What you need to know about investing in multifamily real estate funds
Table of Contents
1. Understanding Multifamily Real Estate Investment Opportunities
2. Why High Net Worth People Choose Multifamily vs. Single-Family Investments
3. What is a Multifamily Fund?
4. How Do You Finance a Multifamily Property?
5. What is Multifamily Real Estate Syndication?
6. Is a Multifamily Property a Good Investment?
7. How Do You Know if a Multifamily Project is a Good Deal?
7.1. Sources
When people think about investing in multifamily real estate, they think about buying a property and renting it out to generate income. And while that sounds like a good way of generating passive income, most investors don’t like the idea of becoming a landlord and managing the property.
This is where multifamily real estate syndication investments come in. This is a great option that allows investors to generate income in real estate investing without having to be a landlord full-time.
UNDERSTANDING MULTIFAMILY REAL ESTATE OPPORTUNITIES
Real estate is generally the preferred investment strategy for investors who want to avoid the stock market’s volatility. With real estate investing, you can take a more active role in growing your capital. [1]
Rental property investing is also a great source of additional monthly income, so looking for these investment opportunities is a good idea. You can even enjoy a slow but steady appreciation of the value of your portfolio.
There are two main types of properties in which you can invest: single-family and multifamily. Single-family properties only have one unit available, while multifamily properties have multiple units of rentable space. Multifamily properties are usually apartment communities and duplexes. [1]
WHY HIGH-NET-WORTH INDIVIDUALS CHOOSE MULTIFAMILY VS. SINGLE-FAMILY INVESTMENTS
Multifamily properties are typically easier to finance compared to single-family properties despite being more expensive. Banks are more likely to approve a loan for a multifamily property than the average home. That’s because these larger properties can generate a consistent monthly cash flow. Multifamily properties have many advantages that are appealing to the experienced investor. In the eyes of lending institutions, this is a safer investment. [1]
This is also why high-net-worth (HNW) individuals prefer to invest in multifamily properties. Multifamily rentals can be more stable. They tend to avoid major value swings and also produce better cash flow. They even offer that diversification element to your rental income. [2]
If you purchase a triplex and one unit is vacant, you can still collect rental income from the two remaining units. But if you rent a vacant single-family home, you won’t get anything. This allows you to build a portfolio without a huge risk of negative cash flow. [2]
High-net-worth individuals also see multifamily properties as an easy way to build a large rental unit portfolio. Think of it this way: acquiring a 20-unit apartment would be much easier than acquiring 20 single-family homes in different addresses and from different sellers. Many investors don’t want to open 20 separate loans for each property. That’s too much of a headache compared to just going for the single 20-unit apartment community. [2]
WHAT IS A MULTIFAMILY FUND?
A multifamily investment fund comprises equity investment positions in several large multifamily properties. It pools many properties into one fund and divides the equity among multiple investors. [3]
Depending on the sponsor’s investment strategy, these properties may be in one area or multiple states. Multifamily real estate funds are recommended for real estate investors seeking passive income.
HOW DO YOU FINANCE A MULTIFAMILY PROPERTY?
First, you want to seek out a property in a good location. Location is very important when choosing a multifamily property to invest in. Choose apartment buildings in locations that renters will want to live in. Places close to a school, to the city, or close to multiple attractions make suitable investments. These places attract high-quality residents who want to pay to live on the property. [4]
Partner up with a local real estate agent so they can offer quality advice when it comes to multifamily real estate. They can even help you determine if a property is overpriced. At BAM Capital, we have the experience to help you navigate the waters of multifamily property investing. We work with investors nationwide despite our Midwest focus on our assets. We focus on the Midwest because our investment strategy targets tertiary markets with upward-trending white-collar jobs, population growth, and quality school systems.
Next, choose a loan. Pick a loan program and provider that’s right for you. Remember that some online lenders will only finance a 2-unit property but not anything larger. [4]
However, conventional mortgages are the most popular in real estate investing. Once you’ve arranged the financing, you are ready to make an offer on the property.
You may need your agent’s help when it comes to making an offer on the multifamily home you are interested in. They will meet the selling agent on your behalf and negotiate based on your budget, financing limits, and the highest offer you are willing to make. Counteroffers are common during this stage. [4]
Once the seller accepts the offer, you will move toward the closing process. Now, you only have to think about insurance, inspections, and handling the closing costs.
WHAT IS MULTIFAMILY REAL ESTATE SYNDICATION?
Multifamily syndication is a type of real estate investment wherein multiple investors pool their money to purchase a single asset. A sponsor is responsible for locating the deal, so you don’t have to look for one yourself. It’s all about choosing what syndication deal you want to invest in. [5]
The sponsor, also known as the syndicator, is also in charge of managing the investment once the deal has closed. They will put it all together and serve as the general partner coordinating the transaction.
Technically, any real estate property can be used for a syndication deal. But we’re discussing multifamily real estate syndication because it is a safer investment and a consistent income source. On top of all that, you don’t even have to be a landlord since another party will serve as the property manager. [5]
It works by having passive investors provide most of the capital required, and in exchange, they receive equity in the multifamily property. It is basically crowdfunding for real estate.
Sponsors can be individuals or companies. Either way, they will take charge of the deal. They will look for a deal, acquire the property, and manage the real estate. These syndicators have extensive real estate experience, which means they also deeply understand due diligence for potential deals. Investors, particularly high-net-worth individuals, are interested in multifamily syndication because it offers plenty of benefits. It is a particularly smart move if you want a passive investment, wherein you don’t need to be involved with the property, its residents, or its management.
The real estate asset protects the investment. By investing in multifamily syndication, you can profit from cash flow, equity buildup, and appreciation. The fact that multiple people are investing their money means that some of them could participate in larger deals that they otherwise wouldn’t be able to. Real estate is also among the preferable investment vehicles because of its tax benefits. If you want to enjoy the benefits of real estate without the hassle of managing a property, this could be your type of investment.
Multifamily syndications may differ in terms of the fees, the deal, the investment strategy, and how equity and cash flow are split. Investors and syndicators will form a limited liability company (LLC) to form a syndication deal. The syndicator will be the managing member; the investors are all limited partners. [5] Each party in the investment owns a certain percentage of the property. Sometimes, ownership is split equally; other times, the syndicator takes a larger percentage of equity. Cash flow is also shared amongst the partners based on their percentage.
Some deal structures include a preferred return to the investor. The deal must hit a minimum return before the syndicator can make any money. This motivates syndicators to fulfill their role. The individual investor also bears less risk in this arrangement. [5]
A private placement memorandum (PPM) outlines the specific details of the investment, including all associated fees and risks. After this, the required SEC registrations and notices are filed.
The syndicator secures a loan for the investment and signs on the loan. This means the investors are not liable for the repayment of the loan. Once financing is secured, the sponsor looks for potential investors who would pool their money for the deal’s capital requirements. Once enough money is raised to cover the down payment and the closing costs, the deal is closed.
Some syndicators choose to hire a third-party property management company instead of managing the property themselves. [5] At BAM Capital, we are a vertically integrated company with construction and management teams.
The cash flow is then distributed to the investors based on their agreed-upon structure. The exit strategy usually involves selling the property at some point—typically between 5 and 10 years in the future. The investors then receive their share of the equity from the sale. BAM Capital aims for a 5- to 7-year hold period.
IS A MULTIFAMILY PROPERTY A GOOD INVESTMENT?
Multifamily rental properties tend to be more in demand, greatly benefiting investors. Even if there are vacant units now and then, the cash flow doesn’t necessarily stop. Learn the differences between a REIT and a Multifamily syndication.
Bigger real estate deals often mean there are more investors involved. You get the added benefit of having an experienced multifamily asset manager. The cherry on top is you get to add rental real estate into your investment portfolio.
Multifamily syndication is a generally low-risk approach to real estate investment.
Investors can profit from the equity and appreciation from paying the principal balance on the loan. The goal is to earn more money than the original investment.
HOW DO YOU KNOW IF A MULTIFAMILY PROJECT IS A GOOD DEAL?
When picking a multifamily project to invest in, there are a few factors you need to consider. Regardless of your strategy for finding these deals, you will surely have a lot of options. It’s all about picking the right one for you.
BAM Capital works with accredited investors looking for high-value syndication opportunities that will generate more income.
If you are looking for lower-risk investments that can give you the maximum benefit, consider working with BAM Capital. This Indianapolis-based company has been focusing on buying the right assets and staying disciplined in its investment thesis. Currently, BAM Capital has over $700M AUM and 5,000+ units. [6]
BAM Capital specializes in the acquisition and management of income-producing multifamily apartment communities. It also focuses on B++, A-, and A multifamily assets to provide low-risk opportunities with lucrative assets. Accredited investors reap the benefits of their cash flow-positive assets. Schedule a call with BAM Capital and invest today.
Disclaimer: All investments carry risk, including potential loss of capital. This content is for informational purposes only and is not financial, legal, or investment advice, nor an offer or solicitation to buy or sell any security. Consult an independent advisor for personalized guidance, and contact BAM Capital for details on current offerings. BAM Capital and its representatives are not fiduciaries or investment advisors. The information provided is general and may not reflect individual financial goals. Past performance does not predict future results. BAM Capital and its affiliates do not guarantee the accuracy or completeness of this information.
