How Accredited Investors Use Managed Real Estate to Grow Wealth

by Stephen Twomey | Aug 31, 2023 | Accredited Investor, BAM Blog, Blog, Real Estate Investing | 0 comments

Within the financial sector, accredited investors play a very unique and important role. They are able to access investment opportunities that are not available to regular investors, allowing them to invest in many early-stage companies and securities. For companies that are trying to raise capital, the definition of “accredited investor” dictates who is in their pool of potential investors.

Under federal securities laws, many offerings are limited to accredited investors or contain restrictions on participation by non-accredited investors.

According to the US Securities and Exchange Commission (SEC), an accredited investor is an individual or financial entity with a certain degree of financial sophistication and passes certain wealth and income thresholds.

An accredited investor is someone with a net worth of over $1 million, either individually or with a spouse or partner, excluding their primary residence. Alternatively, they could have income over $200,000 (individually) or $300,000 (with a spouse or spousal equivalent) in each of the prior two years, with a reasonable expectation of the same income for the current year. [1]

Individual investors may also qualify as accredited based on certain professional criteria. Investment professionals in good standing holding Series 7, Series 65, or Series 82 licenses are considered accredited investors. The same can be said for directors, general partners (GP), and executive officers of the company selling the securities. Knowledgeable employees of private funds are classified as accredited investors as well.

There are many other entities and individuals that may be considered accredited investors. For people who have that accredited investor status, having access to unregistered securities can give them more opportunities to grow their wealth.

A lot of accredited investors seem to gravitate towards real estate investing, and there are several reasons for that. Real estate investing is associated with attractive returns, diversification, tax benefits, potential for cash flow, and being an inflation hedge. Accredited investors can use real estate as alternative investments to the stock market and professionally managed funds.

Here we are going to talk about real estate investing for wealth creation. We are also going to discuss how accredited investors can use managed real estate to reach their financial goals.

Accredited Investors & Managed Real Estate for Wealth Creation

Accredited investors have access to investments that are not available to the general public. This gives them a few advantages. For example, they have the opportunity to participate in investment opportunities that are not available to others, including hedge funds, real estate syndication deals, and certain private equity funds.

They can work with an investment company or use online investment platforms to find and participate in hedge funds and other investment opportunities that require a certain level of financial sophistication.

Real estate investing is particularly attractive to accredited investors because it is known to bring in a steady cash flow. There are also multiple ways to get into real estate investing, especially for an accredited investor, so they can easily find a strategy that makes sense with their financial capabilities and goals.

Regular investors often go for real estate crowdfunding, which is currently one of the most popular methods of investing in real estate online. This is when investors pool their funds together to purchase or renovate a property, and then share in the proceeds. With comparatively low minimum investment, investors can acquire a property that they normally couldn’t afford on their own. [2]

But accredited investors prefer to go with real estate investment trusts (REITs) or private equity real estate.

A REIT is a company that invests in income-generating real estate. It shares the rental income with investors in the form of dividends. On the other hand, private equity real estate are investments that primarily focus on real estate development rather than tenant-occupied properties. [2]

But for the purpose of wealth creation, managed real estate is one of the best strategies to go for.

Managed real estate refers to the professional management of real estate properties by third-party companies or individuals on behalf of the property owners. Multifamily syndication is considered a form of managed real estate because investors are investing money directly into an actual real estate property such as an apartment complex or condominium rather than putting it into a REIT.

Managed real estate investments are typically overseen by professional asset managers or real estate investment firms with extensive industry knowledge and experience. These managers handle property acquisition, operations, tenant management, and disposition strategies on behalf of the investors, minimizing the need for hands-on involvement.

Investing in managed real estate allows accredited investors to diversify their investment portfolios beyond traditional stocks, bonds, and mutual funds. Real estate investments often have a low correlation with other asset classes, which can help reduce overall portfolio risk and enhance long-term returns.

Similar to real estate crowdfunding, real estate syndication comes with all the same benefits but with a major difference in ownership structure. Real estate syndication deals offer a stable LLC or Statutory Trust ownership model, wherein all investors are serving as members of the entity that owns the real estate property. A syndication deal is arranged by a syndicator who facilitates the project and also typically handles property management. [2]

A syndication deal is a step up from general crowdfunding because the passive investors may own an equity stake in the real estate, depending on the deal structure.

How Multifamily Syndication Works

Multifamily syndication is a way for accredited investors to enjoy all the benefits of owning an apartment building without the headaches of becoming a landlord. It is a real estate deal in which several investors combine their funds to purchase a single property.

In a syndication deal, a sponsor locates the real estate property, coordinates the transaction and funding, and looks for investors who will participate in the syndication. These syndication deals are generally limited to accredited investors. These investors will provide the majority of the funds needed to buy the multifamily property in exchange for a share of the rental income and—depending on the deal structure—the equity upon resale. Every syndication deal is different. [3]

The syndicator solicits investment capital from accredited investors who are interested in participating in the syndication. Accredited investors typically meet certain income or net worth requirements set by securities laws. Each investor contributes a specific amount of capital to the syndication based on their investment goals and the syndicator’s requirements.

The sponsor serves as the general partner while the investors act as the limited partners (LPs). Although a syndication deal can be done with any type of real estate investment, multifamily properties are the most popular because of their strong and consistent cash flow. It is widely considered as one of the safer forms of real estate investments.

Keep in mind that it is normal for sponsors to charge fees to investors. Investors should look at the syndication agreement and learn all about the fee structures.

To form the syndication deal, syndicators usually create a limited liability company (LLC) or a limited partnership (LP). The form of an LLC or LP is quite similar to those of personal funds in the arena of venture capital and private equity. Done properly and with the help of a trustworthy syndicator, multifamily syndication can be quite profitable. [3]

Multifamily syndication is a cost-effective way to invest in real estate if you are an accredited investor. After your initial investment, there is no need for further input, making this one of the best passive income investments in real estate. The syndicator will handle everything going forward, taking on the responsibilities of owning an apartment complex. They will take care of rent collection, handling tenant concerns, dealing with emergencies, and managing the day-to-day operations of the property.

With this passive investment, investors can spend more time on things that matter to them. They can take care of their business, spend more time with the family, or even find time for their hobbies and passions.

Multifamily syndication is great not only because it provides passive income but also because it is very reliable. People always need a place to live, so there will always be a demand for it, especially if the property is well-located. It even has an advantage over single family properties because it can still generate rental income even if one or two units become vacant. The apartment complex will still provide a steady cash flow from the remaining units. [3]

The real estate market is generally reliable, but keep in mind that all investments have their cons. Sometimes there are factors that are out of your control. For example, house ownership has become more enticing due to low mortgage rates, and this may affect multifamily property investors. But generally speaking, real estate investing tends to be more stable than other investment options even in times of crisis.

Potential Tax Benefits of Real Estate Investing

Even outside of multifamily syndication, real estate investments tend to offer various tax advantages, such as depreciation deductions, 1031 exchanges, and potential tax deferral through structured investment vehicles.

The key is in identifying the available strategies and knowing when to use them. These opportunities tend to require lengthy research because they are neither obvious nor transparent. However, the results can be well worth the effort as it can help you build long-term wealth by mitigating or avoiding certain tax obligations. [4]

Investing in real estate is a great way to earn tax deductions. For those who own rental properties, they may enjoy deductions in property taxes, mortgage interest payments, ongoing property maintenance, independent contractors, property insurance, and more.

By investing in real estate through LPs and LLCs, real estate investors can take further advantage of these available tax benefits. There are additional business-related deductions provided by these structures such as: professional fees, travel and mileage expenses, office space, real estate software tools, meals, and advertising expenses. [4]

Accredited investors can consult with tax professionals to optimize their real estate investment strategies and potentially reduce their overall tax liability. Overall, the tax benefits add another reason for accredited investors to look into real estate investing.

Managed Real Estate Income Opportunities for the Accredited Investor

Real estate investments, particularly those focused on income-producing properties such as rental apartments, commercial buildings, or storage units, can provide a steady cash flow stream. Accredited investors can benefit from regular rental income distributions, which can be reinvested or used to support their lifestyle expenses.

By providing regular payments of income, real estate can help investors generate and build wealth. Also known as rent, real estate income can come in many forms: raw land income, residential property income, commercial property income, etc. [5]

Raw land income refers to the revenue generated from the use or development of undeveloped or vacant land. This type of income typically comes from various sources, such as: agricultural activities, timber harvesting, mineral rights, hunting or fishing leases, and renting or leasing.

Companies may pay investors royalties for any discoveries or any structures they add depending on their rights to the land. Pump jacks, gravel pits, cell towers, pipelines, access roads, etc. may earn investors regular payments from these companies. [5]

For multifamily investors, they may build their wealth through basic rent. This is where the vast majority of residential property income comes from. This means tenants pay a fixed amount per month. Rent may go up with inflation and demand. Investors take out their costs from maintenance and management fees, etc., and then claim the rest as rental income. More desirable locations tend to attract more tenants, generating a stronger cash flow.

Finally, commercial real estate can produce income from basic rent and option income. Many commercial real estate tenants pay fees for contractual options such as the right of first refusal on the office next door. Tenants can pay a premium to hold these options, regardless of whether they exercise them or not. [5]

Appreciation

Over time, well-selected and managed real estate properties have the potential to appreciate in value. Accredited investors can benefit from price appreciation when they sell the property or through periodic revaluations in the case of private real estate funds. This capital appreciation contributes to long-term wealth growth.

So aside from basic rent and everything mentioned above, the most common way for real estate properties to generate profit is through appreciation. While this is achieved in different ways for different types of property, it can only be realized through selling. [5]

For undeveloped land to appreciate, it needs to be developed. Once developers purchase land and build houses or commercial real estate, it raises its value.

Land can also appreciate through the discovery of precious minerals or through other commodities, provided that the buyer holds the rights to them. So an example would be if you strike oil, but the land can also appreciate from trees, gravel deposits, and other natural resources. [5]

As for residential properties, the biggest factor for appreciation is of course, location. As the neighborhood around a home develops, its value continues to climb. So if the neighborhood adds transit routes, schools, playgrounds, shopping centers, and other attractions, the properties within appreciate in value. It is also possible for properties to depreciate as a neighborhood decays.

For specific properties, there’s no need to wait for the neighborhood to develop just to add value to it. Home improvements can also spur appreciation. Adding an extra bathroom or remodeling the kitchen with state-of-the-art appliances can help increase a home’s value. [5]

For commercial properties, the same principles apply. Location, development, and improvements can help in value appreciation. This is why the best commercial real estate properties are perpetually in demand.

Why Accredited Investors Love Working With BAM Capital

As you can see there are several reasons to invest in real estate, particularly in multifamily syndication, especially if you are an accredited investor.

But the key to success in multifamily syndication is working with a syndicator you can trust. Accredited investors love BAM Capital because of its consistent track record, great staff, and historic ROI.

BAM Capital lets you enjoy the strong cash flow of multifamily real estate without the responsibilities of running a large apartment complex by yourself. Real estate syndication can help you diversify your investment portfolio while also generating passive income. So if you are looking for an alternative investment that will give you time to focus on other business, multifamily syndication may be the ideal investing strategy.

Accredited investors love BAM Capital’s award-winning investment strategy that mitigates risk while creating forced appreciation. In fact, this Indianapolis-based syndicator now has over $700 million AUM and 5,000+ units. [6]

BAM Capital has a strong Midwest focus, prioritizing Class A, A-, and B++ multifamily properties with proven upside potential and in-place cash flow. [6]

Because BAM Capital is a vertically integrated company, they can handle every step of the syndication process. They will take care of everything from acquiring the property to managing it. Accredited investors can just sit back, relax, and collect their checks.

Syndication solves one of the biggest problems when it comes to multifamily investing: the high barrier to entry. Multifamily syndication is also safer than purchasing an apartment building all by yourself because you are splitting it with other investors.

If you are looking for a syndicator with a proven track record and an award-winning investment strategy, look no further than BAM Capital.

No investment is without risk. Make sure to consult your investment advisor or speak to a BAM Capital investment team member before making any financial decisions.

For accredited investors who want to enjoy the passive income and all the other benefits of being in a multifamily syndication, schedule a call with BAM Capital and invest today.