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Multifamily Syndication, Real Estate Investing For Accredited Investors

Multifamily Syndication Investing Article

Investing in real estate is a good idea. However, not every investor is interested in being a landlord. But the good news is that there’s a way to enjoy all the benefits of real estate investing without the downsides. years. We will talk about what it is, what its benefits are, and why you should try it for yourself. If you are an accredited investor who wants to invest in real estate but has been turned off by the idea of being a landlord, multifamily syndication might be the right fit for you. Real estate syndication is perfect for investors who want a more passive investment. Let’s take a closer look Multifamily syndication investing is a type of investment that has grown in popularity in recent years.

Investing in Multifamily Real Estate

For those who want to avoid the volatility of the stock market, real estate can be a great alternative. It lets investors take a more passive role in growing their capital. Investing in Multifamily Real Estate

Rental property investing is a good source of additional monthly income. It also allows for a slow and steady appreciation in the value of an investor’s portfolio. In terms of residential real estate investing, the two main property types are single-family and multifamily. Single-family properties have only one available unit to rent, while multifamily properties have more than one rentable space—these are most commonly apartment complexes and duplexes. For example, multifamily properties are more expensive but easier to finance. A bank is more likely to approve a loan for a multifamily property than the average home because it generates a consistent cash flow every month. It is therefore a less risky investment for lending institutions. But since you are looking fora more passive investment, multifamily syndication is the best way to approach real estate.

What Does Multifamily Syndication Mean?

Multifamily SyndicationA multifamily syndication is a type of real estate investment where in multiple investors pool their money in order to purchase an asset. A sponsor locates the deal and manages the investment once the deal has closed. This sponsor serves as the general partner who coordinates the transaction throughout the process.[2]

Although any type of real estate property can be used for a syndication deal, multifamily syndication is very popular because it is a low-risk investment. Not to mention they also provide consistent income. In exchange for equity in the multifamily property, passive investors provide some of the upfront capital required. Syndication is also known as crowdfunding for real estate. Sponsors are also known as syndicators. They can be individuals or companies who take charge of the deal. Sponsors, like BAM Capital, look for a deal, acquire the property, and manage the real estate. These syndicators have a ton of real estate experience. They have a deep understanding of due diligence for potential deals.

Why Would You Want to Invest in Multifamily Syndication

Investing in Multifamily Syndication

Another benefit is that the investment is protected by the real estate asset. The investor can get profit from cash flow, equity build, and appreciation.

The fact that multiple investors pool their money means that some of them could participate in larger deals that they otherwise wouldn’t be able to.

On top of that, real estate is generally one of the best investments because of its tax benefits. If you want to enjoy the benefits of real estate without the hassle of managing a property, this is the type of investment for you.

Leverage

Take $30M dollar of investor money, and buy roughly  $85M worth of institutional property. A 300 units large apartment community (complex).

Cash Flow

$1M invested into a BAM Capital deal and they want cashflow, that investor can return roughly $9,100 into their bank account monthly. That’s roughly double what money market accounts have been doing recently.

Forced Appreciation

When rents are raised $350 per month across those 300 doors (units), that equates to $21M of value add via forced appreciation.

 

 

Understanding How a Real Estate Syndication Deal is Put Together

Real Estate Syndication DealMultifamily syndications usually follow a similar structure—but every single one has its differences. These investments may differ in terms of the fees, the deal, the investment strategy, and the way equity and cash flow are split.

Sponsor-General Partners

Most of the time, investors and syndicators will form a limited liability company, or LLC, for the syndication deal. The syndicator serves as the managing member, while the investors are all limited partners.[2] A certain percentage of the property is owned by each party in the investment. While sometimes ownership is split equally, other times the syndicator takes a larger percentage of equity. Cash flow is also shared amongst the partners—this is based on the percentage that they own.

A few deal structures come with preferred returns to investors. This means before the syndicator makes any money, the deal needs to hit a minimum return first. This adds an extra level of safety for the investors. BAM Capital’s Series A and Series B Units are an example of a structure with a preferred return.

Here’s how a multifamily syndication deal comes together: first, a deal sponsor looks for a multifamily property for the deal and puts it under contract. The Sponsor then forms an LLC or a limited partnership.

The specific details of the investment are then outlined in a private placement memorandum. This also details how the partnership is structured. The memorandum also discloses all fees associated and discusses all the risks involved. After this, the required SEC registrations and notices are filed.

The syndicator secures a loan for the investment. Since the Sponsor signs the loan, this means the investors are not liable for the repayment of the loan.

Limited Partners, Passive Investors

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.

Property Management

Although the sponsor is in charge of managing the investment, they may or may not manage the property. Sometimes a third party company is brought in to manage the property. The BAM Companies is a vertically integrated company consisting of BAM Capital, BAM Construction, and BAM Management. The BAM Management branch manages all of the properties in the multifamily syndication.

The cash flow is distributed to the investors based on the structure they agreed upon. As for the exit strategy, it usually involves selling the property at some point—typically between 5 to 7 years in the future. The investors then receive their share of the equity from the sale.

How Much Money Can Investors Make from Investing in Multifamily Syndication?

Investors Make from Investing in Multifamily SyndicationThe goal is to earn more money than the original investment—which means the investors should profit from equity and appreciation from paying the principal balance on the loan.

The sponsor gets some of the equity for putting the deal together, signing on the loan, and also managing the asset. For specifics about the deal, always reference the private place memorandum provided by the sponsor.[2]

Since many syndication deals are structured with a preferred return, the investors have to receive a minimum return on their investment before the syndicator gets their share of the cash flow.

The method of distribution will vary depending on the deal.

What is an Accredited Investor?​

Accredited InvestorAlthough there are multifamily syndication deals that anyone can invest in, there are those that are exclusive for accredited investors.

An accredited investor is someone who is considered “financially sophisticated” enough to buy unregistered securities. Generally speaking, unregistered securities are riskier because they don’t have the normal disclosures that come with SEC, Securities and Exchange Commission, registration. But since accredited investors tend to be more knowledgeable and financially secure, they are able to handle the risks of buying these unregistered securities. The SEC believes these accredited investors have a reduced need for the protection provided by regulatory disclosures.

In order to become an accredited investor, a person needs to have an annual income of at least $200,000 for the previous two years or a net worth of at least $1 million. The minimum income increases to $300,000 for married couples.[3]

Individuals and business entities alike may be considered accredited investors if they meet these requirements. Although there is no specific “accreditation” process, some companies ask investors to submit a questionnaire to determine if they meet the criteria.[4]

The responsibility of determining whether or not someone is qualified to buy unregistered securities falls upon the companies that issue them. The reason these investors need to be “accredited” beforehand is because authorities want to make sure they are financially stable and knowledgeable enough about these more risky ventures.

In 2020, the US Congress included registered brokers and investment advisors to the definition of accredited investors.[3]

Finding Multifamily Syndication Real Estate Investment Opportunities​ & Tax Benefits

Multifamily Syndication Real Estate InvestmentJust like any other investment opportunity, you need to do your due diligence on any multifamily syndication deal that you come across. If you are interested in learning more about multifamily syndication deal in more detail, schedule a call with BAM Capital. BAM Capital prioritizes B++, A-, and A multifamily assets with in-place cash flow and proven upside potential. This mitigates risk and allows the fund to target consistent monthly cash flow.[5]

Multifamily syndication offers true passivity in your real estate investment. But on top of that, it also gives investors the same property tax advantages of being a full-time operator. Basically, a syndication investment offers many tax benefits to real estate investors including depreciation, cash-out refinance, mortgage interest, 1031 exchange, etc.

Depreciation is one of the most significant tax benefits of multifamily real estate. This is because the IRS allows investors to depreciate the building and certain components of the property over time. This depreciation expense can be used to offset rental income, reducing taxable income. Syndication investors can benefit from this expense even if they didn’t personally buy the property.

The IRS knows that properties tend to deteriorate due to wear and tear. This is why the building can be depreciated over 27.5 years for multifamily properties. Due to this depreciation benefit, a lot of investors love syndication and commercial real estate. [7]

The cash flow generated by the multifamily property can be partially sheltered from taxes through depreciation and other deductions, allowing investors to receive a portion of their returns in a tax-efficient manner.

Another example of a tax benefit associated with multifamily syndication is cash-out refinance. This lets passive investors enjoy a large tax-free liquidity event . Refinancing involves using a new loan on the property to repay the old loan. [7]

This cash is evenly distributed among passive investors if after paying off the old loan, there is a surplus of loan proceeds. This cash distribution is based on the interest that they own in the syndication deal.

The annual interest paid on a mortgage can also serve as a deduction item. This means at the end of the year, the total interest paid on the mortgage can be used to further shelter the syndication’s income.

Meanwhile, the 1031 exchange is another powerful strategy available to real estate investors and syndications as it can defer their capital gain liability if all partners in the syndication agreed to 1031 out of the investment together when the property is sold. [7]

For accredited investors looking for tax-advantaged investment opportunities, multifamily syndication is a great addition to the portfolio.

With all of this in mind, it is crucial to work closely with a tax professional or CPA who specializes in real estate syndications to fully understand and take advantage of these tax benefits. Seeking professional guidance is essential for optimizing your tax strategy in multifamily syndication.

How To Invest In Multifamily Syndication

Real Estate Syndication DealWhen picking a multifamily syndication investment, you should always ask for the sponsor’s track record. BAM Capital’s expertise is unmatched when it comes to vertical integration and transparency. BAM Capital handles all steps of the investment life-cycle, from purchasing to remodeling to management, yielding a higher return for investors.

Passive investors can benefit from BAM Capital’s long-standing relationships with sellers, brokers, and builders, allowing them to gain expert knowledge on assets being purchased.

The first thing to keep in mind when considering multifamily syndication is that a lot of these deals are only accessible to accredited investors.

Accredited investors are individuals or entities that meet certain financial criteria set by the U.S. Securities and Exchange Commission (SEC) that reflect their financial sophistication and investing experience.

In order to be considered an accredited investor, one has to have a net worth over $1 million, excluding their primary residence, either individually or with their spouse or partner. An accredited investor may also have an annual income of over $200,000 individually or $300,000 with their spouse or partner in each of the prior two years, with a reasonable expectation of the same for the current year. [8]

Aside from these financial criteria, there are also professional criteria that may determine someone’s status as an accredited investor. For example, investment professionals in good standing holding the general securities representative license (Series 7), the investment adviser representative license (Series 65), or the private securities offerings representative license (Series 82) may be considered accredited investors. [8]

Accredited investors have access to a wider range of investment opportunities, including private placements like multifamily syndications. This is because they are expected to have enough financial sophistication to be able to assess the risks of certain investments, on top of having a big enough financial safety net to protect them in case an investment does not work out.

If you are an accredited investor, then you will want to educate yourself on multifamily syndication before picking an investment property or syndication deal. Due diligence is still necessary.

For accredited investors who wish to participate in multifamily syndication, it is important to work with a trustworthy syndicator with a proven track record. This is why many real estate investors work with BAM Capital for multifamily syndication.

BAM Capital is an Indianapolis-based company that now has over $700 million AUM, and 5,000+ units. This syndicator has a strong Midwest focus, prioritizing high quality multifamily properties that are Class A, A-, and B++, particularly those with proven upside potential and in-place cash flow. [5]

Accredited investors will love working with BAM Capital as it is a vertically-integrated company. This means the syndicator can guide you every step of the way, since they can handle the entire syndication process from purchasing high quality multifamily real estate to renovating and managing the property. [5]

BAM Capital has successfully established itself as a leader in the industry, and that is the kind of syndicator you need to look for.

Smart investors will review every investment property and opportunity that is presented to them before making an investment. Evaluate the syndication structure. Understand the specific terms of the syndication, such as the minimum investment amount, profit-sharing arrangements, fees (e.g., acquisition fees, management fees), and the expected duration of the investment. Make sure you understand the syndication agreement fully and that you believe in the investment property being offered in the syndication.

Ideally, you should connect with real estate professionals, including syndicators, real estate brokers, property managers, and other investors. Networking can help you access opportunities and gain insights into the market.

When in doubt, ask for professional advice from financial planners who specialize in real estate investments. They can help you understand the legal aspects, tax implications, and potential risks associated with the syndication.

Once you’re comfortable with the opportunity, only then can you commit your capital to the syndication.

Picking the Right Syndication Investment for Your Risk Tolerance & Possibly Location

Syndication InvestmentWhen picking a multifamily syndication investment, you should always ask for the sponsor’s track record. BAM Capital’s expertise is unmatched when it comes to vertical integration and transparency. BAM Capital handles all steps of the investment life-cycle, from purchasing to remodeling to management, yielding a higher return for investors.

Passive investors can benefit from BAM Capital’s long-standing relationships with sellers, brokers, and builders, allowing them to gain expert knowledge on assets being purchased.

Understanding Multifamily Syndication Fees & Costs​

Fees & Costs​Multifamily syndication deals will usually involve various fees paid to the syndicator. That said, it is important for investors to understand these fees and costs.

These fees should be discussed in the private placement memorandum, similar to the splits and other financial matters. You should always consult your trusted CPA and/or attorney when looking at a new investment opportunity. 

Multifamily syndication fees are the fees made to the real estate syndicator to compensate them for putting the deal together, acquiring the asset, financing the asset, and managing the multifamily property.

The fees can vary depending on the specific syndication structure and the terms negotiated between the syndicator and the investors. Some syndication fees are recurring, while othersare paid out as a one-time fee.

These fees do not just give sponsors money but actually cover the costs that are associated with managing the property, including administrative and personnel costs. [9]

Examples of multifamily syndication fees include the acquisition fee, asset management fee, financing fee, loan guarantor fee, construction management fee, and disposition fee.

The acquisition fee is a one-time fee that is charged when the syndicator closes the deal and acquires the multifamily property. It is typically a percentage of the property’s purchase price, usually around 1% to 3%, and is meant to compensate the syndicator for finding and securing the investment opportunity. In smaller syndication deals, this can go as high as 5%. [9]

The asset management fee is charged for ongoing management of the property, including day-to-day operations, leasing, maintenance, and everything else that goes into asset management. This is usually calculated as a percentage of the property’s gross income (e.g., 2% to 4% of gross rental income).

Additionally, if the syndicator helps secure financing for the property, they may charge a financing fee. This fee is usually a percentage of the loan amount.

In some cases, real estate syndicators use a loan guarantor, also known as a “key principal”, to sign on the loan. The loan guarantor helps the sponsor team to get better financing terms. The loan guarantor fee is often anywhere from 1% to 3% of the loan amount. [9]

Construction management fees may range from 5 to 10% of the project’s total renovation budget and compensates for the syndicator’s efforts to ensure the renovation’s success.

Finally, the disposition fee is issued to cover the costs of marketing, travel, and time-related efforts to ensure a smooth exit for investors. This disposition fee is typically 1% to 2% of the sales price. [9]

When looking into multifamily syndication investment opportunities, make sure you review the offering documents and fee structures so that you know what you are paying for. The specific terms and fees may vary significantly from one syndication investment to another. Transparency and communication between the syndicator and investors are essential to building trust and ensuring a successful partnership.

Equity & Profit from the Deal​ 

Equity & Profit

A real estate syndication deal is a way to invest in real estate without all the usual hassles associated with owning a real estate property. In a syndication deal, several investors pool their funds together in order to buy a property instead of paying for the whole thing themselves.

This type of deal can be done with any real estate property, but multifamily syndication is the most popular because these large properties are capable of generating strong and reliable cash flow through rental income, due to having multiple units. Multifamily properties such as apartment complexes can also generate a stable cash flow without getting interrupted by vacancies because there are plenty of tenants. When one or two units become vacant, the remaining units continue generating income while the syndicator looks for new tenants. This is why a lot of real estate investors love multifamily investing.

But in a syndication deal, real estate investing becomes a passive investment because a syndicator, also known as the sponsor, handles everything involved in the deal. The syndicator puts everything together: they locate the deal, coordinate the transaction and funding, and look for passive investors who will participate in the syndication. [6]

The passive investors provide most of the capital needed in order to buy the property in exchange for a share of the monthly cash flow and, depending on the deal structure, a share of the equity upon resale. Each syndication deal is different, so investors still need to perform their due diligence when choosing a deal to invest in.

Once the necessary capital is raised, the syndicate acquires the target real estate asset. The syndicator is responsible for overseeing the property’s management, operations, and any necessary improvements or renovations. This means investors get to avoid the usual headaches associated with being a landlord. After the initial investment, no further input is required from the investors. They can just sit back and enjoy their stream of income, or focus their energy on other investments.

Rental income, profits from property appreciation, and other returns generated by the real estate investment are distributed to the investors according to the terms outlined in the syndication agreement. These terms may specify how profits are split among investors and the syndicator.

Syndication deals may be structured as a limited liability company (LLC) or as a limited partnership. The sponsor will serve as the general partner (GP) while the passive investors are the limited partners (LPs). Keep in mind that most syndication deals are exclusive to accredited investors. [6]

Syndication deals may have a predetermined exit strategy, such as selling the property after a certain period, refinancing it, or holding it for long-term rental income. When the property is sold or refinanced, investors receive their share of the proceeds—again, depending on the syndication agreement.

Multifamily syndication is a common investment strategy used in the real estate industry to fund and execute larger and more complex real estate deals that may be beyond the financial capacity or expertise of individual investors.

With the additional benefits of multifamily syndication, multifamily real estate investing is taken to the next level. However, there are additional considerations that investors may want to look into before participating in a multifamily syndication deal, such as its tax benefits, the proper way of finding syndication deals, and any additional fees that may come from it.

Aside from the fees, you also want to pay attention to how the equity will be paid in the end. This will be based on the agreed equity split.

Learn about the equity and profit of your multifamily syndication deal through the private placement memorandum.

Weighing Positives & Negatives of Multifamily Syndication​

Positives & Negatives of Multifamily Syndication​The benefits of multifamily syndication include having a passive investment, and getting access to bigger real estate deals. It is also managed by an experienced multifamily asset manager. This means you can enjoy having a profitable real estate investment without having to be a landlord. The cherry on top is you get to add real estate into your investment portfolio.[4] The downside is that you have limited control over the property and there’s no liquidity. This means the money is tied up throughout the full period of investment.[4] This also means there are limited options for selling your shares in the investment. Whether the pros outweigh the cons depends on your perspective and the deal itself.. This is a generally low-risk approach to real estate investment. Always consult your CPA for more information on your specific situation.

How To Find Multifamily Syndication​ Deals

Investors Make from Investing in Multifamily Syndication

Typically, investors find syndication deals by networking. Since these deals are not available to the general public, you may have to use your network to find these deals.

But the best way for accredited investors to find syndication deals is to work with professional syndicators. These pros have the credentials when it comes to syndicating real estate deals, so they can easily guide investors towards the syndication investment properties that fit their financial goals.

It’s best to work with an industry leader such as BAM Capital. BAM Capital has the experience, the award-winning investment strategy, and the reliable track record that accredited investors love. This syndicator mitigates 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, look no further than BAM Capital. Schedule a call with BAM Capital and invest today.

Why You Should Do Syndication Investments with BAM Capital

Syndication Investments with BAM CapitalA multifamily syndication is the perfect investment for those who want to try real estate investing without the headaches of being a landlord. BAM Capital specializes in the acquisition and management of income-producing properties—primarily multifamily apartment communities. BAM Capital is trusted by investors because it provides an array of real estate services that achieve maximum benefit. Investors love the low-risk business model that the company offers.

This Indianapolis-based company has been focusing on buying the right assets and staying disciplined in its investment thesis. Currently, BAM Capital has $593M AUM and 5,000 units.[5] BAM Capital also focuses on B++, A- , and A multifamily assets to provide low-risk opportunities with lucrative assets. Investors reap the benefits of their cash flow-positive assets. Schedule a call with BAM Capital and invest today.

Sources:

[1]: https://www.millionacres.com/real-estate-investing/articles/single-family-vs-multifamily-which-is-a-better-investment-strategy/
[2]:https://www.millionacres.com/real-estate-basics/real-estate-terms/investing-multifamily-syndication/
[3]: https://www.investopedia.com/terms/a/accreditedinvestor.asp
[4]: https://www.investopedia.com/articles/investing/092815/how-become-accredited-investor.asp
[5]: https://capital.thebamcompanies.com/
[6]:  https://www.qccapitalgroup.com/post/ultimate-guide-to-multifamily-real-estate-syndication#
[7]: https://willowdaleequity.com/blog/real-estate-syndication-tax-benefits/
[8]: https://www.sec.gov/education/capitalraising/building-blocks/accredited-investor
[9]: https://willowdaleequity.com/blog/real-estate-syndication-fees/