In 2001, I published a book that talked about the myths that most of us are led to believe about how money really works. From time to time going forward, I’m going to highlight a particular investment that is often “hidden” to those of us who didn’t grow up in wealthy households. This week, I’m going to introduce the investment category of multifamily syndications and share a little bit about how I have used them to build generational wealth for my family.
You should know that I have been an active general partner on over 15 multifamily syndications over the past decade, and many more as a limited partner. I am not a financial advisor, CPA, or attorney, and I only share my personal experiences. You should most definitely do your own research before you determine if this, or any other investment, is right for you.
That said, investments in multifamily real estate have been – and still are – a staple within the portfolios of ultra-high net worth individuals, family offices, private investment funds and publicly traded REITs (Real Estate Investment Trusts) for decades. However, it’s only been in the last 20 years or so that entrepreneurs like me have begun to use the power of pooled funds from the general accredited investor community to make those investments together. Essentially, we create a private fund of investors and together, we do what the ultra-wealthy have been doing for decades.
Most people know that real estate investing is a popular way to generate passive income and build wealth, but it can be challenging for individual investors to acquire and manage large properties on their own. Multifamily syndications allow multiple investors, who typically don’t have the $40 million net worth required to invest through a hedge fund or family office to pool their funds to purchase and manage larger, more lucrative real estate assets. In a multifamily syndication, a sponsor (the lead investor and manager) acquires a multifamily property and invites accredited investors to invest in the deal. The sponsor handles the day-to-day management of the property, freeing up the individual investors to focus on what is important to them and enjoy the passive income and tax benefits.
I began to invest in multifamily syndications when I was still working in the market research industry in New York, and in a few years the passive income from those investments enabled me to retire and become an active multifamily syndicator, as well as an expert on hidden Investments that most people don’t know about. It’s been an incredibly rewarding transition, and it’s something that Wall Street would prefer I stay quiet about for obvious reasons. And that’s exactly why it is so important for everyone to know about investment alternatives beyond the stock market.
Here are the primary reasons why multifamily syndications have been so amazing for my portfolio:
- Diversification: Multifamily syndications provide investors with the opportunity to diversify their portfolios beyond traditional stocks and bonds.
- Professional management: The sponsor takes care of all the operational aspects of the property, so investors don’t have to worry about being hands-on landlords.
- Potential for higher returns: By pooling their funds, investors can access larger, more lucrative properties than they could on their own, potentially leading to higher returns. (Do your own research, please.)
- Less risk: Investing in multifamily properties through a syndication can be less risky than individual real estate investments as the risk is spread out among multiple investors and many apartment units.
To get started you need to know people who do it. Once you have that starting point you should:
- Get educated: It’s essential to understand the basics of real estate investing and the specifics of multifamily syndications. Read books, attend seminars, and/or connect with experienced real estate investors.
- Find the right sponsor: Look for a sponsor with a proven track record of success in multifamily real estate investing.
- Do your due diligence: Before investing in any deal, research the property, the sponsor, and the local market. Get a clear understanding of the business plan and potential risks.
- Seek out tax benefits: Investing in multifamily syndications can offer significant tax benefits, including deductions for depreciation, mortgage interest, and property expenses. Work with a tax professional to maximize these benefits.
In conclusion, multifamily syndications offer individual investors the chance to passively invest in large-scale real estate projects with the backing of experienced sponsors. As with any investment, it’s essential to do your due diligence, seek professional advice, and know and trust the general partners.
Holly Williams is the principal of www.KeepMore.com.