Why Investors Love Multi-Family Syndications
We all know that investing in real estate provides great benefits but what happens when the income from your rental property is eaten up by vacancies, repairs or even theft? Not to mention, the amount of time you spend having to deal with these issues. Unfortunately, these are common headaches when owning and managing a rental property yourself which is why many experienced investors prefer investing in multi-family real estate syndications. Let’s review the top reasons why:
1. Completely Passive
The #1 reason investors prefer to invest in multi-family real estate syndications is that they are completely passive investments. The investor acts as a limited partner (LP) so they do not need to worry about finding, managing, improving or selling the investment property as this is handled by the general partners (GPs). This is a huge benefit for investors that have full-time careers, families and plenty of other responsibilities where they need to focus their time and energy. Investing in a real estate syndication provides the best of both worlds: benefiting from the many advantages of real estate investing, without the typical headaches.
2. Partner with Experts
Another benefit of investing in a multi-family real estate syndication is that the general partners (GPs) are experts in creating and executing on the specific business plan needed for each investment property. This involves analyzing the best markets and sub-markets, finding underperforming properties, forcing equity through “value-add” and operational improvements, and ultimately selling the property at a premium. The limited partner can rest-easy knowing their investment is in the hands of experts.
3. Access To Large Investment Properties
The common phrase “it takes money to make money” helps shed light on another benefit of multi-family real estate syndications which is the access to large investment properties. The typical real estate investor cannot afford the purchase prices of larger assets that can range from $5 to $500 million. Unfortunately, many of the best investment opportunities exist in this range. Luckily, with real estate syndications, investors can pool their money together to invest in these lucrative assets, without needing to fund the entire purchase themselves. Assets such as multi-family apartments, self-storage units and mobile-home parks, which were previously not practical, can now be added to the average investor’s portfolio.
We have all heard the saying “don’t put all of your eggs in one basket” as the analogy for why diversification is so important in regards to investing. Real estate investing is no different, in fact, multi-family real estate syndications are built with this key concept in mind. As discussed in the previous section, syndications give the investor access to hundreds or thousands of units in a single investment. With vacancies, repairs and rental income spread across many units, an investor does not need to worry about one or a handful of units ruining the entire investment. Contrast this with an active investor who owns three rental properties which are all vacant and in need of repair at the same time. Additionally, since these investments are completely passive, diversification of markets, niches, operators and assets has never been easier.
5. Limited Liability
Last, but certainly not least, is the benefit of the investor having limited liability in a multi-family real estate syndication. The only thing at risk is the investor’s initial capital contribution. Tenants cannot sue you as a limited partner and you are not personally responsible for the loan against the property. Limited partners also do not have to worry about setting aside funds for potential repairs or issues with the property, which is a common practice for active investors who own properties in their own name.
It’s with these reasons in mind that many experienced investors prefer investing in multi-family real estate syndications vs. actively owning and managing their own real estate properties.