Benefits of Multifamily Syndications
The purpose of forming investment groups is simple.
By pooling resources with other investors we are all able to achieve something more than each of us could achieve on our own.
You’ve heard people say the rich keeping getting richer. Well there is a long history of institutional investors pooling their resources to invest in America’s best performing, most stable real estate assets. These investment groups already own or control most of the “High Ground”. These are often the large and expensive shopping centers, office buildings and multifamily complexes you see around town. Unfortunately, few people in our local area can afford to buy these expensive assets by themselves. As a result the prices are relatively low and returns are relatively high resulting in great value compared to smaller properties that most local investors are constantly competing to own.
That means “Group Investors” are getting higher returns without assuming higher risk. The principle holds true as you move down in the size property you’re looking at. The smaller an investment is the more people who can afford to seize the opportunity. The increased competition between this larger pool of investors drives up the price and reduces the potential returns. So what should we all do? We should apply the same simple principle that these institutional investors use.
By pooling our resources with other investors, we are all able to invest in the “Higher Ground” too.
We are able to invest in well positioned quality properties that offer stable cash flows and high returns. Allen Equity Investments, LLC sponsors small groups of investors for just this purpose. These groups typically have a 3-5 year life span consisting of a period during which a property is fixed up or repositioned and then a holding period during which the property is managed for maximum cash flow until investment returns reach the peak level. At this point, when the investment is producing the highest achievable rate of return, the property is refinanced to refund the original investment to the investors. Then the property is held for additional cash flow and eventually prepared for resale.
Top 7 Reasons Why Investors are Attracted to Group Investments
1. Specialized and Experienced Group Managers. The group manager provides the expertise in locating great investment opportunities, negotiating good financing, overseeing the property operations, and insuring the business plan is effectively executed. The passive investors do not have the burden or hassle of the day to day operations of the enterprise.
2. Economies of Scale. Even a small group of Investors have more purchasing power than an individual, thus creating a better opportunity to purchase larger, stable properties at great prices and higher returns. Further, larger properties allow for professional management, bulk purchasing of supplies and discounted vendor rates.
3. Market Price Niche Investing. The best price range to get a great deal exist just above what a typical individual investor could afford, and a price just below what an institutional investor would bother to pursue. In today’s market, that price range is between $2 and $5 million.
4. Security in Numbers. The risks of any investment are spread among many co-investors so that any unforeseen “bumps in the road” are less severe on the group than the impact would be on one individual investor alone.
5. Exclusive Group. Investors are a member of a relatively exclusive group. The group manager only selects those investors who have similar investment goals and philosophies. Future opportunities are often shared with current investors before others.
6. Limited Liability. The investors in the group benefit from limited liability and only risk what they have invested, protecting their other assets from any potential claims.
7. Peace of Mind. No management headaches or responsibilities on the part of the investor. The investor is completely passive with none of the burdens or concerns of management, maintenance or tenants.
While we typically recommend a diversified commercial real estate portfolio, in asset class and geographic location, our opinion of the current real estate cycle indicates that the multifamily asset class remains the top property type to invest in today.
