13 Reasons Why You should Invest in Multifamily Syndicated Investments (Part-2)
In the previous blog, we have outlined 7 Reasons Why You should Invest in Multifamily Syndicated Investments.
If you haven’t read that blog, please check it out:
Here in this blog we will be discussing 6 more reasons to invest in multifamily syndicated investments.
1. Power Of Leverage
Do you know leverage can make your returns more solid?
Let’s see how:
When you invest say $20,000 in a stock market, you have a purchasing power of $20,000 to purchase your asset. If your investment earns you a consistent 10% return every year (which is highly unlikely to have this consistently), you will have $51,000 in ten years
With Real Estate, leverage provides a booster to your investment. With $20,000 of your own money, you can purchase $100,000 worth of a real estate.
With the same 10% growth, you could have a total of $180,000 in ten years (excluding the loan) That’s annualized return of 25% on the original $20,000 invested.
Even if you have half of that growth that is 5% every year, you will still have $80,000 in ten years, which’s about 15% annualized growth of the $20,000 originally invested.
When you invest in multifamily syndication, the collective capital for down payment and improvements gets a similar boost with the loan from the lender.
2. Non-Recourse Loan
In syndicated transactions, non-recourse loans are the most common and preferred structure. The loan is secured by the asset as collateral. In case of a default, the asset is collected but the lender cannot seek any other assets from the syndication team as well as the passive investors. A non-recourse loan protects everyone’s personal assets in case of the possibility of default.
Additionally, the syndication team is the guarantors of the loan, so for the loan application their credit score, personal financial statements, etc are evaluated. As a passive investor your credit scores, financials are not reviewed and the credit score is not on the line as well.
3. Forced Appreciation
Seems like a complex term right, but stay with me as I explain this very important concept.
In commercial real estate, the value of the property is determined by Cap rate (a market-driven factor) as well as Net Operating Income (NOI- Income minus Expense).
Property Value = CAP/NOI
When the syndication team implements renovations and achieves rent bumps, the income goes up. There are other additional ways, like parking, storage, washer, and dryer can add to the income. With the efficiencies implemented in expenses like payroll, utility, etc, the expenses are optimized as well.
Such changes will result in an improved value, thereby forcing the value of the property to go up, via forced appreciation, providing increased returns/equity to the investor. These improvements make the property a better place to live as well.
4. Asset Protection
Asset protection is most commonly overlooked and poses the greatest risk to your savings as well as investments. Simply but, asset protection is the measure we take to guard our wealth legally from any creditor’s claims, without tax evasion. Creating layers of protection could also be costly. Multifamily real estate syndications are created in an LLC, providing automatic and free asset protection to the investors, creating a solid safeguard.
5. Easy To Understand/Educate
Have you tried to educate yourself in stock market investments lately?
The technical analysis, fundamentals, options, the charts, there are so many complexities. When you think you have understood something, there is so much more to consider, like a pandora’s box.
The result? You don’t feel confident enough to invest!
Real Estate investments, specially Syndications are much easier to understand and educate yourself on. Besides, if you want to stay passive, you don’t need to understand the complexities of evaluating via complex financial models, performing due diligence, managing agency loan process, project management and execution of the complex business plan, etc. You can leave all this to the expertise of the syndication team.
All you need to understand is how to evaluate the investments and find good quality syndicators with a solid track record so you can execute your investment.
6. Financial Freedom And Generational Wealth
The passive cash flow and year after year equity growth provide a consistent way of generating and multiplying the wealth periodically. Investors can move from one investment to the other or continue to earn cash flow consistently year after year. The growth and consistency provide you a way to create and stack passive cash flow year after year, carving your path to financial freedom when you are alive and can also help to pass generational wealth via a real tangible asset that can outlive you.
There are indeed a plethora of options available when it comes to investing. When it comes to true diversification outside the stock market, relatively higher rate of return, in a risk-managed environment; Multifamily real estate is one of the better options. Team it up with favorable tax benefits and your limited liability as a passive investor, and this will hands-down become one of the best investment opportunities you will ever come across!
Though it seems too good to be true, a lack of education to understand this type of investment and access to high-quality investment options could still lead you to be on the sideline and watch investments come and go.
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