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How Do You Syndicate A Multifamily Property?

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There are many different ways to invest in real estate. But a lot of them are very hands-on, requiring a lot of direct participation from the investor. Some investors simply do not have the time to become a landlord and manage a real estate property, but unfortunately, a lot of investment types force them into this role.

This is one of the reasons why multifamily syndication has grown in popularity in recent years. BAM Capital can help you invest in high quality multifamily real estate. But before you do so, it is important to know exactly what multifamily syndication entails.

This is the perfect real estate investment opportunity for the investor who has been turned off by the idea of becoming a landlord. Here we will take a closer look at what multifamily syndication is, and why you should consider participating in one.

What is Multifamily Syndication?

Multifamily syndication is a type of real estate investment wherein multiple investors pool their resources together in order to purchase a single real estate asset. This is normally done to acquire large properties that are too expensive for a single investor to purchase on their own. [1]

Although any type of real estate can be used for a syndication deal, multifamily real estate properties are the most popular because they offer continuous and reliable cash flow. Apartment complexes, duplexes, triplexes, and condominiums are considered one of the safest types of real estate investments.

Multifamily properties are also generally more expensive, and are therefore harder to acquire for a lone investor.

The way it is set up, multifamily syndication is the best option for passive real estate investors because it does not require any direct involvement from them. Instead, all the work is done by a syndicator—also known as a sponsor. In this case, BAM Capital is a syndicator that can help you participate in a multifamily syndication deal.

In a syndication deal, the sponsor locates the property, coordinates the transaction and the financing, and then looks for passive investors to participate. This syndicator is the general partner. Passive investors supply most of the capital required in exchange for equity in the real estate.

The best part is that the syndicator also takes charge of managing the property once the deal has closed. This means investors can enjoy a truly passive investment wherein they do not have to worry about tenants or emergencies. [1]

Here’s how you Syndicate a Multifamily Real Estate Property

A lot of syndication deals are actually structured similarly. However, a few differences may stem from the type of entity that is created for the deal, as well as how the cash flow and equity will be split. Syndication deals may also differ in terms of investment strategy.

But generally speaking, syndication deals usually follow the same structure: it starts with the sponsor choosing a multifamily property and putting it under contract. They then create a limited liability company (LLC) or a limited partnership. A private placement memorandum is created, outlining the specific details of the investment. It also talks about the risks, fees, and subscription agreement. All the required SEC registrations or notices are then filed. [1]

Once all of these are in place, the syndicator secures the financing on the multifamily real estate. The syndicator is also the one that signs on the loan. This means the passive investors are not responsible for its repayment.

The syndicator will then look for investors who can provide the capital requirements of the multifamily property. Once there are enough funds to cover some of the costs, such as the down payment and closing costs, the deal is closed. [1]

The sponsor will manage the property. They may take care of it themselves or hire a third party property management company to handle it. Either way, the passive investors do not have to get involved with property management either.

The deal sponsor is also in charge of distributing the cash flow to all participating investors. This will follow the structure that was agreed-upon in the private placement memorandum. The syndication proceeds this way until they reach the planned exit strategy, which typically involves selling the property somewhere between five and 10 years down the road.

Investors will receive their share of the equity upon resale of the multifamily property. The goal is for this to be worth more than their original investment.

Benefits of Multifamily Syndication

Syndication deals tend to attract investors because of their passive nature. This is one of the few real estate investments that are truly passive, meaning the investors do not have to get involved with any property management. They don’t have to become a landlord and handle late night phone calls from tenants asking for emergency repairs or other similar concerns.

Syndication offers a ton of benefits for passive investors. They can profit from appreciation, cash flow, and equity build. The investment itself is protected by the real estate asset. In the case of multifamily properties, investors can enjoy continuous cash flow because the property has multiple units that can be occupied by different families. It does not have to worry about vacancies as much as single-family units. Even if one or two units become vacant for a while, investors still get monthly rent from the remaining units that are occupied.

In the case of high quality multifamily properties such as well-located apartment complexes and condominiums, vacancies are rarely a problem because many people want to live there.

The syndication format also allows investors to participate in larger real estate deals that they otherwise may not be able to. And unlike real estate investment trusts (REITs), which are similar to syndication deals, investors can actually choose which syndication deals to join. They can invest their money into multifamily real estate syndication deals that they think would be most profitable, unlike REITs where investors do not get to choose. [1]

Because multiple investors pool their money, investors can participate in the deal even if they just produce 10 to 15% of the capital. This eliminates one of the biggest limiting factors when it comes to multifamily real estate investing, and that is the ability to find the money for the down payment. It gives investors the freedom to get into bigger deals all while having zero responsibilities. [2]

The real estate property itself will be managed by an experienced property manager, whether it is the syndicator itself or a third party company that specializes in property management. The property is always in good hands.

Multifamily syndication is a simple yet effective way to add real estate into your investment portfolio. Managing a large real estate property, especially an apartment building is no walk in the park if you have no prior experience. This is why syndication is the perfect real estate investment for those who do not have the time or interest in dealing with the responsibilities of being a landlord.

Syndication allows investors to enjoy the benefits of owning real estate, without the responsibilities that usually go with it.

Because there are no perfect investments, syndication deals also have their drawbacks. The main one is the fact that you will be sharing the profits with multiple investors. This also means less equity in the deal. [2]

But because syndication deals go for larger real estate assets with multiple units, there is plenty of cash flow to split among investors. There’s also the option to invest in multiple syndication deals to earn from different investments at once.

Are Multifamily Syndications Profitable?

In a multifamily syndication, investors do not receive the full value of their investment in equity. So if a deal requires $1 million in capital and an investor contributes $100,000, they won’t necessarily receive 10% of the equity. This is because the syndicator receives a piece of the equity in exchange for putting the deal together, signing on the loan, and managing the asset. In fact, the equity splits may vary from one syndication deal to another. An equity split of 80/20 is common, for example. [1]

As for the cash flow, syndication deals are typically structured with a preferred return. This means that all the investors have to receive a minimum return on their investment before the syndicator gets a share of the cash flow. The preferred return, also known as the threshold, may vary from one syndication deal to another.

So for example, if the preferred return is set at 7%, all the returns up to that percentage have to be distributed to the investors before the sponsor receives a portion of the cash flow. The way the cash flow is split after this threshold is met will depend on the arrangement of the syndication deal. [1]

How to Participate in Multifamily Syndication

It is worth noting that most syndication deals are only available to accredited investors or sophisticated investors. In this case, BAM Capital only works with accredited investors. However, there are some syndication deals that are open to all real estate investors.

Accredited investors are investors who have an annual income of at least $200,000. If they have a spouse, they must have an annual income of at least $300,000. An individual with a net worth that exceeds $1,000,000 may also be classified as an accredited investor. These are the basic financial thresholds for investing in multifamily syndication. [3]

Certain real estate syndications are only offered to accredited investors. These syndications are structured under the US Securities and Exchange Commission (SEC) Rule 506(c).

Sophisticated investors are people with in-depth knowledge and experience in terms of real estate investing. With their experience, they are able to evaluate the merits and demerits of a prospective real estate investment before joining a deal. Some syndication deals are open to sophisticated investors as well as accredited investors. [3]

Work With BAM Capital: The #1 Multifamily Syndicator in The Midwest

Finding the right real estate syndication deal is much easier if you work with a trustworthy syndicator such as BAM Capital. You no longer have to work hard on locating the best multifamily real estate syndication deals because BAM Capital will do most of the heavy lifting for accredited investors.

This Indianapolis-based company is the best multifamily syndicator in the Midwest because it prioritizes Class A, A-, and B++ multifamily real estate properties in that area. BAM Capital also values low risk investments. They use a vertical integration model that creates forced appreciation while mitigating investor risk. [4]

BAM Capital will arrange the syndication deal so there is no need to purchase an asset on your own. They will also handle property management.

BAM Capital will negotiate the purchasing and financing of high quality multifamily real estate properties on your behalf. They have a consistent track record which makes them very popular among passive investors. In fact, BAM Capital currently has $700M AUM and 5,000 units. Schedule a call with BAM Capital and invest today.

 

BAM Multifamily Growth & Income Fund III

BAM Capital created this fund in order to yield consistent and reliable cash flow, long-term appreciation, and accelerated tax benefits. The fund aligns with BAM Capital’s demonstrated track record of successful multifamily investing by continuing to implement our signature investment thesis, now in fund format. The fund aims for greater overall returns and lower risk through a multi-asset diversification strategy.

  • Consistent passive income
    Lower-risk assets with in-place cash flows with the ability to distribute preferred return after acquisition.
  • Significant tax benefits
    A cost segregation analysis allows for accelerated deprecation to years of ownership. This large passive loss gets passed onto investors through a K1.
  • Vertically integrated company
    In-house property management and construction allow for predictable cost reduction and value add.

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The contents on this site are for informational and entertainment purposes only and do not constitute financial, investment, or legal advice. BAM Capital cannot guarantee that the information shared on this post or page is appropriate for you and your financial situation. By using this site, you agree to hold BAM Capital and any and all entities related to the writing & publishing including BAM Capital’s parent company harmless from any ramifications, financial or otherwise, that occur to you as a result of acting on information found on this site. Always consult your investment advisor, CPA, and other professionals before making an investment. BAM Capital is excited to help you grow your investment assets. Please contact us to see how we can help you.  

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