What Are the Benefits of Investing in Real Estate Syndications?
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A lot of investors are turning to real estate to build their wealth. Real estate is known for being a potentially lucrative investment with plenty of options depending on investor goals, strategy, and risk tolerance.
Real estate syndications, in particular, have become increasingly popular in recent years as a way for investors to participate in real estate investing without the hassle of managing properties themselves.
Take note that most of these syndication deals are exclusive to accredited investors due to regulations set forth by the Securities and Exchange Commission (SEC).
Accredited investors are individuals or entities that meet specific income or net worth requirements. These are individuals who have a net worth over $1 million, excluding the value of their primary residence, either individually or with a spouse or partner. An accredited investor may also be someone with an income over $200,000 (individually) or $300,000 (with their spouse or partner), in each of the prior two years. There must also be a reasonable expectation of earning the same for the current year. [1]
The SEC imposes these regulations to protect less experienced or less financially equipped investors from higher-risk investments. Accredited investors are deemed to have a certain level of financial sophistication and ability to bear the risks associated with certain types of investments, including real estate syndication deals.
In this case, syndication deals can be complex and carry higher risks, such as illiquidity and potential loss of capital. By limiting these opportunities to accredited investors, regulators aim to ensure that participants have the financial means and knowledge to understand and withstand the risks involved.
Since no investment is without risk, it’s only natural for real estate syndications to have their own fair share. But in this article, we will focus on the benefits of participating in a syndication deal, especially if you are an accredited investor.
What Are Real Estate Syndications?
Before we explore the benefits of real estate syndication, let us discuss what this investment strategy is and how it works.
Real estate syndication has been a popular method of financing the purchase and sale of properties, particularly those in higher price ranges. While the term “syndication” has no legal significance, it is a descriptive term used for organizations or investors pooling their capital for investment in real estate. [2]
This means a syndication deal is a partnership between multiple investors who combine their resources to purchase a single real estate property. This type of investment is typically led by a sponsor, also known as a syndicator, who is responsible for finding and managing the property. Meanwhile the investors provide the capital but are not responsible for the property itself.
While real estate syndication deals can be done with any type of real estate, multifamily syndication is the most popular type when it comes to this collaborative investment strategy.
There are several reasons for this. For instance, multifamily properties are more expensive and therefore more difficult to acquire for a lone investor. Purchasing a large multifamily real estate property by yourself is riskier since you have to bear all the costs yourself.
But because syndication deals combine the capital of individual investors, large multifamily properties become more accessible as a form of investment. [2]
Multifamily syndication is also more lucrative because they have several units generating a strong and consistent cash flow through monthly rental income.
Syndications are typically structured as limited liability companies (LLCs) or partnerships. The syndicator handles everything: locating the investment property, putting the deal together, executing the business plan, and finding accredited investors who will participate in the syndication.
Once the deal is in place, they will also handle property management. This is a hands-free investment for real estate investors. However, they will have to provide most of the capital needed to acquire the property and pay certain fees to get the syndication going.
Investors in real estate syndications typically receive returns in the form of rental income. This may be distributed on a monthly or quarterly basis. Depending on the deal structure, they may also earn a share of the equity upon resale. However, every syndication deal is different. The exact method of profit distribution will be detailed in the syndication agreement so investors can see if it is a good fit for them before they decide to get on board.
However, it’s important to note that syndications are considered illiquid investments as they often involve long-term commitments. Exiting the investment prematurely might be challenging. This is why only accredited investors are allowed to participate. With that out of the way, let us discuss some of the biggest reasons why real estate syndications—particularly multifamily syndication deals—are attractive to accredited investors.
Benefits of Investing in Real Estate Syndications
Real estate syndication offers investors a unique set of advantages, from diversification to tax benefits. It allows investors to access larger real estate investments that are normally too risky or too expensive for a lone investor.
By pooling resources with other investors through a syndication, it becomes possible to participate in high value real estate investments and enjoy potentially greater returns with less risk.
Syndicators work with passive investors and use their in-depth knowledge of the market, property management, and investment strategies to mitigate risks and enhance the prospects for higher returns.
Diversification
By participating in a syndication deal, investors gain access to a variety of real estate assets, such as commercial buildings, residential complexes, or industrial spaces.
Multifamily syndication in particular is a great way for investors to diversify their investment portfolio by spreading their investment across different units. This is much simpler than trying to own 100 separate real estate properties.
This diversification helps mitigate risk since potential losses from one property can be balanced out by gains from others within the syndication. In the case of multifamily properties such as apartment communities, even if one unit becomes vacant, the occupied units can still produce cash flow.
Unlike single family properties, multifamily real estate is mostly unaffected by vacancies because of the number of units that consistently generate cash flow.
Passive Income
Real estate syndication serves as a good source of passive income due to the strong and predictable cash flow generated by multifamily real estate properties.
Multifamily syndication generates rental income consistently. This provides a steady return on investment (ROI) throughout the syndication deal’s lifespan. So while stocks and other investment assets may offer a steeper ROI, real estate syndication can provide both short- and long-term income. [3]
The passive nature of real estate syndication appeals to many investors. Generally speaking, real estate investing is a time-consuming endeavor. If you want to run the property yourself, it will eat up all your time, money, and energy. But real estate syndication allows investors to be passive participants.
Professional Management
The reason this is considered a passive investment is because investors entrust the active management of the property to the syndicator. These are experienced professionals who can take care of the day-to-day responsibilities of property management, tenant issues, and maintenance tasks.
Even if the syndicator has no experience with property management, they will hire a third party company to handle it. In any case, the responsibility of taking care of the property will not fall on the investors, making it a true passive investment in real estate. This approach eliminates the usual headaches associated with owning real estate.
For accredited investors who want to earn income without the direct time commitment typically associated with owning and managing properties independently, multifamily syndication is the right investment for you.
Tax Benefits
On top of these benefits, real estate syndication also offers tax advantages such as depreciation deductions and pass-through taxation.
Because real estate depreciates yearly according to the Internal Revenue Service (IRS), investors can write off a portion of their income and reduce their overall tax liability. For example, they can deduct expenses that are directly related to the property’s operation, maintenance, and management, such as mortgage interest, insurance, repair costs, and property management fees. [3]
Additionally, syndications structured as pass-through entities, like limited liability companies (LLCs) or partnerships, allow investors to report their share of profits and losses on their individual tax returns, potentially benefiting from lower tax rates compared to other forms of income.
These tax advantages can improve the overall returns on the investment in real estate syndication.
How to Choose the Best Real Estate Syndications
There are plenty of reasons why accredited investors love multifamily real estate syndication. But because syndicators make most of the decisions involving this investment, it is still important to conduct thorough due diligence on them before choosing to participate.
To mitigate potential risks, accredited investors need to look into the sponsor, the investment structure, and the investment properties before participating in a syndication.
When considering investing in a real estate syndication, it’s essential to research the syndicator thoroughly. Choose a syndicator with a track record of success and experience in the real estate market. Ideally, you would choose a syndicator who specializes in the type of property and location you want to invest in. It is also important that they have experience in managing properties effectively and exiting deals profitably. [2]
Savvy investors ask for references from other investors who have worked with the sponsor in the past. Look into the syndicator’s reputation. You may check online reviews and testimonials as well. Also check whether they have any complaints or lawsuits against them.
Beyond that, you must look into the specific syndication deal and understand the investment strategy. Each real estate syndication will have its own strategy. This will be based on the syndicator’s priorities, so look for one that shares your interests, risk tolerance, and investment philosophies. You can also ask the sponsor about their plans for the property and how they plan to generate returns for investors.
The syndicator’s investment strategy will ultimately guide their decisions and influence the success of the investment. [2]
While real estate syndication is considered a relatively low-risk investment, accredited investors still need to do their due diligence, look into the syndicator, review the financials, and study the investment strategy before participating.
Real estate syndication deals can be a smart investment choice for those looking to diversify their portfolio and generate passive income. If you are looking for a syndicator with a strong Midwest focus and a proven track record, work with BAM Capital.
Work With BAM Capital for the Best Multifamily Real Estate Syndication Deals
Accredited investors need to work with a syndicator they trust. And when it comes to trustworthy syndicators with a proven track record for excellence, you should look no further than BAM Capital.
BAM Capital not only has a good reputation in the world of real estate syndication, they are even considered an industry leader.
BAM Capital is an Indianapolis-based syndicator that only goes for high quality multifamily real estate properties that are Class A, A-, and B++. This syndicator focuses on properties with in-place cash flow and proven upside potential. [4]
This syndicator uses an award-winning investment strategy that creates forced appreciation while mitigating investor risk. This is why accredited investors love working with BAM Capital. In fact, they now have over $700 million AUM and 5,000+ units. [4]
BAM Capital is also a vertically-integrated company. This means they can handle every step of the syndication process, from acquisition to property management to renovations.
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.
