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The Pros and Cons of Investing in Multifamily Real Estate




Lifestyle and Income - They correlate!

What is your ideal lifestyle? What speaks to yo


u when you imagine a fulfilled, purposeful, and meaningful life? In some way or form, most people may answer enjoying the present with loved ones or the ability to partake in one’s passions—doing more of what they enjoy and love, and less of having to be somewhere at a specific time just to survive. Conclusively, it’s more time freedom.


On the pursuit of time freedom, you will soon realize that you’ll need financial freedom to sustain that. Or at the very least, enough of it, if not total, would earn you at least a bit more time freedom. Investing in Multifamily Real Estate can be a very lucrative avenue to explore in this pursuit of time freedom.


When we think about multifamily real estate, some of us think of a 4-8 unit property, while some of us think about the 250+ unit type of property. Wherever you are on that, you’re not too far off one way or another. Put this in perspective: the number of doors starts to matter when you’re looking at numbers. The more doors, the more potential to earn more profits.


Many people associate Real Estate investing with owning Single-family homes, which isn’t knocking it in any way. But when you start to look at the properties in their unit size, you realize that in SFH, it’s one tenant at a time and you can’t double unless you’re acquiring multiple properties to repeat in your portfolio. Meanwhile, in multifamily real estate, you’re able to maximize profits when you operate at high occupancy and higher property size. By investing in multifamily real estate, you can enjoy even better returns, save on management fees, reduce risks, and be able to diversify your portfolio. Let’s discuss several of the advantages of owning multifamily properties.


The Advantages of Owning Multifamily Properties



Property Maintenance

When you own multiple units at once, you don’t worry about repairing, maintaining, and managing multiple properties simultaneously. You’re not hiring a roof contractor for property 1 and dealing with plumbing issues at property 6, and then ending up stressing over illegal roosters at property 3. When you own a multifamily property, you’re on one site, with a management team and construction crew that is working from a construction plan in place, the one roof that goes over the entire building, and repairs of a few units are all on the same property.


Property Acquisition

When acquiring a multifamily property, you can own multiple units under a single transaction! It’s like buying multiple one-bedroom homes at the same time! But all under one loan, one utility bill, and one tax bill!


Forced Appreciation

Compared to owning a single-family home, with multifamily real estate properties, you can actually control your property value, unlike SFH that goes off nearby comparable sold homes. Multifamily real estate properties are valued on the NOI (Net Operating Income) that is produced by the property. When you can increase this number, you can control how much to raise your property’s value.


You can improve each unit’s upgrades, earn more profits per unit by collecting more rent (up to what the market gets) and multiply this by the number of units at your property to exponentially increase the income of your property. You can do this one at a time with your portfolio of SFH properties, but it will be a much slower process on your quest for securing time freedom, and your asset's equity is still tied to nearby comps of recently closed homes.



Passive Income Streams

Millions of people who own rental properties and other real estate do so either on the quest for long-term wealth or additional (passive/active) revenue streams. In all the other forms of real estate ownership such as rental properties (short-term, mid-term, long-term), flips, and the list goes on, multifamily real estate can truly be passive when you’re investing in syndications.


You can speak with any active investors owning rental properties; it is a lot of time-consuming active work/labor that goes into the success of those operations. Multifamily real estate can excel your wealth growth from investing in just one deal; it can open doors to your journey, letting you earn profits and re-investing to further grow your wealth.


Most people do not know of multifamily real estate syndications, but if you’ve thought of how you could own your own investment properties—THINK about how much relief you would get from letting your operation partners deal with the tenants’ issues, physical issues at the property, leases that need to be filled, construction budgets that need to be overseen, or even needing to make insurance claims for something that happened at the property. But because you’re a Limited Partner, you get to just sit back and relax knowing that all of these operational responsibilities are taken care of by the Operators because it is in everyone’s best interest. Now, we have discussed many favorable aspects of investing in multifamily real estate in a general LP/GP standpoint.


As with anything in life, you should weigh the pros and cons and understand how things work.


How Much do I need to Invest Passively in Syndications?


Many real estate syndications require a minimum of $100,000 to invest. Though sometimes you may come across operators who can work with less of an investment minimum ($50,000 or in more rare cases, $25,000) to allow you in the deal. If your savings are tight and you cannot survive without access to that in the next 5-7 (let’s just say) years, it may not be in your best interest to invest in this asset class.


Cons


Lack of Liquidity: When you buy a property, it will be hard to sell it quickly if that’s needed for whatever reason. With that said, it generally isn’t considered a bad thing because most investors are not looking to be part of an investment for a quick turnaround sale; most are actually in it for some form of long-term passive income.


Real Estate investments are not as liquid as stocks and bonds—you have access to a great deal, but your money is going to be tied up in the deal for generally ‘a long time’ - typically 5-7 years.


Hard to manage: When you are managing it yourself or when your portfolio starts to grow, it will get difficult to manage your properties without the help of hired management. For this aspect, it is safe to say that the best way to acquire and manage your properties is to plan for hiring property management which can get expensive if it’s too small and you don’t know what you’re doing. You will need to manage the management team. When investing in a syndication, your operators will deal with property managers every week to multiple times per month.


Lack of market diversity: At the initial stage, before you begin to re-invest capital and placing your eggs in other baskets, you do “have all your eggs in one basket” because your funds are tied up in the current investment. Until you get your capital back, you can’t diversify with those current funds; it’s tied up in the deal.


Limited Exits: You have to consider the number of ways you can liquidate the property when you’re ready to sell. This can be very limited due to certain returns projections if you did not conduct many exit strategies during the acquisition stage. It is important to have various exit strategies planned prior to acquiring the asset, and anticipate various market conditions and trends that can occur during the hold period that may affect your exit strategies.



We know that this is all very time-consuming and intimidating for those of you who aren’t immersed in the realm of multifamily real estate. It can even be scary! In reality, this has been a way for many savvy investors to create wealth and grow that wealth.


By collectively pooling their funds together and utilizing the resources of the General Partners, together all partners benefit by taking down acquisitions and earning lucrative profits that exceeded their wealth goals! You get more buying power when you leverage your other partners’ funds and more time by leveraging the skills of your professionals operating the process.


Partner with Us!


At Skyscape Equity LLC, we have made it simple to get you access to investment opportunities without you having to be a landlord, and help you understand how to earn solid returns from multifamily real estate syndications passive investments. Many passive investors choose to invest passively in multifamily real estate syndications because the advantages are comparable to those of active investors, and the passive income that is generated is phenomenal toward their journey to wealth growth.


Cheers to your Success!


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