guarantor, remaining lease term, rent, lease structure and underlying real estate therefore become especially important. A NNN property can be easier to own, but that does not automatically make it lower risk. The question is not “Is multifamily or NNN better?” The better question is “Which combination of income, growth potential, control, risk and management responsibility is right for this investor?”
Selling an Apartment Building
For many longtime apartment owners, deciding whether to sell is more complicated than determining today's market value.
A property may have appreciated substantially and still produce attractive income, but the owner may also be facing deferred maintenance, increasing operating expenses, management challenges or significant equity tied up in a property that no longer fits the portfolio.
Highwater Partners helps owners evaluate the property before making that decision. That includes current and market rents, income and expenses, property condition, comparable sales, investor demand and potential value.
If selling makes sense, we develop the pricing, positioning and marketing strategy designed to expose the property to qualified investors and create competition for the asset.
Should You Keep Your Apartment Building or Sell It?
Selling is not always the right answer. A well-located apartment property with below-market rents, manageable expenses and meaningful appreciation potential may still be an excellent asset to hold. On the other hand, an owner may reach a point where the management demands, future capital requirements or concentration of equity no longer align with what they want from their investments.
The decision should consider more than today's sale price. Cash flow, remaining upside, deferred maintenance, management burden, financing, taxes, estate planning, future income needs and what will happen to the equity after a sale should all be part of the discussion. Sometimes the best decision is to hold. Sometimes it is to sell and buy another multifamily property. And sometimes it is to reposition the equity into a completely different type of real estate.
1031 Exchange From Multifamily to Multifamily
A 1031 exchange can allow an apartment owner to sell qualifying investment real estate and reinvest into other qualifying investment real estate while deferring applicable capital gains taxes, provided the exchange is structured correctly.
For investors who still want the growth potential and control associated with apartments, exchanging from one multifamily property into another can be an opportunity to reposition the portfolio.
An owner might move from an older property into a newer asset, consolidate several smaller buildings into a larger property, enter a different market or acquire a property with greater operational upside. Highwater Partners can help evaluate both the disposition and replacement-property strategy while coordinating with the investor's qualified intermediary, CPA and other tax and legal advisors.
1031 Exchange From Multifamily Into Triple Net (NNN) Real Estate
For other apartment owners, the objective changes after years or decades of active ownership.
They may still want income, real estate ownership and the potential tax benefits associated with a 1031 exchange, but no longer want to deal with tenant turnover, repairs, renovations, property management and recurring capital expenditures.
A properly structured 1031 exchange may allow an investor to sell an apartment building and acquire one or more qualifying Triple Net properties instead.
This can represent a significant shift in investment strategy: from creating value through active management to receiving income through a contractual lease. It can also introduce different risks. Instead of dozens of apartment tenants, an investor may depend on one commercial tenant. Instead of managing rents and expenses each year, the investor needs to understand the tenant's credit, lease guaranty, remaining term, contractual rent increases and what happens to the real estate if the tenant eventually leaves.
Because Highwater Partners works across both multifamily and NNN commercial real estate, we can help investors evaluate these alternatives rather than beginning with the assumption that one asset class is always the right answer.
Mercedes also analyzes individual NNN investments through the Commercial Real Estate Deal Room on YouTube, looking beyond the advertised cap rate to the tenant, lease, income, location, underlying real estate and potential exit strategy.
Can You Exchange One Apartment Building Into Multiple NNN Properties?
For some investors, the transition from multifamily to NNN also creates an opportunity to rethink concentration.
Rather than exchanging the proceeds from one apartment building into one replacement property, an investor may be able to acquire multiple qualifying NNN properties through a properly structured 1031 exchange. This can potentially diversify the investment across different tenants, industries or geographic markets. Diversification does not eliminate risk, but it can reduce dependence on a single property or tenant. The appropriate structure depends on the investor's equity, income objectives, risk tolerance and exchange requirements.
How Highwater Partners Helps Multifamily Investors
Highwater Partners advises multifamily owners and investors through acquisitions, dispositions, valuation, investment analysis and 1031 exchange strategy. Our ability to work across multifamily and Triple Net real estate is particularly valuable when an investor is deciding what comes next. We are not limited to recommending another apartment building simply because the property being sold is multifamily.
For some investors, another apartment property may offer the best opportunity for growth. For others, a combination of multifamily and NNN may provide a better balance between growth and passive income. And for an owner who has spent decades actively managing real estate, transitioning into NNN may better fit the next stage of ownership.
The objective is to determine what role the real estate should play in the investor's portfolio going forward.
Bottom Line
Multifamily real estate can offer income, appreciation, diversification across tenants and substantial opportunities to create value through active ownership. Triple Net real estate can offer contractual income and a potentially more passive ownership structure, but with different tenant, lease and real estate risks. Neither is inherently better.
Whether you are looking to buy an apartment property, sell a multifamily investment, complete a 1031 exchange into another multifamily property, or transition from management-intensive apartments into more passive NNN real estate, Highwater Partners can help you evaluate the alternatives and build a strategy around your investment objectives.
Frequently Asked Questions
Is multifamily or Triple Net (NNN) real estate a better investment?
Neither is universally better. Multifamily generally offers greater operational control, multiple tenants and opportunities to create value through rent growth and property improvements. NNN investments may provide more predictable contractual income and fewer management responsibilities. The right choice depends on the investor's objectives, risk tolerance and desired level of involvement.
What are the advantages of owning multifamily real estate?
Multifamily investors may benefit from multiple income-producing units, the ability to increase rents, operational upside, appreciation and opportunities to create value through renovations and improved management. The owner also retains substantial control over the property's operations and future strategy.
What are the disadvantages of owning multifamily real estate?
Multifamily can require significant ongoing management. Tenant turnover, repairs, renovations, operating expenses, insurance, utilities and capital expenditures can affect cash flow, and owners may need to remain actively involved even when using professional property management.
Can I 1031 exchange an apartment building into a Triple Net property?
Generally, qualifying investment real estate can be exchanged for other qualifying investment real estate under Section 1031, so an apartment owner may be able to exchange into NNN real estate rather than another apartment building. Investors should structure the transaction with a qualified intermediary and consult their tax and legal advisors.
Why would an apartment owner exchange into NNN real estate?
Some apartment owners want to remain invested in real estate while reducing the operational responsibilities associated with multifamily ownership. Depending on the lease structure, a NNN tenant may assume responsibility for many property-level expenses and obligations traditionally handled by the owner.
Can I sell one apartment building and acquire several NNN properties?
Potentially. A properly structured 1031 exchange may allow an investor to sell one multifamily property and acquire multiple qualifying replacement properties. This can provide an opportunity to diversify equity among several tenants, industries or geographic markets while remaining invested in real estate.
About Mercedes Shaffer
Mercedes Shaffer is the Founder of Highwater Partners, a commercial real estate advisory firm specializing in multifamily investment properties, Triple Net (NNN) investments, 1031 exchanges and single-tenant net lease real estate throughout the United States. Together with her brokerage platform, her team brings more than 250 years of combined commercial real estate experience and more than $18 billion in transaction experience.
Mercedes advises private investors, family offices, developers and property owners on the acquisition, disposition, valuation and exchange of investment real estate. Her work includes helping longtime multifamily owners evaluate whether continuing to own apartments, repositioning into another multifamily investment or transitioning into more passive NNN real estate best aligns with their next stage of ownership.
In addition to her advisory work, Mercedes is the creator and host of the Commercial Real Estate Deal Room, an educational platform focused on helping investors understand commercial real estate, Triple Net investments, 1031 exchanges, valuation, lease and tenant risk, and the transition from management-intensive properties into more passive real estate investments.