When looking at investment through a traditional lens many people think that a diverse portfolio means having a wide range of stocks to protect themselves against any one stock losing value. Wise investors understand that the stock market is highly volatile and don’t rely on that alone. Looking for stability and to hedge against inflation, they also make real estate investing a part of their diverse wealth-building plan. This is especially true in times like these when the markets swing wildly.
I’ve written before about how investing in real estate syndication allows investors to participate in large projects that create stable long-term income. Following up on that earlier blog about what property syndication is and how it works, this blog will delve deeper into how investors can build wealth through multifamily syndication.
Before jumping into how you, as an investor, can build wealth through multifamily syndication let’s briefly review what it is.
What Is Multifamily Syndication?
Simply put, multifamily syndication is a type of real estate investment in which a group of investors, called syndicators, pool their capital to purchase a multifamily property, such as an apartment building. The goal of multifamily syndication is to generate income for the investors through rent payments and potentially sell the property for a profit in the future.
If you’re looking to invest in income-producing real estate, but can’t or don’t want to commit the time and effort to find the properties on your own, then investing in real estate syndication may be an ideal solution to building a diverse portfolio that can yield steady and predictable returns over time.
Syndicated real estate allows investors to share the benefits of owning an investment property without the burden of being a landlord. This is accomplished by the pooling of assets together with other people which serves to further spread the investing risk. In today’s parlance it’s like crowdfunding for an investment property.
Now let’s take a look closer look at how this type of investing enables you to build wealth through multifamily syndication while also having significantly lower risk than stock market investing.
Benefits of Multifamily Investing
One of the best strategies shrewd investors use to insulate themselves from the detrimental effects of inflation is investing in multifamily real estate. It’s served as a high-quality inflation hedge for generations. There are a number of reasons people look to multifamily investments to protect and build their wealth and hedge against inflation:
Everyone Needs a Place to Live: It’s stating the obvious, but the most basic human needs are food and housing. When the cost of home ownership rises, like during this time of rising mortgage interest rates and low housing inventory, millions of people across the country rely on rental properties to fulfill their housing needs. Because housing is one of the most essential of all human needs there will always be demand for multifamily real estate, no matter how high inflation gets.
Rental Price Increases: In today’s market specifically, rent growth has remained strong as the combination of rising mortgage interest rates and low housing inventory have made the costs of owning a single family home increasingly difficult for many. Most multifamily leases are only 6 or 12 months, meaning you should be able to increase the rent in your multifamily property on a regular basis to keep up with inflation.
Appreciation: Multifamily properties tend to appreciate in value over time. This is because they are scarce desirable assets. As long as property prices continue to increase and keep pace with the price rises of expenses, then multifamily real estate should remain an excellent inflation hedge. Multifamily investments have averaged over a 10% annual return over the last 10 years, outperforming riskier real estate assets. During this time, private real estate investments experienced substantially lower volatility than the public markets.
Tax Benefits: While there’s a tendency to focus on cash flow and property appreciation, there are a variety of tax benefits associated with multifamily investments which can be a major component of total returns. Wise investors think further than just the traditional, cash flow-driven measurements like internal rate of return or cash-on-cash return.
Although these are important measures of an investment’s return, they don’t always tell the whole story. Proactively managing an investment’s tax liability by maximizing depreciation through cost segregation and deferring capital gains taxes through 1031 exchanges can magnify returns and allow profits to grow tax-free over time. This is an often overlooked aspect of how investors can build wealth through multifamily syndication.
You Don’t Have to Be a Landlord: When many investors think of multifamily ownership, they often imagine images of leaking pipes, clogged toilets and late night calls from tenants. Fortunately, there are many ways to get involved with multifamily, including passive investments through multifamily syndication via firms like my company, Black Girls Buy Houses. With us, you can own and maintain individual multifamily properties if you wish. Or, you can participate in deals for larger properties where all maintenance, upkeep, and rent collection is handled by a professional property management company.
Syndication Offers Minimal Risk and Low Vacancies: Two major factors help reduce your risk as an investor. The first comes from owning more substantial properties. Properties like this have more tenants. Consequently, if there are any problems with a tenant or two it affects your bottom line much less than a similar situation in a duplex or similar investment.
The second factor reducing your risk is that any losses are shared collectively by the investor group. Problems include rent collection issues or unexpected financial obligations. As part of a real estate syndication group you don’t face these problems alone. The larger the property, the less vacancy will take its toll on your wallet. Large multifamily units have a low rate of vacancy, making it possible to still cash-flow even there are several vacant units. With a single-family home, you would be stuck having to pay the bills if a property stayed vacant for a long period.
In multifamily investing, it’s good to be a landlord. Apartment vacancies have remained low over the past several years and are projected to remain this way for years to come. As rental rates increase commensurate with rising inflation it’s a great way for an investor to hedge against inflation. Additionally, investors can shield some of the cash flows generated by income producing property on their tax returns due to depreciation.
By having the ability to invest passively, multifamily syndication can be a excellent way to build your real estate portfolio while shielding you from the risk of stock market fluctuations. It can also help you build your confidence in real estate investing. Whether you’re a beginning or experienced investor, multifamily syndication is clearly a sound strategy to put you on the path to financial success.
Let’s connect if you want to learn more about how you can build wealth through multifamily syndication!