Why Passive Investors Love Multifamily Syndication

There’s no question that multifamily real estate is one of the best investments available. The problem is, these investments are difficult for non-real estate professionals to get into and do alone while having other responsbilities. So what is the solution?

Multifamily syndication investing is the solution to this problem. Syndication allows people to invest in real estate deals they couldn't afford before.

What is multifamily syndication?

A multifamily syndication investment involves multiple investors pooling their money into one multifamily property in order to obtain a share of ownership of the whole asset. In most cases, they buy properties that would be difficult to buy as single investors.

How Does it Work?

Multifamily syndication deals are usually set up as a limited liability company (LLC). Both types of entities include someone that manages the investment and investors that simply contribute capital with no further responsibilities.

The multifamily syndication structure also involves other key individuals:

-Property Manager
Real estate broker
-Attorney
The property manager handles daily operations. This includes finding tenants, collecting rent, and handling maintenance requests.
A property manager can help with due diligence. They can help assess the property and provide recommendations.
Once they sign the deal, this company can help find opportunities to increase income. The management company also keeps the property profitable once the deal closes.
The commercial real estate broker analyzes the market and sources various deals. They also assist in the entire transaction to ensure it closes.
The attorneys specialized in real estate and securities close the circle. They are responsible for drafting and reviewing the deal’s contracts. They will make sure that the following contracts secure their preferred return:

-The buy and sale agreement is the contract that lays out the terms of the sale. The seller’s attorneys are in charge of creating the contract. Still, the buyer’s team of attorneys should also make sure that it protects his or her interests.
-The multifamily syndication operating agreement states all the terms to the syndication. The GP forms a new entity for each deal and sells membership interest to each LP. The real estate attorney handles this agreement.
-The private placement memorandum outlines the investment details, required disclaimers, and risks. The agreement is usually drafted and managed by the securities attorney.
-The subscription agreement includes the number of shares available, the price, and the preferred return. The real estate attorney handles drafting it.

Syndication Regulations

In multifamily syndication partnerships, there are two types of investors:
-Accredited investor - A person with a net worth of $1M+ excluding primary residence or anticipated income of $200k+ for the current year and for the past two years. In the case of joint income, the threshold is $300k.
Non-accredited investor - A person that doesn’t meet the requirements to be an accredited investor. They can only invest 10% of their annual income. The Securities Act of 1933 created the first regulations affecting real estate syndication. The Act put several rules in place to protect investors. Syndicates now had to conduct an Initial Public Offering (IPO) to sell securities.
Rule 506 of the Act made an exception for developers selling securities to people they already had a relationship with. Thus, developers could skip the registration process when syndicating a deal.
Rule 506 allows investors to sell securities to up to 35 non-accredited investors and any number of accredited investors. The rule requires non-accredited investors to have enough knowledge to make informed investment decisions./p>

The Main Benefits of Syndication Investments

Real estate investments can be very expensive. When it comes to multifamily syndication returns, this option holds more advantages. An investor who chooses this model has the following benefits:
-Passive investors are liable only for the losses associated with the amount they invested.
-Having multiple tenants keeps cash flow consistent, even during months with higher vacancy.
-Multifamily syndication offers stable value over time. The property’s value is determined by its net operating income (NOI). You can increase the NOI by addressing any management issues and making capital improvements.
-Experienced multifamily investors are able to secure financing at lower interest rates, which provides higher cash-on-cash returns.
-Multifamily syndication deals are less time consuming. Investors don't deal with any management or transaction details. The investor simply collects their money.

Investing in the right syndication

As an investor in a syndicated multifamily investment, your investment is only as good as the person or company managing the investment. It’s essential to look at the knowledge, experience, and success of the syndicate partner you’re considering investing with.
You also want to invest in properties that match your investment goals. If you want a long-term investment, avoid deals aimed at flipping the property within a couple of years.
The asset manager is the most important piece of the deal. No matter how great the investment looks, an inexperienced managing partner can expose you to a high level of risk.
Invest Capital possesses one of the most experienced and successful multifamily syndication asset managers in the industry. Invest Capital only invests in the safest, high-quality apartments available, while providing its investors with some of the highest returns available.

Schedule a call or request more information on partnering with Invest Capital on their next multifamily syndication deal.