Multifamily Syndication In 2024 And Beyond
In This Article
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    Just like the rest of the world, the multifamily syndication space has been impacted by the volatility in the market, the rising interest rates, and the continued ripple effects of COVID-19 through unemployment, more people working from home, migration patterns, and more.

    Now, perhaps you’re here because you currently invest in a multifamily syndication or even multiple syndications. Or maybe you’re here because you have ridden the stock market roller coaster for far too long and are ready to shift your money to more stable assets through real estate investing.

    Either way, in this article, we’ll dive into exactly what a multifamily syndication is, why investing in a real estate syndication can be a great way to grow your wealth, how investors should prepare for what’s to come, and how to navigate the market shifts within the multifamily syndication space. 

    Related: Smart Investing Strategies For Every Stage Of The Market Cycle

    What Is A Multifamily Syndication?

    Let’s start with the basics. Syndication in real estate, in its most basic form, refers to a pooling of resources. A multifamily syndication, then, essentially means that a group of investors pools together their money to purchase an apartment building together. 

    Rather than having to do all the legwork of finding and managing a rental property on your own, when you invest in a multifamily syndication, you pool your money together with dozens, and sometimes hundreds, of investors to purchase an apartment community together.

    How Does A Multifamily Syndication Work? 

    Think of a real estate syndication deal like an airplane ride. There are two basic groups of people on the plane – the General Partners (GPs) and the Limited Partner Passive Investors (LPs).

    General Partners

    The General Partners are the real estate syndicators. They are essentially the pilots of the plane. They are the Sponsors and Operators of the real estate syndicate, meaning that they do all the heavy lifting for things like: 

    • Finding and underwriting the deal
    • Securing the financing for the deal
    • Negotiating with the seller
    • Completing the due diligence
    • Finding and educating investors
    • Managing the renovations on the property
    • Working with the property management team
    • Executing on the business plan
    • Communicating with the investors

    General Partners actively syndicate real estate and have a very active role throughout the lifecycle of a real estate syndication deal. They are critical in the acquisition phase of the deal, as well as the ongoing asset management. They work directly with the property management team to ensure that everything is going according to plan and that investors are getting their projected returns.

    Limited Partners

    You as the Limited Partner Passive Investors, on the other hand, have a much more passive role in a syndication deal.

    Limited Partners are the passengers in the back of the plane. You invest your money to buy a seat on the plane, but then you get to sit back and do whatever you want – read a book, take a nap, etc.

    If the plane encounters turbulence, if an engine breaks down, or if any other surprises pop up, it’s the pilots’ job to figure out a solution and keep the plane on track.

    As a Limited Partner Passive Investor in a real estate syndication deal, you get to invest your money into a stable and growing asset without having to put in the time and work needed to manage the asset yourself.

    You don’t need to deal with the property management team, pore over financials, or review tenant applications. All of that is done for you by the General Partners, meaning you get to sit back and enjoy your cash flow every month.

    Related: What Is An Accredited Investor?

    Plus: Here’s how you can invest in a syndication as a non-accredited investor

    Multifamily Syndication vs. The Stock Market

    Over the last few years, we’ve seen some of the biggest drops in the stock market that we’ve seen in decades. What this means for those of you who have money invested in the stock market is that you likely saw a big chunk of your net worth vanish into thin air overnight. 

    Stock Market Investing

    When you invest in paper assets like stocks, there are no physical assets to back up your investment. On top of that, the stock market is susceptible to the ups and downs of the economy, meaning stock market investors have very little control over their investments.

    Multifamily Syndication Investing

    With a real estate syndication deal, on the other hand, even if all else fails and every last tenant moves out of your apartment building, you still have the value of the property and the land to fall back on.

    Plus, with a value-add multifamily syndication deal, you are investing in a property that has significant growth potential. Through renovating the property, you can bring the rents up to market value and thus drastically increase the value of the property, independent of the swings of the economy.

    This often leads to a win-win for both the investors in the deal, as well as the local communities, which are revitalized in the process.

    Related: Stocks Or Real Estate? Which Is The Best Investment For You? 

    Why Invest In A Multifamily Syndication?

    When you put your money into a savings account or invest in the stock market, your money works for you in just one way. When you invest in a real estate syndication deal, however, your money works for you in multiple different ways.

    How Real Estate Makes Your Money Work for You diagram

     

    #1 – Cash Flow

    One of the main benefits of investing in a real estate syndication is purely passive ongoing cash flow. What this means for you is that for each syndication deal you invest in, you create a new stream of passive income for you and your family, bringing you one step closer to financial freedom. 

    #2 – Leverage

    Another huge benefit to apartment syndication is leverage, which comes in many forms in a multifamily syndication. Obviously, there’s the leverage through borrowing money to purchase the property.  

    In addition to that, you’re also leveraging the capital of other investors in the group, as well as the skills and experience of the General Partners, allowing you to get into an investment opportunity that otherwise might not be accessible to you on your own.

    #3 – Equity & Appreciation

    A big benefit for investors in real estate syndications is equity, which typically increases over time. In addition, through investing in a value-add multifamily syndication, you get to take advantage of forced appreciation through renovating the property and increasing the overall income of the property, thus drastically increasing the overall value.

    #4 – Tax Advantages

    And of course, we can’t forget taxes. The tax advantages of cost segregation and accelerated depreciation are huge reasons why many investors love multifamily investing. You get to enjoy ongoing cash flow in real life while showing losses on paper, thus helping to decrease your overall tax burden.  

    Dig Deeper: A Closer Look At Multifamily Asset Classes 

    Should You Invest In A Multifamily Syndication?

    Now, what does all this mean for you, especially as it relates to the rest of this year and beyond?

    It means that now is the best time to get started in educating yourself and doing your due diligence to see if real estate syndications are right for you. You should continue to evaluate potential real estate syndication opportunities with strict criteria and view them through the lens of your investing goals.

    In many cases, the underwriting assumptions that were used even just a few months ago are no longer relevant, so be sure to stress test deals to check for things like: 

    • Low breakeven occupancy (Breakeven occupancy refers to how low can the occupancy get while still being able to cover the mortgage and expenses. The lower the better.) 
    • Make sure each multifamily syndication you invest in has relatively low leverage, high reserves, a strong and experienced General Partnership and property management team, and multiple backup plans

    Beyond that, be patient. There are already signs that good deals may start to come on the market, but don’t rush into anything. If you’re a Limited Partner Passive Investor, now is the best time to get your funds ready and educate yourself so that you’ll be ready to invest when the best deals hit the market.

    And if you’re a General Partner or thinking of putting together a multifamily syndication of your own, now is the best time to focus on growing your investor base so that you’ll have capital ready when those deals hit the market. 

    Further reading: Key Passive Real Estate Lingo You Should Know

    Ready To Get Started In Real Estate Syndications?

    If you’ve decided to get off the stock market roller coaster and finally get into real estate, now is the best time to educate yourself.

    Start by joining the Goodegg Investor Club, where you’ll get access to exclusive members-only content to help you on your journey to financial freedom.

    You can also see our current and upcoming investment opportunities on our Open Deals page.

    And if you’re syndicating your own deals, apply for the Real Estate Accelerator, where we’ll teach you everything we know about how to successfully raise private capital, scale your business, and do more and bigger real estate deals.

    Annie Dickerson

    Annie Dickerson

    Annie Dickerson is an award-winning real estate investing expert with 15+ years of real estate investing experience. Annie is the Founder & Chief Brand Officer of Goodegg Investments – an award-winning boutique real estate investment firm.

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