Multi Family Syndication: What is it and How Does it Work?

by Stephen Twomey | Oct 5, 2023 | Accredited Investor, BAM Blog, Blog, Real Estate Investing | 0 comments

1. The Best Real Estate Investment for Accredited Investors: Multi-Family Syndication?
2. Real Estate Investing: What is Apartment Syndication?
3. Multifamily Syndication Structure
4. Multifamily Syndication Investing Benefits
5. Multifamily Real Estate Syndication: Who Can Invest?
6. Choosing a Multifamily Syndication Company
7. How to Find Multifamily Syndication Opportunities
8. Work with BAM Capital for Multifamily Syndication

There are many different ways to invest in real estate if your goal is to build your wealth and diversify your portfolio. Some investors go for commercial real estate, while others flip houses. But for accredited investors, there are even more options available to them. For example, they can look for a real estate syndication deal—specifically a multifamily syndication investment.

In any case, investing in real estate is not a one person job since it involves a lot of time and resources. Real estate syndication, however, makes it possible for investors to participate in real estate while enjoying passive income. This approach avoids all the usual headaches associated with owning a real estate property such as property management.

If you don’t have experience with being a landlord, it can quickly get overwhelming. This is where multifamily syndications really shine. Here we will discuss how investors can get into real estate without the tedious processes involved with running an apartment building.

The Best Real Estate Investment for Accredited Investors: Multi-Family Syndication

Multi-family syndication is a real estate investment strategy where multiple investors pool their capital to purchase and manage multi-family properties, such as apartment complexes or multi-unit residential buildings.

A sponsor is responsible for locating the deal as well as coordinating the transaction, and even managing the investment once the syndication deal is in place. [1]

This form of real estate syndication allows individual investors to access larger, more lucrative investment opportunities that they might not be able to pursue on their own.

It’s worth noting that a syndication deal can be made with any sort of real estate investment. However, multifamily syndications are the most common because of the inherent benefits of owning a large real estate property. [1]

Real estate investors tend to gravitate towards investments that can offer them a steady and passive income. Because apartment complexes have multiple units, investors do not have to worry about vacancies affecting their cash flow. They can just sit back and enjoy their share of the rental income. This is why multifamily syndication is considered one of the safest forms of investments in real estate.

Real Estate Investing: What is Apartment Syndication?

For those who are interested in real estate investing but do not have the time to run an apartment complex by themselves, real estate syndication might be the opportunity for you. With real estate syndication, investors can enjoy the benefits of owning a real estate investment property like appreciation, tax benefits, and cash flow, without all the work that goes into being a landlord. [2]

We mentioned earlier that real estate syndication deals involve multiple investors pooling their resources together to purchase a single real estate property. In a multifamily syndication deal, the investors pool their funds together for a large real estate property like an apartment building.

The two key players in the real estate syndication are the syndicator and the passive investors.

Real estate syndicators, also known as the general partners (GPs) structure and operate the syndication. They are in charge of underwriting the deal, performing due diligence on the property, handling the financing, negotiating with the seller, and finding investors who can help them raise capital for the transaction. [2]

The passive investor’s role is to provide a portion of the necessary capital so that the syndicator can acquire the apartment complex. They then receive a share of the monthly cash flow in exchange. Because they own a piece of the property, they get monthly (or quarterly) passive income distributions from the real estate asset.

Depending on the deal structure, investors may also receive a share of the equity upon resale. All syndications are different in this regard.

But beyond the initial investment, there’s no need for additional input from the investors. They can focus on other priorities while the syndicator runs the property. Some syndicators work with a property management company while others handle it themselves. This includes rent collection, handling emergencies, dealing with tenant concerns, etc. Either way, investors do not have to stress out. This makes real estate syndication a true passive investment. [2]

The syndicator’s job is to create and execute the business plan with the goal of delivering strong returns to the passive investors.

Multifamily Syndication Structure

Multifamily syndications are typically structured as limited liability companies (LLCs) or limited partnerships (LPs).

Limited partners (LPs) have limited responsibility when it comes to running the property. Most of the work is done by the GP. General partners may either charge an acquisition fee or they can charge an asset management fee. Again, each syndication deal is different, so the syndication fees will also vary.

The acquisition fee may range from 1 to 5% of the total investment on the property, while the asset management fee can be a standard rate of 2% of income, or it can be fixed as cost per unit. [3]

In terms of the profit split, the norms may vary depending on the type of syndication. This should be made clear for investors before they make an investment so that they know about what kind of returns they can expect. As such, the rules can vary from deal to deal. [3]

Some syndication deals use straight splits: a structure in which investors take maximum returns. It may be designed with a 70/30, 60/40, or 80/20 ratio. Some even have a 90/10 ratio.

Other syndications have preferred returns. This is when a fixed percentage of the profit is committed to the passive investors. The GP typically doesn’t receive a share of profits until the LPs have received their preferred return.

There is also the so-called waterfall structure, which brings in the principle of cause and effect. This means when a certain criteria is fulfilled, the syndication can be directed towards the fulfillment of another. These layers of cause and effect will be agreed upon by the investors and the syndicators. [3]

The syndication agreement should also outline the exit strategy, including how and when the property will be sold or refinanced. The profits from the sale may be distributed among the investors according to the agreed-upon terms.

Throughout the investment, the syndicator will be responsible for providing regular updates and financial reports to LPs, keeping them informed about the property’s performance.

It’s important for all parties involved to thoroughly understand and agree to the terms outlined in the syndication agreement.

Multifamily Syndication Investing Benefits

Aside from being a passive investment, multifamily syndication offers plenty of other benefits that investors may want to know. Portfolio diversification is one of them.

Multifamily syndication allows you to diversify your real estate portfolio without the need for substantial capital. You can invest in different properties and markets, spreading risk across various assets. An investor is able to invest in a number of real estate syndication deals due to the element of limited capital investment. [3]

Through syndication, investors can invest their capital in larger property deals—something that is not always possible for a lone investor. Purchasing a large multifamily property on your own will take millions of dollars. Doing so is also way more risky than pooling the necessary funds with multiple accredited investors. By pooling resources, syndication investors can afford larger, more valuable properties.

Investors can also enjoy various tax advantages. The rental income from syndication properties is taxable at a significantly lower rate compared to other investment options. [3]

Other tax advantages include depreciation deductions, interest expense deductions, and the potential for 1031 exchanges. These benefits can help reduce your overall tax liability.

By participating in a syndication deal, you also get to leverage the syndicator’s skillsets and knowledge on how to earn passive income from multifamily syndications. This means you do not have to rely on your own experience and knowledge just to make sure the property becomes a profitable real estate investment. [3]

That said, investors still need to perform their due diligence before choosing a sponsor and syndication deal.

Overall, multifamily syndication is a good source of strong, predictable, and reliable cash flow. There is always a demand for rental housing, so it is much more stable than other types of real estate investments. This is attractive for those seeking to generate income without hands-on involvement.

It’s important to note that while multifamily syndication offers many benefits, it also comes with risks, and investors should conduct thorough due diligence, understand the terms of the syndication deal, and consider their risk tolerance before participating. Additionally, the success of any syndication investment can depend on the competence and integrity of the syndicator and the specific market conditions at the time of the investment.

Multifamily Real Estate Syndication: Who Can Invest?

We have mentioned accredited investors a few times because most syndication deals are exclusive to this type of investor.

Multifamily investing, specifically real estate syndication, typically requires a certain level of financial sophistication. Accredited investors not only have enough investing experience and knowledge, they also have enough income and net worth to protect themselves in case these investments do not work out. This financial safety net is something most regular investors do not have.

This is why investors who wish to participate need to meet the requirements set by the SEC for accredited investors. [4]

Accredited investors are those who meet specific net worth or annual income requirements, either as an individual or jointly with a spouse.

An accredited investor, according to the SEC, is an individual who had an annual income of over $200,000 (or $300,000 jointly with a spouse or partner) for the past two years. There also needs to be a reasonable expectation that you will earn the same amount or more during the current year. [4]

An investor may also be considered accredited if they have a net worth of more than one million dollars, either individually or jointly with their spouse. Keep in mind that the market value of the individual’s primary residence is not considered in the net worth calculation. [4]

Some syndication deals may place limits on the number of participating investors.

Keep in mind that there is no specific accreditation process for investors. The burden of determining whether or not an investor qualifies as an accredited investor falls on the company offering the unregistered securities. Be prepared to fill out a questionnaire and provide financial documents to prove your net worth or annual income.

Choosing a Multifamily Syndication Company

As a passive investor, it is extremely important to choose the syndicator you want to work with carefully. This is because they will handle everything involved in the syndication deal. They will choose the investment property, develop a business plan, and handle property management.

Start by researching and identifying potential syndicators. You can find them through online platforms, referrals from other investors, or by attending real estate networking events. Look for syndicators with a track record of success and a good reputation in the industry.

Passive investors should look into things like the syndicator’s reputation or experience. You may check online reviews to see what other investors think of them. This can be valuable as your fellow investors will have already experienced working with them. [5]

Assess the syndicator’s team and their expertise. A well-rounded team with professionals experienced in acquisitions, asset management, and property management is essential for success.

Find out if the syndicator specializes in a specific type of real estate syndication. You may also look into their return history. How have their previous syndications performed? Did they match or exceed the expected performance in the initial syndication agreement? Did they sell the real estate property within the planned timeline? [5]

Perform due diligence on the syndicator and the properties they are offering. Request financial statements, rent rolls, and information about past and projected returns. Verify their claims and ensure they have a transparent and well-documented investment process.

Choosing the right multifamily syndication company is a critical decision when you’re considering investing in multifamily real estate.

In order to make your decision, you may have to define your investment goals and look for a syndicator that aligns with them. Understanding your goals will help you narrow down your options.

How to Find Multifamily Syndication Opportunities

If you are new to real estate syndication, you may find it difficult to locate syndication deals in the first place. Before diving into multifamily syndication, make sure you understand the basics of real estate investing, syndication structures, and the risks involved. Consider taking courses, reading books, or attending seminars on the topic.

Once you are ready, there are a few ways to get started, especially if you are an accredited investor.

For example, there are online REI platforms such as FundRise, CrowdStreet, and RealtyMogul, which are pretty easy to use. They give you a decent selection of real estate investing options. [6]

However, accredited investors may benefit more from online forums because these will give you good industry connections, which are essential for finding deals that are not even posted online. Networking is the best way to get into real estate syndication. Some of the best syndication investments are not available to the public.

Join professional REI communities and meet like-minded investors. This may open new doors for you, especially real estate syndications that are not advertised online. You can also attend industry events, join real estate investment clubs, and connect with other investors, real estate agents, property managers, and syndicators. You can find syndication opportunities through word of mouth and referrals from your network. [6]

Once you find a potential syndication opportunity, conduct due diligence. This includes reviewing the property’s financials, inspecting the physical condition, understanding the market dynamics, and assessing the syndicator’s track record.

Work with BAM Capital for Multifamily Syndication

When in doubt, work with a trustworthy syndicator with a great reputation and a proven track record: work with BAM Capital.

BAM Capital is an Indianapolis-based syndicator that has already established itself as an industry leader. It has a strong Midwest focus, prioritizing properties that are Class A, A-, and B++ with in-place cash flow and proven upside potential. [7]

In fact, BAM Capital now has over $700 million AUM and 5,000+ units. [7]

Another reason to go for BAM Capital is the fact that they are a vertically integrated company. This means they can handle every step of the syndication process, from finding high quality multifamily properties to renovating and managing them. BAM Capital uses its award-winning strategy to mitigate investor risk while creating forced appreciation.

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.