What Is Multifamily Syndication?
Real estate can be a good alternative for anyone wishing to avoid the volatility of the stock market, but for most investors, purchasing a $2 million apartment building isn’t practical. Luckily, there are a wide variety of investment vehicles, such as multifamily syndication.
Real estate syndication allows investors to passively invest in real estate without assuming the duties and responsibilities of a landlord. Multifamily syndication has the potential to generate healthy returns, but like any other investment, there’s also risk.
What Is Multifamily Syndication?
Multifamily syndication is when a group of investors pool their funds to purchase real property. There are two types of investing in real estate syndication: as a sponsor or passive investor.
Sponsors, also known as General Partners, are responsible for locating the deal, raising the funds, and managing the investment once the transaction is complete. The investors, or those funding the deal, have a much more passive role in the investment. Investors can pool their capital in a multifamily investment deal without putting in the time and money to manage the asset themselves.
Can Anyone Invest in Multifamily Syndication?
Real estate syndication is typically reserved for accredited investors. According to the U.S. Securities and Exchange Commission, individuals can qualify as accredited investors with a net worth of at least $1 million or an annual income over $200,000.
A multifamily syndication with a 506(c) status is usually only open to accredited investors. However, a multifamily syndication with a 506(b) status is open to both accredited and sophisticated investors. This refers to someone who has sufficient wealth, income, and experience to participate in more advanced types of investments. Additionally, sophisticated investors must also have a pre-existing ‘substantive relationship’ with the sponsor.
What to Consider Before Investing in Multifamily Syndication
Not every multifamily syndication deal is the same. Every investment is different, so it’s important to pay attention to the details, including:
Preferred returns: This refers to the percentage of return that the investor must receive before the sponsor is paid.
How profits are divided: Sponsors take their portion of net revenues with monthly income and after the property is sold.
Fees: Investors are typically charged fees, and depending on the syndication agreement, the fee structure could affect profit margins.
Reasons to Invest in Multifamily Syndication
By investing in multifamily syndication, investors can make their money work for them in many ways.
Leverage: Alone, many investors may not have the required capital to purchase an apartment building. However, through multifamily syndication, investors can pool capital to purchase the property.
Passive income: Every syndication deal gives investors the opportunity to generate passive income.
Tax benefits: Cost segregation and accelerated depreciation are big tax advantages of real estate syndication.
Equity: Investors can benefit from the equity that typically increases over time. The property can also appreciate by making upgrades and improvements.
Why Invest With Wiseman Capital
Finding and creating a multifamily investment can take thousands of hours and many busy professionals simply don’t have the time. Wiseman Capital helps busy professionals and high-net-worth investors generate new passive income streams and build generational wealth through multifamily investments.
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