Wealth Protection for Accredited Investors: Why Invest in Multifamily
Investing in multifamily real estate is nothing new. Many have invested as active and passive investors in deals as a strategy to offset their W2 income while making great returns, especially since the popularity of crowdfunding has really caught on over the past several years. The “crowdfunding concept” has only accelerated the flow of money into multifamily deals. This is because the multifamily investment strategy was once reserved for the super-rich and this concept has made it so just about any accredited investor get in on a deal.
The syndication model is a popular way to invest in real estate deals, created before crowdfunding was even a term. It is basically the pooling of capital from individuals for a common purpose, such as investing in a business or buying a multifamily property. In the world of real estate, it is the most used method for purchasing large, commercial properties.
As I mentioned, to get in on a syndication deal, you must be accredited, as defined by the Securities and Exchange Commission. This means you need to have a net worth of at least $1 million, or have an annual income of at least $200,000 for an individual, or $300,000 for a married couple. If you don’t meet these requirements, there are other options for you that I will talk about in the future. Anyway, I will include a link in the description to the SEC website where they provide more color on the qualifications needed.
Many of the people invest to protect their wealth, so many more have opted to multifamily real estate for the cash flow, tax shelter, and other great benefits. Most investors are focused on running their businesses, law practices, and doctor offices to search and analyze hundreds of properties to find a deal – then underwrite it to make sure it makes sense. It takes a great deal of time, experience, and know-how to look at properties and determine if it will work.
You, as an investor, don’t need to worry about any of these things, because my team and I work on cultivating the relationships with brokers, banks, CPAs, attorneys, and vendors to make sure we are maximizing the value of the property. When you come on board as an investor on one of our deals, you are leveraging our expertise and borrowing power along with a team of experts so you can focus on what you do best.
At a high level, there are three components to a multifamily syndication:
– Origination: Property review, due diligence, acquisition, SEC registration, and capital raise for the investment.
– Operation: Execute the business plan to optimally manage the property and maximize value.
– Liquidation: Sell the property at the end of the hold period or at a time where it makes sense before if the opportunity arises.
Here are just a handful of additional advantages for you as an investor:
– You can participate in large, high-quality investments.
– You can take advantage of numerous tax benefits, such as cost segregation, depreciation, and 1031-exchanges that in the end help offset your W2 income, keeping more money in your pocket.
– You can use the funds from your IRA and invest TAX-FREE.
– You get cash flow on a quarterly basis.
A syndication group like the one my team and I run is responsible for finding, acquiring, and managing the property from Day 1 until we sell it. We leverage our experience to underwrite and perform due diligence on hundreds of deals to find that one that makes sense to us and to our investors. The great thing for investors getting in on a deal like this is that they get a percentage of ownership in the real estate. They become property owners and get all the upside I just mentioned without the personal exposure. They are not involved with the acquisition, financing, property management or unloading the property when it comes time to sell.
My team and I make it easy for you as an investor to get into a syndication deal. There is a lot of work that goes into a multifamily acquisition, operation, and sale. Just the due diligence and loan process would be enough to make your head spin, but we take care of all that. There are literally weeks of time that we invest into the deal before it closes. Prior to an investor looking at our offering memorandum, we have already done the research on the area, had inspections done, get bids for planned improvements, and dealt with the city on any transfer issues. On top of that, we also work closely with our banking sources to find the best loan and terms that make sense for the transaction, planned refinance, and hold time.
And this is just the beginning. After the deal is closed, we get to work on-boarding the property into our management fold. We are both tactical and strategic on the operations of each property as it is critical to the investor returns we projected. Operations can make or break the projections.
When we are coming up to unloading the property, usually in Year 10, we will look at the market to see what we believe we can get to maximize our price. It’s not to say we will not sell sooner if someone comes to us and wants to buy the property before the planned sale date. It is primarily dependent on meeting the returns we projected and where we are in the market cycle. Ultimately, we are looking to consider all angles and increase the return/risk ratio.
All this is done to deliver returns to investors and making the syndication at large money. Rental income is delivered on a quarterly basis. While that cash flow is rolling in, the property is appreciating as we make improvements and driving increases in rent. As we work to increase the NOI (Net Operating Income) the value of the property goes up. When the property is sold, the profits are distributed to the investors before us as the syndication team. As an investor, you can see that we are highly motivated to manage and outperform the projections we outlined in our offering. This is a great deal for any investor that wants to protect their wealth.
If controlling the deal is your top priority, then a syndication deal may not be for you. If leveraging the experience and capabilities of an established team of experts with processes in place to maximize returns on big multifamily deals with minimal involvement sounds like something you would be interested in, then it may be worthwhile to engage a syndicator like us to invest in.
Anyway, that is a synopsis of why and how the wealthy invest in multifamily. Have you invested in any deals lately? Let me know in the comments.
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Be great.