Five Things I like About Value-Add Multi-family Syndication

Five Things I like About Value-Add Multi-family Syndication

I have spent roughly 5 out of the previous 6 years living in apartments and condos between Stephenville, College Station, Houston, and Dallas, TX. I got to live in apartments that were poorly constructed. I got to live in well-maintained newer apartments. I experienced flooding on multiple occasions, but thankfully didn’t experience, much loss. I experienced some difficult landlords and some great property managers. I also lived at places with no amenities, and places with full amenities that included multiple pools, basketball courts, weightlifting gyms, and a nice nightlife. I made tons of great friends and have many fond memories while living in apartments. Through each experience I really enjoyed living in apartments, and I definitely consider moving back into one.

From the moment I heard about multi-family syndication in 2019, I was very interested. There are so many benefits. A quick Google search shows that multi-family syndication investment can experience nice tax advantages and investors can receive monthly dividends and large lump sums after re-financing and property disposition. While all those things are true, I want to tell you why Five Reasons I like this investment vehicle.

1. Having a shelter is a basic human desire

   1. According to the Marcus and Millichap 2022 US Multifamily Investment Forecast Report there continues to be a premium of over $400/month for the average national mortgage vs. the average effective rent. Rising Interest rates and rising home prices continue to drive this wedge. This leads to continued increases in demand for apartment renting and national occupancy rate has risen by roughly 2%. Renters also enjoy the flexibility and lack of long-term commitment that comes with renter vs. buying.

2. Rent Rate Increases provide a natural hedge for inflation and Natural Appreciation

   1. According to the same report the average rental rate has increased on average roughly 8% year-over-year. One way that apartments are evaluated is by utilizing the cap rate. This means that the overall property value increases proportionally with increases in the rent per month. Inflation is a serious concern that doesn’t recognize socio-economic status. Having ways to utilize asset protection against inflation is key to weathering the economic cycles.

3. Ability to scale

   1. Being able to join as a group with a pool of investors allows for larger properties to be acquired. Having a larger property can enhance cash flow and allows for better property managers/accountants/attorneys etc. to be hired, which can in turn provide additional value resulting in a better bottom line. This also allows for less risk due to lower negative impact of resident leaving vs. single-family/small apartment complexes.

4. Opportunity to influence and improve people’s lives and communities

   1. I am very passionate about my faith and serving other people. I want to be able to say that my words/thoughts/actions helped share God’s love, which in turn changes people’s lives for the better. Since so many people live their entire lives in apartments, owners and operators can improve unit safety and change the fabric of communities by improving their living conditions and helping residents connect with each other.

5. Utilize leverage to buy a cash flowing asset

   1. This is an example of a single-family home purchase. The beautiful thing about purchasing real estate is that a portion of the property purchase can utilize debt. By meeting certain criteria, for a single-family home, a 5% down payment can be utilized for purchase. This means that the initial down payment can see an appreciation on a property valued much higher. This growth is still witnessed with a 2% ultra-conservative assumption about the appreciation. Imagine if this same concept of leverage is used on a multi-million dollar apartment complex at a loan-to-value of 70-80%. There is the opportunity for tremendous growth.

Table 1: Leverage – Stocks vs. Real Estate