The Benefits of Investing in Multifamily Syndications

Investing in real estate, specifically in multifamily syndications, is perhaps one of the most overlooked investment strategies. There's no shortage of information to be found on stocks and bonds. We're constantly encouraged to invest in our company's traditional retirement plans and invest our money in the stock market. While there is nothing wrong with investing via those avenues, a balanced portfolio can provide more security and flexibility with your hard earned money. We've all heard it said time and time again - don't put all your eggs in one basket. We want to explain why real estate syndications are a great basket to put some of your eggs in. It comes with a plethora of benefits that you don't receive with other forms of investing and is a great addition to a well rounded investing strategy. Let's discuss some of the benefits of investing in real estate syndications.

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Passive Cash Flow

The prospect of earning income in a passive capacity is perhaps the most appealing aspect of investing. When investing passively in a real estate syndication, all of the leg work is done by the managing partners. Once a transaction has been completed, there is very little required of a passive investor, except for counting their money, of course! Passive cash flow, often referred to as mailbox money, is money received at regular intervals. An example of cash flow would be the rent that you receive from your investment property tenants.

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Appreciation

Over time, real estate generally appreciates in value. Add to that the fact that multifamily properties have the unique capability of forced appreciation, and it is evident why it's such a great investment strategy. Unlike single family homes, a multifamily property's value is not based on the prices of other properties that have sold in the area, but rather based on their net operating income (NOI). The NOI is the property revenue minus the operating expenses. The managing partners can strategically increase the NOI by raising rents and/or reducing expenses, thus forcing appreciation of the asset.

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Leverage

Leverage, in terms of real estate investing, refers to the ability to use debt to purchase something that you otherwise would not be able to afford if paying cash. Using someone else's money can dramatically increase cash on cash returns, something that any savvy investor uses to their advantage.

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Tax Benefits

As discussed in our last newsletter, the tax benefits of investing in real estate syndications makes it a very appealing investment option. Investors are able to reduce their taxable income through depreciation deductions. Since long term capital gain taxes are lower than short term capital gains (taxed as regular income), investors save money by investing in syndications, which are typically held for over a year, making them long term investments. Real estate syndication investors also have the ability to cash out the equity of an asset in a tax free capacity to purchase another asset. This is referred to as a 1031 exchange. In addition, there is also the ability to deduct expenses such as mortgage interest, property taxes, property insurance, management fees, and HOA fees.

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Wealth Building

With the proper strategy, and an understanding that time in the market is key, real estate investing is a great way to accumulate wealth over time. It's not a get rich quick scheme, but rather a way to get rich slowly and surely.

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Tangible Asset

Unlike stocks, where you have a small piece of a company that you will never have any impact on, real estate is an actual tangible asset, whether it be a building or land. As a passive real estate investor, you will likely have a direct line to the property owners/managers. Good luck chatting with the CEO of Apple about your stock!

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Inflation Hedge‍

We've been hearing a lot about inflation lately. Inflation is the rate of increase in prices over a given period of time, and has been rising recently at its fastest rate since the early 1980s. What this means is that your dollar does not go as far as it once did. The great thing about real estate investments is that as inflation goes up, so does the price of real estate. If you're invested in real estate, inflation becomes less of a concern in terms of the value of a dollar.

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