Real estate syndication is a type of real estate investment in which multiple investors pool their financial resources together to purchase a single asset. A sponsor, also known as a syndicator, locates the deal and manages the investment once the deal has closed. This sponsor serves as the general partner (GP) who coordinates the transaction throughout the process. See, “Structure of a Syndication” to learn more. [1]
Although any kind of real estate property can be used for a syndication deal, multifamily syndication is the most popular type because it is a low-risk investment. Investors benefit from a consistent stream of income through rental payments.
Multifamily properties like apartment communities and condominiums have several units that can generate cash flow. Additionally, they are not heavily impacted by vacancies, unlike single family real estate properties. Investors can steadily build their wealth through multifamily syndication.
Passive investors provide most of the upfront capital required, in exchange for a share of the cash flow. Depending on the deal structure, they may also earn a share of the equity upon resale. [1]
Sponsors are individuals or companies who take charge of the syndication deal. Sponsors, like Henion Capital, look for a deal, acquire the property, and manage the real estate.
These syndicators have a ton of real estate experience. They have a deep understanding of due diligence for potential deals. It allows them to handle every step of the syndication process, making it a true passive investment for real estate investors.
Leverage
Accredited investors often gravitate towards multifamily syndications due to the potential for leveraging their investments. Leveraging allows them to amplify their purchasing power by utilizing borrowed capital, typically in the form of a mortgage, to acquire larger and more lucrative properties than they could afford on their own.
In the context of multifamily syndications, this leveraging strategy enables investors to spread their capital across a portfolio of properties, diversifying their risk and potentially increasing their returns. By pooling resources with other investors in the syndication, accredited investors can access economies of scale, benefiting from professional management, operational efficiencies, and cost savings that may not be achievable with individual investments.
Forced Appreciation
Forced appreciation occurs when investors actively implement value-adding strategies to boost the property’s net operating income (NOI) and subsequently its value. This can include upgrading unit interiors, enhancing curb appeal, implementing cost-saving measures, and optimizing rental rates.
Unlike single-family properties, multifamily properties allow for economies of scale, enabling investors to increase the property value through strategic renovations and improved management. [7]
By actively participating in multifamily syndications, accredited investors not only gain access to diversified real estate assets but also the opportunity to leverage their expertise and resources to drive significant returns through forced appreciation.
Investing in a multifamily syndication can be an attractive option for accredited investors seeking passive income and diversification.
Syndications pool together funds from multiple investors. It’s a simple yet effective strategy that allows investors to access investment opportunities they might not be able to pursue individually. For example, while multifamily properties like apartments and condominiums may be associated with strong, reliable cash flow, they are also risky and difficult to acquire for the lone investor. This is a huge barrier to entry that prevents regular investors from adding multifamily real estate to their portfolio. [1]
But through multifamily syndication, these larger investments become more accessible and realistic. It also comes with the added benefit of being safer than traditional real estate investment. In a syndication deal, you only have to worry about your share of the capital rather than the entire property. Investors don’t even have to worry about the day-to-day operations of the apartment community since the syndicator will take care of it. [1]
That said, many of these deals are only accessible to accredited investors so whether or not this is a good fit for you may depend on your financial situation.
No matter what type of investment, investors should always consider their risk tolerance, investment goals, and liquidity needs before committing capital. This also applies to multifamily syndication. Perform your due diligence before participating in any type of investment.