More than 90% of the purchases of multifamily dwellings are made through syndication. This allows investors to take advantage of the financial strength and experience of sponsor like Bakerson so that capital is aggregated among other investors. Here are five reasons why we feel multi family syndication might be a good investment for you.
- Mitigated risk – investing passive funds into a real estate deal with the sponsor poses fewer risks. Investing in SFH (Single Family Home) means you may own 100% of the deal but you also bear the burden of all the losses. With passive investments, you share the down payment with other investors and are only liable for losses that equal the amount you invest.
- Binary Occupancy – With an average of 93% occupancy in multifamily properties, the impact of several tenants leaving is marginal the larger the property is. However, with a SFH, it’s all or nothing; if your tenant leaves — you are 100% vacant and need to cover all expenses and mortgage payments out of your own pocket.
- Stable Value Creation – SFH investments rely on the fluctuations of the market and the nearby home prices, so losses and gains are both dependent on how the market moves. As a passive investor in a multifamily syndication, the sponsor has more control over the value of the property since it is mainly based on the property’s NOI (net operating income).
- Time Commitment – Passive investing is much less time-consuming than active investments. When investing in SFHs, you need to allocate time to find the right deal, handle the loan, do the due diligence and more. By investing in a passive syndication, you don’t have to look for deals, pursue loans or manage the property. Sponsors do all that work for you.
- Economy of Scale – Management of single-family dwellings can be complicated, especially since they are not often in a single locale. Hiring a full-time management company is not cost-effective since the revenue from SFHs is not sufficient. Multifamily syndication provides the revenue necessary for hiring full-time property management companies who can provide the necessary day-to-day tasks associated with managing the property.
(Source – Ellie Perlman – Data Driven Investor)