How Professional Investors Are Incorporating Managed Real Estate Ownership into Their Portfolios

by | Sep 1, 2023 | Accredited Investor, BAM Blog, Blog, Real Estate Investing | 0 comments


Professional investors are individuals or institutions that engage in investment activities as their primary occupation. These are investors who possess the experience, knowledge, and expertise to make their own investment decisions and properly assess the risks that it incurs. [1]

A professional investor can analyze the financial performance of their investments and make responsible investment decisions.

Experts in financial analysis, their deep understanding of the investment process allows them to create effective investment strategies, recognize opportunities based on climate-related financial disclosures, and take on tasks such as portfolio management. Professional investors may work for asset management firms, pension funds, hedge funds, banks, and other financial institutions. [1]

When making investment decisions, they can also use ESG factors, which refer to the environmental, social, and governance criteria used to assess the sustainability and ethical impact of an investment. ESG considerations are used by professional investors to evaluate the sustainability and long-term viability of certain investments.

A chief investment officer (CIO) is an example of a professional investor. An investment committee also consists of professional investors.

Professional investors are experts when it comes to sustainable investing, so it’s interesting to see how so many of them are gravitating towards real estate investing, particularly multifamily real estate investing. They want to add multifamily properties into their investment portfolio to make it more balanced, and here we will discuss why.

The main reason is that real estate investing lets you boost your income. If you go for a multifamily property, you can increase your income while also reducing vacancy rates. But there are more benefits to consider.

Any residential property that contains more than one housing unit is considered a multifamily property. This means duplexes, triplexes, townhomes, apartment complexes, and condominiums are considered multifamily real estate. It’s still a multifamily property even if the owner lives in one of the units. [2]

The main drawback of multifamily real estate is that their size demands more attention from their landlords compared to single-family rentals. Asset owners need to keep this in mind before getting into multifamily investing. There are more units and therefore more tenants to deal with. This is why professional investors typically go for managed real estate. They hire property managers to help with the day to day operations of their multifamily investment properties. This is called asset management. [2]

Professional Investors Bringing Multifamily Real Estate into Portfolios

While multifamily properties are the least common type of residential buildings, most professional investors still aim to add them into their investment portfolios because they see it as a favorable strategy. Multifamily properties like condominiums can provide an additional source of monthly income, along with slow but steady appreciation. [2]

Investing in multifamily real estate comes with several benefits, including a bigger cash flow. With a larger property that holds several units, you can get a stronger and more consistent cash flow through monthly rental income. This reliable income can help balance out the volatility of other investments in a portfolio, such as stocks or bonds. Some investors opt to live in one unit while renting out the others for income.

A property is more valuable if it generates more income. The higher the income, the higher its value. Since multifamily properties generate multiple streams of income, they are generally valued higher than single-family properties.

Real estate has historically been a good hedge against inflation. Rental income from multifamily properties can increase over time, allowing investors to maintain purchasing power and potentially benefit from rising rental rates during inflationary periods.

Multifamily investing is also generally considered safer than other investments due to its large pool of tenants. Even if one or two tenants leave and a few units become vacant, the property can still generate income from the remaining units that are occupied. Unlike a single-family unit that completely stops producing income once it’s vacant, an apartment complex will keep producing income while you are looking for new tenants. [2]

Since everyone needs a place to live, real estate investors can rely on their multifamily property to generate that income stream. There is always a demand for rental housing. Multifamily properties cater to this demand and offer investors an opportunity to participate in the rental market’s growth.

Multifamily investments are also the epitome of scalability. They allow investors to acquire multiple properties with one building instead of purchasing one property at a time. They can save time and energy when it comes to conducting their due diligence. Anyone who is looking to grow their real estate investment portfolio should consider investing in multifamily real estate. [2]

Additionally, including multifamily real estate in a portfolio can help diversify the overall investment mix. Real estate has a low correlation with other asset classes, meaning it tends to perform differently under various market conditions. By adding multifamily properties, professional investors can reduce risk and potentially enhance returns through diversification.

It’s also worth mentioning that multifamily properties have significant tax benefits. For example, multifamily property investors can depreciate their property to offset a great deal of the rental income they collect from the property each year. Investors can also benefit from deductions such as mortgage interest and operating expenses, which can help reduce taxable income and improve returns. [2]

Finally, multifamily properties are ideal for property management. Single-family properties do not generate enough income to warrant hiring a property manager. But an apartment complex or condominium is large enough that it requires the aid of a third-party property management company. It also happens to generate enough monthly income that hiring a property manager is more realistic.

Savvy Investors Want to Go Multifamily, But Lack Infrastructure to Scale—So They Choose a Syndicator

There are many ways to participate in multifamily real estate investing without having to purchase one all by yourself. After all, multifamily investing is known for its high cost of entry since most of these large buildings are very expensive. This usually deters most regular investors.

Some go for real estate investment trusts or REITs, which are investment vehicles that allow participants to invest in real estate properties without owning them directly. REITs are companies that not just own income-generating real estate but also operate and finance them. They invest in a wide range of properties such as office buildings, shopping malls, hotels, industrial facilities, and of course, apartment complexes.

The problem with REITs is that investors don’t get to choose what real estate property they want to invest in since they invest in the REITs themselves rather than specific properties. The REIT will decide what properties to invest in.

For professional and accredited investors who want more control over their real estate investment, there’s an even better alternative: real estate syndication, specifically multifamily syndication.

Multifamily real estate syndication is a deal in which multiple investors pool their funds together to purchase a single property. A sponsor puts the deal together, coordinates the transaction and funding, and also handles property management once the transaction has been completed. This sponsor serves as the general partner. The investors will be the limited partners, and they will provide the majority of the funds needed. [3]

While a syndication deal can be done with just about any type of real estate, multifamily syndication is now the most popular because of all the benefits we listed above. Investors love the strong and steady income generated by multifamily properties. With a syndication deal, this becomes a passive investment, meaning it’s even better since you do not have to play the role of landlord. You can avoid a lot of the headaches associated with property management.

With multifamily syndication, you become a passive investor. This means you no longer have to provide any more input once the deal is done. But unlike REITs, you can choose which syndication deal you want to participate in, meaning you get to decide on the property that you want to purchase.

Every syndication deal is different. Investors earn from their share of the rental revenue, and depending on the deal structure, a share of the appreciation upon resale. The sponsor will be the one to distribute the rental money to investors. This commonly occurs on a monthly or quarterly basis. This will be in accordance with predetermined parameters which will be detailed in the syndication agreement. The LLC Operating Agreement and the LP Partnership Agreement will play crucial roles as they will lay out all the Sponsors’ and Investors’ rights, including rights to payouts and fees for administering the investment. [3]

Real estate syndication deals are usually structured as a limited liability company (LLC) or as a limited partnership (LP).

Why a Balanced Portfolio is More Than Just Stocks & Bonds

Professional investors often compare their investment portfolio to a sports team, in which players are not thrown in randomly together but carefully selected based on their characteristics. In a sports team, players are assigned to roles that are suited to their characteristics so that they can create a cohesive team that works well together. A portfolio is similar because it is a coordinated collection of investments. [4]

Just like any team, an investment portfolio requires a good balance. This means as an investor, you do not want to just rely on stocks and bonds. Ideally, you will have a coordinated portfolio that has many different types of investments working cohesively to reduce your risks and maximize your profits. Professional investors assemble their investments with an awareness of how different investments interact. They may even make periodic adjustments to keep their investments in sync. [4]

A balanced portfolio is a set of coordinated investments that incorporate assets that have different risk and reward characteristics.

For example, stocks are known for having strong return potential over the long run, but they are also prone to severe downturns from time to time. Meanwhile, high-quality bonds are a slow-and-steady asset class that can produce regular amounts of income despite having limited long-term upside. [4]

Adding multifamily real estate syndication into the mix gives investors a safe and reliable long-term investment that also produces steady income on a monthly basis. Even real estate has its downsides, and multifamily investing is known for its illiquidity. With a balanced portfolio, you can mitigate these risks using other asset classes that are more liquid.

A balanced portfolio helps to mitigate risk by diversifying your investments across different asset classes. Different asset classes tend to perform differently under various market conditions. By spreading your investments, you reduce the impact of any single investment’s poor performance on your overall portfolio. If one asset class underperforms, others may still generate positive returns, thus offsetting potential losses.

Balancing your investments also helps protect your capital. While riskier investments, such as stocks, have the potential for higher returns, they also carry a higher level of risk. By including less risky assets like bonds in your portfolio, you can help safeguard your capital against market downturns.

Having a balanced portfolio means recognizing that you can benefit greatly from having more than one type of investment. Over the long term, it can provide stability and consistent returns.

Why Choose BAM Capital for Multifamily Syndication

Professional investors and accredited investors alike love multifamily syndication. Adding it to your investment portfolio can help you achieve balance and mitigate risks. Also, multifamily syndication is a passive investment, so it’s a hands-off investment strategy that gives you more of your precious time back. You can focus on running your business, managing your other investments, or spending time with your family.

The most important thing you need to remember when participating in a syndication deal is that you have to work with a syndicator or sponsor that you trust. For example, professional investors love working with BAM Capital because of its historic ROI, consistent track record, and reliable staff.

BAM Capital is an Indianapolis-based syndicator with a strong Midwest focus. It prioritizes high quality multifamily properties that have in-place cash flow and proven upside potential. They tend to go for Class A, A-, and B++ properties. [5]

BAM Capital helps investors enjoy the strong cash flow of multifamily properties without the burden of dealing with emergencies or collecting rent manually. Investors are drawn to BAM Capital thanks to their award-winning investment strategy that mitigates investor risk while creating forced appreciation. [5]

In fact, BAM Capital now has over $700 million AUM and 5,000+ units. Investors should know that this is a vertically integrated company, meaning they can handle every step of the syndication process. They can take care of everything and guide you throughout the process. BAM Capital will acquire the property and also cover property management. Accredited investors can just sit back, relax, and collect their checks.

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.