A lot of deal syndicators today are shifting the investor pool they use. The past was when a multifamily syndication relied extensively on Wall Street, or institutional funds to fund their deals. Today, syndicators are finding it easier to interact with investors who are not institutional. The advantages for the syndicator are a lower capital cost efficiency, as well as the possibility of building a client base that comes to make more deals. The benefits for the individual investor are numerous. Here are some of them:
Leaving the Landlord Job Behind
While it’s true that some investment firms in commercial real estate start as landlords for smaller properties, and then move up, other investors do not have enough time. This is particularly true for highly paid professionals as well as business people who prefer to spend their time with their loved ones instead of putting a wrench on a rental or Flipping Homes project. Commercial syndications let investors quit the landlord job. A large apartment complex lets them directly have real estate assets, without the hassle of managing. The management of the property is left for the syndicator’s professional and management. This allows the investor to concentrate on the job as a capital management. The capital manager’s focus is on finding the best markets, the top syndication teams, as well as the most profitable ways to bring capital to.
The Ability to Diversify Across Assets and Markets
The majority of active investors and landlords are cautious to invest in markets they don’t know about. This is not without reason. The risk and time when learning about a brand new market can be a huge amount of time. This is the reason that most landlords and investors decide to construct their portfolios in close proximity to their homes. They do this to manage their portfolios and limit the risk. However, the downside is a property portfolio that is identical assets within a single market. A focus on a single asset class within one market is an unfavorable risk. This is particularly the case in the case of a market that is dependent on the employment of certain sectors to secure its economic stability. If there is a recession, if these industries suffer and the portfolio suffers, so does the economy. Multifamily syndications allow investors to purchase securities across various markets, thereby diversifying their portfolio. It is possible to have a self-storage facility in Atlanta and an apartment complex in Dallas as well as the mobile home park deal in Phoenix and be confident that those investments are in markets with different risk profiles, and are managed by people who are knowledgeable about and comprehend the markets and the assets.
Passive Income
A well-trained syndicator recognizes that investors need steady and reliable cash flow.
This is why the majority of good deals are underwritten using an average estimate of 8-11% annually cash-on-cash return.
The dividends are paid out each quarter or monthly and are crucial for investors. While these dividends only represent part of the overall yield on investments, the investors wish to have a steady stream of returns at the beginning of their investment period. These dividends help fund lifestyles, provide income or can be rolled into other investments. The dividends are particularly appealing since it’s taxed in a different manner as earned earnings. In many instances, dividends could not be tax deductible following the allotted interest cost and depreciation expenses in the deal are taken against the earnings.
Capital Growth
Everyone who invests in real estate wants their investment to increase in the future. This can be achieved by imposing equity on the property or through the increasing prices that are a gradual part of the market for real estate over time. Syndications that are focused on the value-add method can boost the value of their property through a systematic implementation of their business strategy. The best syndicators have this procedure down to an art. Instead of purchasing a Rental Property and hoping to reap the benefits in growth, syndication can create equity by making a conscious effort to renovate older units and increase rents. Professionally-run syndicators also provide other services into the company that generate income, including the valet service for trash, leasing parking spaces and selling services. Growth in capital is achievable quickly because these business plans are easily implemented, and have strategies that a well-trained team has implemented numerous times over.
Learning to Manage Capital
Through investing in syndications, the investor is taught about managing capital on an extremely high level. This experience and understanding is among the most under-appreciated advantages of investing in larger deals. When investors read the Investment Summary (Deal Deck) they gain knowledge about market structure, the knowledge of the team responsible for syndication, and other aspects in the offer that appeal to the syndicator. The Investor conference is an excellent educational opportunity for investors to get a glimpse of the way that the syndicator views the opportunities and strategies to carry out the business strategy. After participating in a variety of syndications, the investor expands their understanding of the market and their ability to distinguish good deals from the most lucrative deals increases significantly. These abilities provide a higher return on investor’s time than the cost of repairing sheetrock in a rental home. The art of becoming a smart capital manager is, in my opinion, the top art of the business of real estate but it takes determination and focus.
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