Are you tired of the volatility of the stock market and want to diversify into a safer investment? Do you like real estate because it is stable in comparison to the stock market, and it is a hard asset?
While exploring several options like starting with buying a rental property. It isn’t unusual to realize that most single family rentals in your local area do not cash flow unless you put a hefty down-payment. And if you live on either coast, rental laws favor the tenants which makes it even harder to get a good return on your investment. Maybe you’ve considered fix and flip as a side hustle, but realized it takes too much time to find a deal and a lot of effort in rehabbing and selling. And finally you’ve stumbled upon REIT’s (Real Estate Investment Trust) – just like stocks or mutual funds easier to buy, sell and manage but you don’t like the volatility of the stock market.
Well, let’s explore why investing in multi-family syndication could be an excellent choice for passive investors with lower volatility, better returns, and a great diversification play!
- Passive Investment: As a limited partner, there is no responsibility for maintenance or operations of the property making it truly passive & hassle free.
- Ownership benefits: You still enjoy all the benefits of ownership: cash flows, appreciation, equity build up and tax advantages.
- Lower Investment barrier: Unless you can buy an apartment complex on your own, for a minimum investment of $50,000 you get to invest in an institutionally quality asset that otherwise you wouldn’t be able to transact on your own.
- Professional Management: Multi-family properties are managed by a third-party management company and asset managed by general partners in the syndication. Property management can be a full-time job in and of itself. Trying to manage your own property can be a recipe for disaster if you don’t know what you’re doing! There are many Federal, State, and Local laws Leave the property management to the professionals.
- Investment Expertise: You can invest passively alongside sponsors who buys millions of dollars in investment property. The importance of a track record in real estate cannot be underestimated. As a passive investor, you can invest your capital alongside those with incredible track records. Try doing that with single family rentals – much more difficult! You’re all on your own in that case.
- Newbie Mistakes: Newbie mistakes in real estate can be costly, so it’s important to know what to avoid. Experienced syndication sponsors are not rookies, and while they are human and can make mistakes, they will have learned many tough lessons from the past deals.
- No Personal Liability: There is no personal risk because investment as limited partners does not require personal guarantee from the lender.
- Diversification: If you happen to own single family rental properties locally, investing in out of your state real estate provides geographical & sector diversification. This adds less volatility to your overall investment portfolio.
- Better returns: Average risk adjusted returns in a multi-family syndication is in double digits and is higher than average returns of S&P 500 Index. Primarily this is due to use of favorable leverage in comparison to buying stocks, mutual funds, or ETF at full face value.
- Funding Options: You can fund a passive syndication investment in many ways. Cash, retirement accounts such as self-directed IRAs, QRPs/Solo 401(k)s, Life Insurance plans, you name it. There are even ways to invest in syndications through a 1031 Exchange.
To Summarize
Multi-family syndication investing can be a great way to diversify your investment portfolio. You can participate and diversify in variety of ways without having to do the work on your own. However, this investment strategy is not for everyone. Not all investors are comfortable investing for a 2–5-year hold or giving up control in the operations of their real estate investments. If you’re in the market for an opportunity that will take care of operational details while you focus on other personal goals, syndications may be worth exploring further.
Further questions? Click here to schedule time with Sanjeev
Happy Investing!