Multi-Family Investing
If you're looking to jump into active multi-family investing, you need to be prepared to have incredible amounts of capital and time on your hands.
Typically, active multi-family investing involves the formation of an LLC, extensive due diligence, financing, and likely finding investing partners. And that’s just to get in the door, let alone the day-to-day management of the asset. Most individual investors have demanding careers, so this just isn’t the best investing strategy for them. Therefore, they seek more accessible alternatives.
Passive multi-family investing steps in as an ideal strategy. It allows investors to benefit from the tremendous appreciation and returns multi-family assets are seeing without the hassle of complete ownership.
Any kind of multi-family investment involves the same level of work, but passive multi-family investing outsources to a professional organization such as an investment firm or REIT that has the expert team to manage this asset.
The benefits of passive multi-family investing for individual investors are endless – here are just a few:
1: Fewer barriers of entry multi-family investing.
The time and effort required to acquire and manage a multi-family property can hugely deter investors. Most don't have the necessary knowledge to manage such an asset and ensure it maintains its highest level of profitability.
An individual who invests their money with a firm can avoid these barriers and concerns from the get-go. Essentially, they can access a turn-key investment option with a smaller capital investment.
2: Fewer funds are required.
Everyone’s taste for risk is unique. However, suppose you're investing with a firm. In that case, you likely won't need the same level of capital investment to access multi-family returns as you'll only be required to purchase a portion of a property. This increases your capacity to diversity your portfolio, thus reducing your risk exposure.
3: Leverage off others' expertise multi-family investing.
Instead of trying to build a wealth of knowledge independently, passive multi-family investing makes it possible for you to leverage others' expertise. These professionals have made it their career to find the best assets for short and long-term returns and ensure that they deliver the highest profits to investors.
4: Start earning passive income.
Just because you are passively investing in a multi-family asset does not mean that you’ll miss out on cash flow. As the building or portfolio you invest in generates income, you will also be paid passive income. The asset manager does all the hard work, but your capital investment still entitles you to a proportionate share of the net income.
5: Tax-advantaged through an LLC.
When you invest in a multi-family building through a transaction sponsor, the firm will set up a legal LLC, creating the most tax-efficient ownership structure. The LLC is taxed like a partnership, with any remaining income being distributed to shareholders, reducing individual tax exposure.
6: Multi-family assets blossom during times of inflation.
Recently, a huge topic in the news is the country's considerably high rate of inflation. When consumers and investors see inflation rates over 7%, they start to panic. Because inflation and residential rental rates tend to move in the same direction, investors in multi-family assets usually benefit during times of inflation. Even if you don’t have the time or capital to own a multi-family property of your own, you can still protect your wealth from inflation through passive multi-family investing.
The two common passive multi-family investment avenues are REITS and syndicators, both of which have their own advantages and disadvantages. For example, REITs will have a somewhat diversified portfolio, whereas a syndicator will allow you to invest in a single property or development you believe in.
By choosing either option, you will access some of the incredible benefits that passive multi-family investing has to offer. For more information, reach out to a member of our team.
