Can You Build Wealth from Real Estate Syndication?

Passive income, tax breaks, and equity: these are some of the reasons why you may want to invest in real estate if you want to grow your wealth.

However, investors need to keep in mind that even real estate investments come with risks. Investors should choose an investment property that can bring extra income each month, and even increase in value over time. [1]

The best way to avoid the inherent risks is to choose the right investment property. As the old saying goes, it’s all about location, location, location, when it comes to real estate.

How you invest in real estate assets is also important. You can purchase an apartment building or a commercial real estate property with dozens of units to collect a steady income. You can also purchase a small, single-family home for monthly rental income. Some investors wait for their property to increase in value before selling it for a larger profit. [1]

There are many strategies to try, but here we are going to focus on one real estate investment strategy that investors should consider: real estate syndication.

Benefits of Real Estate Investing

Real estate investing is attractive to many investors because of its potential to bring in a lot of cash. For those who are not quite convinced or those who are worried about the potential pitfalls, here are a few noteworthy benefits of real estate investing.

A lot of investors who go into real estate investing do so because of the steady cash flow. This is particularly true for single-family homes and multifamily properties that can bring in a steady income stream through monthly rent checks.

With a multifamily property, investors don’t have to worry as much about vacancies because there is more than one unit that produces income on a regular basis. Even if one or two units become vacant for a while, you will not be empty-handed. The property will still generate income as you look for new tenants. If you have a well-located apartment building with plenty of amenities, vacancies are going to be rare.

Owning real estate is a good way to enjoy monthly income, whether you go for a residential property or commercial real estate. You can easily rent this space out to tenants. In exchange for your investment, you will see some amazing returns. How much you earn mostly depends on the property you put your money into.

Just keep in mind that cash flow is not guaranteed. The same thing can be said about appreciation. No investment is without risk. Investors need to perform their due diligence and research specific properties and neighborhoods to assess its odds of generating a profit. You may also want to get some advice from an experienced real estate attorney to make sure everything is in order. [1]

Whether you are renting a property out or just flipping a home and reselling it, real estate is a long term investment. Depending on your investment strategy, you may have to hold it for several years while waiting for it to increase in value. But this also means you get to enjoy long-term security from an investment property that continuously generates a profit. [1]

Even if your plan is to just resell the property, it will spend some time under your care. This means real estate is not one of the most liquid asset classes out there, but its benefits are undeniable.

Real estate is also known for its tax advantages. Investing in real estate comes with a number of tax benefits. For example, several expenses associated with owning an investment property such as mortgage interest, property management fee, property insurance, ongoing maintenance costs, and property taxes can be deducted. [1]

Investors who invest in opportunity zones, meaning neighborhoods that are in need of investment, will pay even less in capital gains.

Finally, real estate is also perfect for diversifying your investment portfolio. This protects you in times of economic turmoil. Even if certain stocks may be struggling, your investment properties may still be increasing in value. This significantly lessens the impact of losses from your other investments. You will even be protected from inflation because when the prices of goods and services rise, home value and rents typically increase too. [1]

Real estate can be a fulfilling endeavor for a lot of investors because it allows them to take control and manage their own investment property. Unlike stocks, wherein you have very little control, real estate gives you more influence over your own investment.

There are many different ways to invest in real estate: real estate investment trusts (REITs), residential properties, commercial real estate properties, house flipping, buying land, etc. Research is key if you want to succeed here, just like with any other type of investment. But now we’re going to focus on a type of real estate investment that may catch your eye, especially if you are an accredited investor.

Real Estate Syndications: How Do They Work?

Multifamily properties are preferred over single-family real estate properties because they can provide a steady cash flow and strong returns. There are multiple units in one residential property, meaning more tenants, more rental income, and more money for you. You don’t have to worry about vacancies, because unlike single family homes, your cash flow will not stop if one tenant decides to move out.

But owning a multifamily property comes with its own challenges. For starters, property management is much more challenging when you have a much larger property to handle. This will require more financial and intellectual resources, meaning you will have to be closely involved with this investment.

Although it generates passive income, multifamily real estate investing is a hands-on investment strategy. It is more expensive to maintain the property, and you also have to play the role of landlord, meaning you have to interact with tenants, handle emergencies, pay for repairs, collect rent, etc. This can be an overwhelming real estate project. It is especially challenging for non-accredited investors or those who have no experience with property management.[2]

Another thing to consider is the fact that multifamily properties are much more expensive than their single family counterparts. These large properties are much harder to obtain in the first place. So getting into this real estate business is easier said than done.

But these problems are solved by the real estate syndication structure. It is therefore important for accredited investors to learn how real estate syndication deals work. It is one of your options when going into real estate. You can invest in an apartment building or commercial property without spending all the money you have and managing a large real estate project on your own. [2]

A real estate syndication is when multiple accredited investors pool money together in order to buy a single real estate property. This is considered a partnership between several investors. By combining their capital, investors gain access to properties that are otherwise too expensive for a lone investor. They would be able to invest in something they could not purchase individually, such as large apartment complexes and condominiums.

In a syndication deal, a syndicator—also known as a sponsor—puts the deal together, locates the real estate deal, and then finds investors who will participate in the deal. The sponsor will form a legal structure, usually a Limited Liability Company (LLC) or a Limited Partnership (LP). The passive investor’s role is to provide most of the capital in exchange for equity upon resale and a share of the cash flow. [2]

The sponsor arranges for the involvement of all legal parties. They even take out a loan for the property.

Upon acquiring the property, the sponsor will also take charge of renovating and managing the property. Real estate syndicator responsibilities include collecting rent, handling emergencies, and dealing with tenant requests.

This means investors do not have to worry about the property once it has been bought. They do not have to become the landlord. The sponsor will either manage the property themselves or hire a property management company to do it for them. Either way, you don’t have to get involved in it. This makes real estate syndication a truly passive investment.

The real estate syndication structure can be used for any type of real estate project, but multifamily syndication is the most popular for a number of reasons. Multifamily syndication reduces the chances of vacancies, plus it brings a stronger cash flow. Like-minded investors will greatly benefit from pooling their resources together and purchasing a multifamily property through syndication.

In a syndication deal, there is always a predetermined exit strategy. Usually, after several years, the multifamily property is sold for a profit. Once this exit strategy is accomplished, the syndication deal is complete. [2]

What is an Accredited Investor?

We mentioned “accredited investors” because only accredited investors have access to most of these syndication deals.

Through Rule 501 of Regulation D of the Securities Act of 1933 (Reg. D), the US Securities and Exchange Commission (SEC) defines an accredited investor as a person with an income that exceeds $200,000 in each of the two most recent years, with a reasonable expectation that they will earn the same level of income in the current year. For spouses, a joint income that exceeds $300,000 is required. [3]

Limited liability companies (LLC) with $5 million in assets may also qualify as accredited investors.

The SEC limits access to real estate syndication deals in order to protect investors. These deals tend to involve much larger investments, so it is important that participants know what they are doing and have a significant financial safety net in case their investment does not work out.

However, there are some syndication deals that are accessible to sophisticated investors—people who are not accredited investors but have enough knowledge and experience when it comes to real estate syndication and investing. These syndication deals often limit the number of sophisticated investors so that there are enough accredited investors participating as well.

Why Real Estate Investors Should Try Syndication

As an investor, you have various asset classes to choose from. But participating in real estate syndication gives you plenty of benefits. You get to participate in multifamily real estate investing with a much smaller investment amount than usual. This means you can access real property that are normally out of reach.

Real estate syndicators do all the work for you, making it a true passive investment. If you prefer to be a passive investor, letting your money work for you and collecting rental income as you rest, this is a great investment opportunity.

In a way, it is similar to a real estate investment trust. A REIT is a company that owns income-producing assets such as real estate. But investing in a REIT means investing in the company rather than directly investing in a property. You have no control over which real estate property the REIT purchases. Whereas in a real estate syndication, you can at least choose a general partner or an existing syndication deal for a real estate property that you want to invest in.

Real estate syndication offers passive income, tax advantages, and very few downsides. With a real estate syndicate, you can form a limited liability company with fellow investors who act as limited partners and share your financial resources to invest in large, profitable properties. [2]

Can You Build Wealth from Real Estate Syndication?

Building wealth is the primary goal for a lot of investors, including those who are putting money into real estate. With all the benefits of multifamily syndication listed above, it’s easy to see how real estate investors can build wealth using it.

Apartment syndication is popular among investors looking to build their wealth. After all, the demand for multifamily properties is always there. People need a place to live. Some investors are even overbidding just to get into the game. But you don’t need to do that if you are participating in real estate syndication. [4]

Everyone involved earns a share of the cash flow. The investors can also buy a share of multifamily properties that are too expensive to purchase on their own. The best part is that they don’t even need to manage such a large building on their own, because the general partner or syndicator will take care of it all.

Generating passive income is one of the best ways to build that wealth. However, investors should keep in mind that this is a process. Building wealth takes time. You need to participate in multiple deals to make this happen. You also need to have the discipline to reinvest the income that you earned. [4]

As a passive investor, you will be generating more money in the background. In a syndication deal, you don’t have to worry about property management. This means you can spend more time on other wealth-building endeavors. You can put more focus and more money into other real estate assets. You can even try out other asset classes and diversify your portfolio.

You will not get rich overnight, even with multifamily real estate syndication. But with time, discipline, patience, and enough resources, you will eventually build lasting wealth.

The general partner still earns a significant portion due to the amount they spent on the property management fee, and also for putting the entire deal together. After all, they are in charge of finding the property and structuring the deal.

Usually the deal has “preferred returns”, meaning the general partner will not earn anything until the property reaches a certain level of income. Real estate syndicates are structured this way to make sure that investors get their investment back.

Syndication deals also have a hold period—usually three to ten years—during which investors only receive their share of rents and income. If the goal is to build wealth, then investors should be smart about using their earnings. Ideally, they will put it towards another investment. When the property sells, investors then earn their share of the equity, which is split based on the agreed upon percentage.

By repeating this process of investing your earnings, you will gradually build your wealth instead of losing it. This is how wealthy families build their generational wealth over time.

Work with BAM Capital for Multifamily Syndication

If you want to invest in multifamily apartment complexes without the headache of running them yourself, you should work with BAM Capital.

This Indianapolis-based syndicator has a strong Midwest focus, prioritizing multifamily real estate properties that are Class A, A-, and B++. BAM Capital uses an award-winning multifamily investment strategy that allows investors to grow their wealth through syndication. [5]

BAM Capital mitigates investor risk and uses a vertical integration strategy to create forced appreciation. They have a consistent track record of providing a safe and passive investment for their investors.

BAM Capital negotiates the purchasing and financing of high quality multifamily properties on behalf of passive investors. Their vertical integration strategy has worked wonders for the company so far. In fact, BAM Capital currently has $700 million AUM and 5,000 units. [5]

Accredited investors can schedule a call with BAM Capital and invest today.