We all know the importance of investing in real estate if you really want to grow your wealth. Real estate investments offer great benefits in cash flow, tax write-offs, and leveraging opportunities. Multi-family real estate syndication is an effective way for investors to pool their resources to invest in properties that’ll offer benefits beyond those of a solo investor with a single-family property.
Even better, real estate syndications are more accessible to investors compared to models years ago.
1. Access to Larger Investment Opportunities
Diversification is the prime reason to invest in real estate, and the best opportunities are in commercial properties. However, access to this asset class comes with a hefty price tag. If you don’t have the capital, your opportunities may be a bit limited. When you invest in real estate syndications, pooling your money with other investors gives you the opportunity to purchase a larger, more expensive multi-family building.
2. High Returns Without the Liability
Investing in real estate syndications with a sponsor adds another layer of protection against liability beyond simply what an LLC can provide. In a typical operating agreement for a real estate syndication, there are two parties: “Party A” handles the management aspect of the investment, while “Party B” provides the investment funds. There are no circumstances in which “Party B” will be responsible for making management decisions for the fund, and therefore cannot be found liable for any decisions made during the fund’s performance. This not only gives you more protection as an investor, but also offers the ability for completely passive investment.
3. Optimal Financing Opportunities
Any building with more than five units is considered a commercial property and therefore must obtain commercial financing loans that typically offer features you cannot get with the average financing for single-family homes. Commercial loans may be tailored to a specific business plan, and qualifying for these loans is based on the asset and its income potential, not the debt-to-income ratio of the investor.
Investing in real estate comes with some considerable tax advantages as well. This includes the potential for tax-deferred status, which means pooled investments that utilize limited partnerships and LLCs may qualify to compound 100% of the fund’s income for years, as long as gains are not distributed outside of the fund.
4. Multiple Income Streams Under One Roof
Investing in multi-family properties limits your exposure to the risks you carry when investing in a single property such as vacancy, maintenance, and other expenses. Multiple renters mean multiple income streams, which reduces the risk of income loss if one unit goes vacant. Property management companies also charge a lower rate for multi-family homes, sometimes up to 30% less, so you can leave the landlord work to the professionals and dedicate more time towards other investments.
5. Multi-family Homes Are an Economic Necessity
You’ve heard of “Generation Rent” – the idea that young adults are continuing to stay in rental properties well into their 30s and 40s and are joined by over-60s who are now downsizing to rental apartments. This cultural shift has created a huge necessity for multi-family properties in the current economy. Even during economic hardship, rental units hold their value as people tend to downsize and move into apartments.
Multi-family properties are also valued based on their Net Operating Income, unlike single-family homes where the value is tethered to comparable homes sales in the area. This creates an opportunity for forced equity by renovating units and raising the rent, which is not possible in single-family homes.