Answering Questions for New Investors

If you're new to investing your hard earned money into passive multifamily real estate, you might have lots of questions about this special kind of investment. Let's talk about some common questions and their answers:

What is passive multifamily real estate investing?
Passive investing means you invest your money into a real estate project but don't manage the property yourself. You might invest in a single deal or a fund and get a share of the profits.

How is it different from active investing?
Active investors manage the property every day. They decide about tenants, repairs, and how the property functions. Passive investors are like silent partners and don't make those daily decisions.

What is a real estate syndication?
A real estate syndication is when many people partner together to invest in a property. Experienced professionals manage the project, execute the business plan and investors.

What do you get as a passive investor in a multifamily syndication?
Investors typically get cash distributions during the time they hold the property and a share of the profits when they sell it. The details can change, but it often involves getting regular payments and a portion of the money when the property is sold.

Why choose multifamily real estate over other investments?
Multifamily properties can bring in regular monthly or quarterly distributions from rent and are projected to grow in value over time. They often make more money than single-family homes, and there can be savings when managing many units. Historically, multifamily investing has also outperformed the stock market.

What are the risks for passive multifamily investing?
Risks include economic troubles, changes in the local real estate market, and problems with operating the property. Investors need to carefully check out sponsors, look at the property, and know the risks before investing.

How does financing work in multifamily investing?
Multifamily financing is obtained by the managing partners of the deal and can consist of government-backed loans, life insurance company loans and private financing. Lenders typically assess the property's potential income, the investor's financial stability, and the property's overall market conditions.

How long do people usually keep multifamily investments?
People usually keep these investments for 5 to 10 years. Investors should understand the plan given by the sponsor and how it matches their own long term goals.

Do passive investors make decisions?
Passive investors don't participate in the day-to-day management or operation of the property. Sometimes, decisions, like selling the property, might involve input from investors, but the ultimate decision makers are the managing partners. Passive investors make decisions as to what deals are appealing to them and which sponsors they trust.

How is income taxed in passive multifamily investing?
Money received as passive income gets taxed at a lower rate than earned income. In addition, passive investors participate in the paper losses that are created via depreciation, along side the managing partners. Tax rules might be different amongst investors, so it's good to ask a tax professional.

What is the plan for exiting multifamily investments?​Common plans include selling the property or refinancing to give money back to investors. The choice depends on the market, how well the property is doing, and what the plan for the property was from the start.The exit plan(s) should be described in the offering documents you receive prior to investing in a deal. For people just starting with passive multifamily real estate investing, it's important to do good research, get advice from pros, and think carefully before making any investment choices.

Disclaimer: The information provided is for educational purposes only and should not be considered as advice. Always consult with a qualified professional before making any financial decisions.

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