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Real estate investing is not a one person job. It takes a lot of time and resources to maintain a profitable real estate property. If this is not your main source of income, then it is bound to become overwhelming.
Some investors who manage to find success in single-family real estate investing may consider jumping into multifamily properties. But this is an even more challenging endeavor, even for experienced investors.
This is where multifamily syndications really shine. These investment deals allow investors to enjoy the benefits of multifamily investing but without all the headaches associated with it. You can invest in a highly profitable investment without having to play the role of landlord.
But what is a multifamily deal and how do real estate syndications work? More importantly, how can you tell if a syndication deal is good or not? Here we will answer these common questions.
What are Multifamily Real Estate Syndications?
A multifamily real estate syndication is a deal in which multiple investors combine their funds in order to buy a property. There is a sponsor, also known as the syndicator, who puts the multifamily real estate deal together. They are responsible for locating the deal as well as coordinating the transaction and funding. [1]
In this arrangement, the investors form a limited partnership or a limited liability company (LLC) to purchase and manage the property. Because the syndicator is also responsible for managing the investment once the transaction has been completed, multifamily syndication is an effective form of passive investing.
A real estate investor participating in this type of deal does not have to worry about becoming a landlord, managing the property, and dealing with tenants. The sponsor handles all of this, which means investors can just sit back, relax, and enjoy the passive income. [1]
The passive investors provide the majority of the funds needed to complete the deal, in exchange for equity in the real estate and a share of the monthly cash flow. Do take note that every deal is different and may follow different distribution models based on the deal structure.
The investors’ contributions are combined to provide the necessary capital for the down payment, renovations, and ongoing expenses associated with the property. The investors then receive a return on their investment based on the property’s net operating income (NOI), with the sponsor taking a percentage of the profits as compensation for managing the project.
Syndication deals can be made with any sort of real estate property. However, due to the strong and consistent cash flow of multifamily properties, this is now the most common type. Many real estate investors prefer multifamily syndication deals because they provide a reliable income. It is also considered one of the safer forms of real estate investments. [1]
Multifamily real estate syndication is a popular investment strategy for those who want to invest in real estate but may not have the resources or experience to purchase and manage a property on their own. It allows investors to participate in larger and more profitable deals than they could on their own, while also diversifying their investment portfolio.
In fact, multifamily syndication comes with many other benefits that are worth noting. It is a cost-effective way to invest in real estate. However, it is important to keep in mind that most real estate syndications are exclusive to accredited investors.
It is a relatively safe investment option because multifamily properties can continuously generate income even if one or two units become unoccupied. The remaining units of the apartment complex or condominium can still generate income as the syndicator looks for more tenants. [1]
Another benefit that investors would certainly appreciate is the fact that multifamily syndication has the potential for higher returns than other investment options. The income generated from the property can be used to pay investors a return on their investment, and the property can also appreciate in value over time, providing additional returns.
Multifamily syndication provides an opportunity for investors to diversify their investment portfolios by investing in real estate. It allows investors to spread their risk across multiple properties and markets, reducing the impact of any single property or market downturn. Multifamily syndications even come with various tax benefits.
When it comes to running the property and making sure it is profitable, investors can expect professional management since multifamily syndication is managed by experienced professionals who have the knowledge and expertise to manage the property efficiently. This means investors don’t have to worry about the day-to-day operations of the property.
With that in mind, multifamily syndications require far more capital than a single-family property, so you need to choose the deal wisely.
How to Analyze Good Multifamily Syndications
Multifamily real estate syndications can offer short and long-term benefits, as we mentioned above. But since it will still take a significant capital investment for an accredited investor to participate, it is important to analyze these syndication deals and choose the best one to guarantee an optimized ROI. [2]
Smart investors will analyze every factor and review their expected returns so they can zero in on the best multifamily syndication deal.
There are three main considerations that investors should have when picking a multifamily syndication deal: their personal investment goals, the syndicator, and the syndication deal itself.
Having a clear idea of your investment objectives will help you choose a syndication deal based on your broader financial plan. There is no “right” answer as long as it fits your investment capabilities. This will tell you if real estate syndication is the right move for you or not. If your current goal is the ability to grow your wealth for the long-term, this is an ideal fit because multifamily investments are typically illiquid, meaning you will have to stick with the deal for several years. But if you want a passive source of income, this is the right move. [2]
Next, you need to evaluate the sponsor. Syndicators are often experts when it comes to finding the best real estate deals in the local market. It is important to work with a real estate syndicator you trust.
As a part of your due diligence, you need to look into the syndicator and see if they have enough experience in similar types of deals. You will want to work with a sponsor who has experience overseeing general contractors and managing properties. Without enough experience, a sponsor may perform poorly and cause the investment to fail. [2]
Work with a sponsor with enough market experience—preferably someone who knows a lot about the property’s location and local cap rate dynamics. Each area has varying pricing factors, zoning requirements, and demographics. The syndicator needs to understand the deal inside and out so they can manage the property efficiently.
Some syndicators like BAM Capital have the advantage of significant construction and property management experience since it is vertically integrated. The success of the syndication deal will largely depend on the syndicator’s experience in the deal market.
Lastly, you will have to assess the multifamily syndication deal itself. Just like in other real estate investments, location is a top priority. A well-located multifamily property will have no trouble getting tenants who are willing to stay for years. [2]
The property should also have high quality amenities that can attract renters of every demographic. This will help you narrow down your choices and assess each property’s profit potential.
Things to Consider When Looking for Multifamily Real Estate Investments
As part of your due diligence, there are a few things you want to consider when choosing a real estate syndication deal, such as the purchase price, projected income, net operating income (NOI), cash flows, and return on investment (ROI).
Check if the purchase price is fair or not by comparing similar properties that offer the same square footage and amenities. By comparing the property details, you can assess the purchase price. [3]
The purchase price, however, is just the tip of the iceberg. You also have to calculate your net costs, including the cost of repairs, closing costs, etc. Determining the net cost will help you determine if the syndication deal is within your realistic investment budget.
The real value of the multifamily property lies in the rental income that it can generate on a monthly basis. Look into the projected income of the apartment complex before investing. Some sponsors go for the value-add approach by adding amenities that can help generate passive income such as parking facilities, vending machines, laundry facilities, etc. This will give you an idea of whether or not the rental property will be profitable or not. [3]
Even if you don’t do these calculations yourself, you can at least look into historical data such as the profit and loss statements, etc. If a property has excessive turnover and vacancy rates, you may have to look deeper into the root causes before you can decide if this deal is worth pursuing.
Investors should also know about projected expenses such as taxes, insurance, cost of landscaping, utilities, property management, and insurance.
Net operating income is calculated by subtracting all the operating costs from the property’s income. This means taxes, maintenance, insurance, and management costs should be subtracted from the monthly rental income, and income from additional amenities like parking. [3]
Comparing NOI should help give you an idea of which multifamily deals have the most potential to be profitable.
If you also want to analyze the property’s cash flow, you simply have to subtract the mortgage payments from the property’s NOI.
After deducing the property’s cash flow, you can start calculating return on investment.
Here is the formula for calculating ROI:
ROI = Cash flow / Investment Cost (down payment + closing costs + rehab costs)
ROI is considered a subjective value. There is no ‘right’ value for the property’s ROI. You may have your own expectations from your investment. But generally speaking, a return of 8% is considered a reasonable ROI. [3]
Work with BAM Capital for Multifamily Syndication
When participating in a multifamily syndication, you need to work with a syndicator you trust. The syndicator is responsible for developing and executing the investment strategy, managing the property and its finances, and providing regular reports to investors.
A trustworthy multifamily syndicator is someone who has enough experience when it comes to acquiring and managing multifamily properties.
There are several factors to consider when choosing a sponsor to work with, including their track record, experience, credentials, transparency, communication skills, and alignment of interests with investors.
You can research the syndicator’s past performance, speak with current or former investors, review their business plan, financial projections, and legal documents, and ask questions about their investment philosophy, risk management strategies, and fees.
Additionally, it is important to work with a syndicator who follows ethical and legal standards, such as registering with regulatory bodies, disclosing all relevant information to investors, and avoiding conflicts of interest.
For accredited investors who want to enjoy the passive income and all the other benefits of being in a multifamily syndication, look no further than BAM Capital.
BAM Capital is an Indianapolis-based syndicator that is known for its consistent track record and strong Midwest focus.
As a vertically-integrated syndicator, BAM Capital can handle every aspect of the syndication deal. They can guide you through every step of the process, from negotiating the purchasing to managing the multifamily syndication property. [4]
BAM Capital even has its own property management team and construction team that handles renovations.
This syndicator prioritizes Class A, A-, and B++ multifamily real estate properties, particularly those that have a proven upside potential and in-place cash flow. BAM Capital can create forced appreciation and help their investors grow their wealth while mitigating risk, thanks to its award-winning investment strategy. [4]
BAM Capital now has over $700 million AUM and 5,000+ units, making it one of the most reliable syndicators for accredited investors.
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.
Accredited investors can schedule a call with BAM Capital and invest today.
