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For those who have considered adding real estate assets to their investment portfolio but don’t want to spend millions of dollars on a single apartment complex, a real estate syndication deal may be the right choice.
Even for high net worth individuals (HNWIs), spending millions on one investment property is not always feasible. Smart investors also consider the risks before investing in real estate. This is why they go into real estate syndication instead of purchasing a real estate asset all on their own.
With multifamily syndication, investors can accomplish their goal of owning a multifamily real estate property even if they don’t have any experience being a landlord.
In a real estate syndication, a group of investors pool their resources together to buy a real estate property. A syndicator, also known as the sponsor, puts the deal together and leads the syndication process. Serving as the general partner (GP), the syndicator is responsible for identifying the investment opportunity, negotiating a fair purchase price, raising capital from investors to complete the acquisition fee, and even managing the operations of the property. [1]
This is a hands-off approach where you become a passive investor because the syndicator also serves as the property manager. Some syndicators hire a property management company to do it for them, but in any case, you don’t have to be responsible for the day to day operations of the apartment building. You can just sit back, relax and enjoy your cash flow distribution checks.
While this type of real estate investment can be done with any type of real estate property, multifamily syndication is the most popular version. This is because multifamily properties bring plenty of benefits for investors. They have multiple units, meaning they bring a much stronger and more consistent cash flow compared to single-family properties. Even if one or two units become vacant, the remaining units can still bring in rental income on a regular basis.
The syndicator typically gets a fee for their services and a share of the profits generated by the multifamily syndication property. But passive investors get most of the cash flow, and depending on the deal structure, a share of the equity upon resale. The syndicator is also in charge of cash flow distributions. [1]
Multifamily syndication deals are typically formed as limited liability companies (LLCs) or limited partnerships (LPs). However, these deals are generally exclusive for accredited investors. So how much exactly do you need in order to qualify for one of these syndication deals? Here we will take a closer look.
How Much Capital Do You Need for Apartment Syndication?
The amount of money you need for apartment syndication can vary widely depending on several factors, including the size and location of the property, the number of investors involved, the financing structure, and the overall project costs.
Syndicators conduct thorough financial analysis, perform due diligence on the property, and create a detailed business plan to determine the exact amount of money needed for apartment syndication.
Since every deal is different, there’s no way to tell how much money one syndication deal is going to cost you. But since a lot of these syndicated real estate deals are exclusive to accredited investors, this is the first hurdle that you may have to overcome.
The definition of accredited investor determines who are in the pool of potential investors for real estate syndications. Several offering exemptions under federal securities laws limit participation to accredited investors. [2]
This is because syndicators are assumed to have sufficient investing knowledge and experience due to their high net worth and income. They have a certain level of financial sophistication that allows them to assess risks and make appropriate financial decisions based on their goals and needs.
To qualify as an accredited investor, a natural person needs to have a net worth over $1 million, individually or with their spouse or partner. Their primary residence is excluded from the net worth calculation. [3]
They also need an income over $200,000 individually or $300,000 with their spouse or partner in each of the prior two years, with a reasonable expectation of earning the same for the current year. [2]
In 2020, there were over 13 million accredited investor households in the US, representing 10.6% of all US households. [3]
There are also professional criteria that allow certain people, corporations, partnerships, trusts, and charitable organizations to qualify as accredited investors, but here we are focusing on the financial criteria that allow individual investors to participate in exclusive real estate syndications.
Accredited investors have a significant amount of assets, meaning they have the resources to support themselves in case a particular investment does not pan out. They have that financial safety net that allows them to take on a bit of risk. But in addition to that, they are also given access to securities and investment opportunities that are not available to the public.
Accredited investors are considered a special class of investors who can access investments that are not available to regular investors. Because they meet the criteria set by the US Securities and Exchange Commission (SEC), they are given the ability to invest in private placements, private stock offerings, and other investment vehicles. [4]
BAM Capital only works with accredited investors, so if you are interested in multifamily syndication, you may have to check if you qualify as an accredited investor.
Keep in mind that there is no particular accreditation process for accredited investors. In fact, the burden of proving that you qualify as an accredited investor falls on the investment vehicle that you are participating in. So investors may have to prove their accredited status by filling out a questionnaire and providing certain documents including bank statements, credit reports, W-2 or other earnings statements, tax returns, or any credentials issued by the Financial Industry Regulatory Authority (FINRA). [3]
Only by providing these financial statements and documentations will you be allowed to participate in the exclusive investment deal.
The Benefits of Multifamily Real Estate Syndication Deals
Investors who qualify as accredited may find that multifamily syndication deals can bring them plenty of benefits.
For starters, it is associated with lower risk levels compared to purchasing apartment buildings on your own because you are pooling money with other investors. Investors benefit by only being liable for the losses that are equivalent to what they invested. In a syndication deal, your exposure to potential losses is limited so your personal assets are protected from the risks associated with real estate investments. Contrast this with the potential losses you will incur if you spend millions on an investment that ultimately did not work out. [1]
For more risk averse investors hoping to get into real estate investing, this may be the ideal investment strategy.
Reducing risk across all your investments is also possible through diversification—something that multifamily syndication allows you to do. Multifamily syndication lets investors spread their risk across multiple properties and markets. Instead of putting all their capital into a single property, they can invest in a diversified portfolio of assets, reducing the impact of fluctuations in any one property’s performance.
Multifamily syndication also lets investors benefit from owning a larger property. With a larger property, there are fewer vacancies. It is possible to produce a steady stream of income even if one or two tenants leave. The remaining units will produce cash flow while the property management company or syndicator works on finding new tenants. [1]
In a single family property, investors are stuck with a vacant property that does not produce income. This can be especially troublesome if it remains vacant for a longer period.
Speaking of property management companies, multifamily syndication is much less time-consuming compared to other investments because of the fact that you don’t have to play the role of landlord. The syndication deal is a true passive investment, requiring no further input from the investors after their initial investment. [1]
Instead, the property manager or the syndicator keeps the multifamily property running, handling the day to day operations of the investment property, from dealing with tenants to handling emergencies and repairs to collecting rent.
Leaving all of these important matters to the experienced professionals is a great way to improve the investment’s profitability. This expertise can lead to more efficient property management, better tenant screening, and higher occupancy rates, potentially increasing returns for investors.
This approach frees up time for passive investors, allowing them to focus on other endeavors, priorities, and investments. It also takes off a lot of pressure and responsibility from the investors.
Instead of worrying about property management, the investors can just collect their checks. Income is typically distributed on a regular basis. This will be detailed in the syndication agreement. Some investments have a monthly distribution while others distribute income on a quarterly basis. [1]
Real estate investments, including multifamily syndications, even offer various tax advantages. Investors may benefit from deductions such as depreciation, interest expense, and property expenses, which can reduce their overall tax liability.
Syndication allows investors to participate in larger real estate deals that might be out of reach as individual investors. For investors who want to invest in real estate without the responsibilities of property management, multifamily syndication offers a passive investment option.
Just keep in mind that even this investment strategy comes with its own set of risks and considerations. Conduct thorough due diligence, understand the terms of the syndication agreement, and assess the track record and experience of the syndicator before participating in a syndication deal.
As beneficial as it may be, it is still important to work with a trustworthy syndicator. Work with BAM Capital for multifamily real estate syndication.
Why Accredited Investors Love Working With BAM Capital for Multifamily Real Estate Syndications
For accredited investors who are interested in multifamily syndication, working with a reliable syndicator with a proven track record is a must.
BAM Capital is a vertically integrated, Indianapolis-based syndicator with a strong Midwest focus. As an industry leader and vertically integrated company, BAM Capital can guide you through every step of the syndication process, from purchasing high quality multifamily real estate to renovating the property. BAM Capital will even handle property management. [5]
This syndicator prioritizes high quality multifamily real estate with in-place cash flow and proven upside potential, particularly those that are Class A, A-, and B++. They then use their award-winning strategy that mitigates investor risk while creating forced appreciation. In fact, BAM Capital now has over $700 million AUM, and 5,000+ units. [5]
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, look no further than BAM Capital. Schedule a call with BAM Capital and invest today.
Sources:
[1]: https://www.activedutypassiveincome.com/blog/what-is-multifamily-syndication/
[2]: https://www.sec.gov/education/capitalraising/building-blocks/accredited-investor
[3]: https://www.investopedia.com/articles/investing/092815/how-become-accredited-investor.asp#
[4]: https://smallbusiness.chron.com/advantages-accredited-investor-65336.html
