October 08, 2019
One of the fastest-growing forms of real estate investment is multifamily property “syndication,” a passive approach that gives smaller investors a chance to build capital.
The main benefit of this approach is that it allows a group of accredited investors to pool their resources and establish equity in larger properties than they could otherwise afford. It also helps distribute risk across region and type of property.
Still, some investors are wary of syndicated investments due to several misconceptions outlined in a recent article from Kiplinger, a personal finance and business forecasting resource.
Many of the fears associated with syndication involve a sense that investors won’t have any control, or will feel too far removed from their investments.
Syndicated properties are managed by a Sponsor, a firm that coordinates the investment and later acts as an oversight and asset manager. From Kiplinger:
Syndicated real estate is gaining a loyal following for good reason — it has leveled the playing field by making ownership in investment-grade property available to individual investors. Passive investments in a range of property types and locations can be done in surprisingly few steps using sophisticated technology. Sponsors work to deliver the benefits of real estate ownership, such as monthly income and equity growth through appreciation, while investors avoid the drawbacks of hands-on maintenance and management.
One of the concerns the article highlights is that many potential investors fear they must have a net worth of at least $1 million to get involved in syndicated properties. But as Kiplinger notes, many of these deals are conducted through SEC 506(c) offerings.
“Having a net worth over $1 million is just one of several ways to pass the “accredited” test. An individual with an annual income in excess of $200,000 ($300,000 if combined with their spouse) in each of the two most recent years may qualify to participate in the 506(c) investment offering.”
Others worry that Sponsors tend to buy low-grade investment properties when the minimum investment is set low. With the advent of sophisticated documentation and accounting technology, investor groups have grown and administrative time has been cut down, allowing firms to lower minimums on quality real estate.
Whether or not syndication is a good fit for you will depend on many factors, but those looking to get out of the stock market or avoid hands-on real estate investment may have an excellent option at their disposal.