Multifamily Syndication Returns
Table of Contents
A multifamily syndication deal is an alliance between multiple investors organized by a syndicator to pool their resources together in order to purchase a single real estate property. A real estate syndication deal can be done for any type of property, but multifamily syndication is the most popular kind because of the strong and consistent cash flow.
Multifamily syndications have two parties, traditionally: the multifamily syndicator who acts as the general partner (GP), and passive investors who act as limited partners (LPs). The syndicator is also known as a deal sponsor.
The syndicator is in charge of locating the real estate syndication property, underwriting the deal, sourcing equity, and arranging the financing for the transaction. They also locate real estate investors, usually accredited investors, who will participate in the deal and provide most of the equity needed. The syndicator will also handle property management so that investors do not have to play the role of landlord.
A syndication deal allows investors to collect passive income from the property. Also, depending on the deal structure, they may also collect a share of the equity upon resale of the asset. All syndication deals are unique. The syndicator will discuss the exact terms of the deal, including cash flow distributions. The deal structure will be detailed in the real estate syndication agreement.
As you can see, multifamily syndication can be a lucrative real estate investment opportunity. The returns can potentially be significant. Here we will discuss returns that can be expected by multifamily syndication investors.
What is the Average Return on Investment for Multifamily Syndication?
It is important to start this off with a disclaimer that the examples here are all hypothetical. The old adage “past performance does not guarantee future results” applies even to real estate syndication deals. Just like in other forms of investing, excellent returns are possible, but so are losses. Returns may also be influenced by various economic factors such as real estate market cycles.
With that said, you should know that real estate syndications are often amazing investments because of their potential for great returns. A syndication deal has the potential for both capital appreciation as well as passive income. [1]
As the value of the land and the building go up, the apartment complex also produces rental income from its tenants. Syndicators like BAM use a value-add investment strategy to produce even better results from these real estate assets.
So while multifamily syndications are sometimes considered “speculative investments”, syndicators like BAM Capital have enough industry knowledge and experience to understand how to make these investments profitable. They can recognize excellent investment opportunities from a mile away, which is great news for any passive investor.
If you want to know the specific details of your multifamily syndication deal, you can review the business plan and private placement memorandum (PPM) created by the syndicator. Understanding the passive investment process will help you make smarter investment decisions and keep your financial resources secure.
The equity splits and cash distributions are pre-calculated and outlined in the PPM as well as the Operating Agreement before you even send your initial investment. This allows you to perform due diligence and review the projected returns.
Multifamily syndication deals have a generally lowered risk compared to other real estate investment strategies like investing in single family properties, for example. If a single family property becomes vacant, it stops producing rental income. But with multifamily properties like condominiums and apartment complexes, even if one or two units become vacant, the remaining cash flow from the occupied units will keep the investment profitable. This is what makes it so attractive to passive investors. [1]
The hypothetical average annualized return for multifamily syndication is 15 to 20%. The cash on cash return is 7 to 12%. This refers to the return on your initial investment. [1]
Once the asset is sold in 5 to 7 years, the projected total return is 100%. Again, these are just hypothetical returns, and each syndication deal will have its own strategy and duration.
Some syndication deals have preferred returns, which is the return paid to investors before the syndicator can make money. The average preferred return is 6 to 10%, but not all syndication deals have this.
If you were to invest $200,000 in a real estate syndication today and the hold time for the investment is five years, you may receive an 8%+ cash on cash return during that time. This means your initial investment of $200,000 will bring in an estimated $16,000 annually. The cash on cash return will be a total of $80,000. [1]
After five years, the syndicator would begin to look into selling the building. The real estate syndication will likely receive a 45 to 60% of the profit on the sale, factoring in asset appreciation and any improvements done throughout the hold time. This means investors can get back their $200,000 investment plus $90,000 profits from the property sale. This does not yet include the $80,000 cash on cash returns throughout the investment’s life. [1]
This is how, hypothetically, a real estate syndication deal can offer returns of $170,000 over five years on a $200,000 investment. This is just one example, of course.
How is ROI Calculated for Multifamily Syndication?
Return on investment or ROI is the measurement of how much profit an investor has earned on a particular investment as a percentage of its total cost. ROI can measure the profit you have made or could potentially make if you were to sell an investment property. [2]
ROI can be calculated by comparing the amount invested into a property to its current value. The amount invested into the property includes the initial investment price plus any further costs like repairs, maintenance costs, and the cost of hiring a property management team, for example.
The two most common ways of calculating ROI on a real estate investment are the following: the out-of-pocket method and the cost method. [2]
The out-of-pocket method takes the home’s current equity and divides it by the current market value. For example, let’s say you bought a property for $100,000 and financed the purchase with a loan and a down payment of $20,000. If you spent $50,000 for repairs, then your total out-of-pocket expense is $70,000. If the property value is at $200,000, this means your potential profit is $130,000. [2]
In this example, your ROI is now: $130,000 ÷ $200,000 = 0.65 or 65%.
On the other hand, the cost method calculates ROI by dividing the investment gain by the initial costs of the investment property.
For example, if you purchased a real estate property for $100,000 all in cash and spent $50,000 on repairs and improvements, then the property is now valued at $200,000. This means your gain in the property is $50,000. In this example, your ROI is $50,000 ÷ $150,000 = 0.33 or 33%. [2]
Neither of these examples account for any rental income your property might produce as well as ongoing costs like property taxes.
There’s no definite answer to the question “what is a good return on investment for real estate investors?” because it all depends on an investor’s risk tolerance. An acceptable ROI for one investor may not be good enough for another. Those who are willing to take on more risk may be able to enjoy higher ROIs. On the other hand, more risk-averse investors may settle for lower ROIs in exchange for more certainty. It all depends on your investment strategy.
The thing about multifamily syndication is that you don’t have to buy a large apartment complex all by yourself. This allows investors to participate in investments that they normally wouldn’t be able to. Even accredited investors who have the capital to purchase a large multifamily property on their own may not think it’s wise to do so because of the associated risk. But with a syndication deal, you can invest without purchasing the property all by yourself.
Real estate syndication returns are also very attractive, especially when you consider that it is a passive investment. You don’t have to do anything. The syndicator arranges everything from start to finish, and you can just reap the rewards along the way.
Other Benefits of Multifamily Real Estate Syndication
Real estate syndication deals are group investments. In a syndication deal, multiple investors pool their funds together to purchase a real estate property. This setup allows them to purchase larger properties that they normally would not be able to.
A syndication deal lets you enjoy all the benefits of owning a real estate property, but without the headaches of running one. The main disadvantage of buying a real estate property on your own—aside from the fact that they are expensive—is having to run the property and make sure it is profitable. If you have no experience running an apartment complex, this would be a massive undertaking. It’s safe to say it would take up most of your time.
But with a multifamily syndication deal, you can just sit back, relax, and enjoy the cash flow. You can focus on other tasks like managing your other investments or running your business. Plus, multifamily properties are known for their strong cash flow. They even have several tax benefits. The potential returns are incredible because these properties don’t have to worry much about vacancies. If a property is well-located and well-maintained, these units will fill up on their own.
While there are people who can afford to buy a $3 million apartment building on their own, this isn’t always the investment approach investors want to take. [3]
This is why multifamily syndication deals are so popular. It’s a passive investment that lets you participate in multifamily real estate investing without having to become a landlord. You don’t have to collect rent, deal with tenants, handle emergencies, worry about repairs, or think about renovations. You can let the professionals handle everything. If you work with a company like BAM Capital, you can be sure that the investment properties are profitable. [3]
While there are many different kinds of real estate investments that you can get into, not all of them can offer a low risk, high reward investment like multifamily syndication. Even in the rare occasion that an investment doesn’t work out, you are only liable for losses that are equivalent to what you invested. You do not have to bear huge losses like you otherwise would have if you were the property’s sole owner.
Why Choose BAM Capital for Multifamily Real Estate Syndications
BAM Capital is an Indianapolis-based syndicator with a strong Midwest focus. But why should you work with BAM Capital?
BAM Capital knows how to choose the right multifamily properties. They focus on Class A, A-, and B++ properties with proven upside potential and in-place cash flow. BAM Capital can instantly recognize multifamily real estate properties with great potential because they are experts who understand local market conditions. They do all the work for accredited investors from locating ideal real estate syndication properties to performing due diligence. They will put in all the hard work from start to finish while you sleep. [4]
BAM Capital is an expert when it comes to finding the best real estate syndication opportunities and creating exceptional value in any environment. BAM Capital’s Fund III is targeting an IRR of 15-20%.
A syndication deal offers you all the good qualities of owning an apartment complex but without the huge hurdles. It eliminates the financial hurdle of having to purchase an entire building by yourself. It eliminates the obstacle of having to run an apartment building and manage tenants on your own. If you work with an experienced syndicator like BAM Capital, you can get into the best real estate syndication deals out there.
BAM Capital will handle everything so you can just let your money work for you. Their investment strategy mitigates investor risk, allowing the fund to target a consistent monthly cash flow. [4]
Plus, BAM Capital is a vertically-integrated company.
Vertical integration is when a company takes direct ownership of the various stages of its production. This allows them to streamline their operations instead of relying on external contractors and suppliers. [5]
In the real estate investing world, a vertically-integrated company like BAM Capital is able to handle all the steps of the investment life cycle, from purchasing to remodeling to property management. In fact, BAM Capital has its own construction arm and management team thanks to BAM Construction and BAM Management.
Thanks to its vertical integration, BAM Capital can offer unmatched expertise and transparency. This yields a higher return for investors.
BAM Capital operates under The BAM Companies, which means they don’t just set up real estate syndication deals, they also have their own builders. This makes it easier for them to implement repairs and renovations that increase the property value. [4]
BAM Capital’s consistent track record speaks for itself. It now has $700 million AUM and 5,000+ units. [4]
No investment is without risk. Make sure to consult your investment advisor or speak to a BAM Capital investment team member before making any financial decisions.
Work with BAM Capital and they will negotiate the purchasing and financing of high quality multifamily properties on your behalf. Accredited investors can schedule a call with BAM Capital and invest today.
BAM Multifamily Growth & Income Fund III
BAM Capital created this fund in order to yield consistent and reliable cash flow, long-term appreciation, and accelerated tax benefits. The fund aligns with BAM Capital’s demonstrated track record of successful multifamily investing by continuing to implement our signature investment thesis, now in fund format. The fund aims for greater overall returns and lower risk through a multi-asset diversification strategy.
- Consistent passive income
Lower-risk assets with in-place cash flows with the ability to distribute preferred return after acquisition.
- Significant tax benefits
A cost segregation analysis allows for accelerated deprecation to years of ownership. This large passive loss gets passed onto investors through a K1.
- Vertically integrated company
In-house property management and construction allow for predictable cost reduction and value add.
Sources:
[1]: https://www.disruptequity.com/real-estate-syndication-returns-what-you-actually-make-when-investing/
[2]: https://www.investopedia.com/articles/basics/11/calculate-roi-real-estate-investments.asp
[3]: https://www.activedutypassiveincome.com/blog/what-is-multifamily-syndication/
[4]: https://capital.thebamcompanies.com/
[5]: https://www.investopedia.com/terms/v/verticalintegration.asp#
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source https://capital.thebamcompanies.com/2023/01/multifamily-syndication-return/
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