Updated: Jan 9
Many real estate investors who want to remain 100% passive, invest in multifamily properties with a syndicator. If you’re a passive investor and are new to syndication, here’s a brief explanation of how it works, and why it’s the smart way to invest. First of all, syndication provides the opportunity to access larger and more attractive investment opportunities by pooling resources with other investors.
Benefits of Investing with a Syndicator
For passive investors with limited real estate experience, syndication is ideal because the syndicator, or lead investor, has the knowledge needed to make the deal work successfully. He or she does all of the hard work; including finding and analyzing the right deal, negotiating the price, performing due diligence and developing and implementing the business plan.
That means that the passive investor can continue working in their field, without having to devote time to learn about real estate of manage the property. Another advantage is that you can invest in other properties, or different investments like stocks, business startups and other moneymaking opportunities.
One of the top benefits of investing with a syndicator is that as a passive investor you’ll enjoy many tax benefits. Many passive investors have zero tax exposure thanks to depreciation write offs like interest payments and expenses. Passive investing is basically a wealth-building strategy that provides high returns with low risk.
Do Your Own Due Diligence
While the syndicator is the one who will find the property and negotiate the price, it’s up to individual passive investors to do their own due diligence to make sure that whatever they are told about the deal is accurate. After all, it’s your money that’s being invested, so you should invest your own time as well to ensure that you’re getting involved in a quality project.
Before I suggest some of the various tools available that you can use to perform your own due diligence, I want to point out that I have no ties or financial interest in any of these websites, apps or tools. I’m merely offering you suggestions on what I personally use so you don’t have to spend time hunting for them. I’ve successfully used everything that I’m recommending, and found them accurate and useful in helping to evaluate the deal.
How strong is the Neighborhood?
Not surprisingly, multifamily properties have the same key requirement as any other real estate investment to ensure success: location, location, location. You’ve heard that before with respect to other properties, whether it’s retail, commercial or any other type of property investment. A great location will certainly give an investor an advantage over a location that is not ideal.
You want to be sure that the property you’re investing in is not located in a high crime rate area, has a population that is gainfully employed and has properties that have comparable rents to the one that you’re considering. The best place to find out this type of information is at http://www.city-data.com/.
That’s where you’ll find accurate information on the area’s crime rate, household income, the percentage of residents living in the area that are below the poverty line as well as the average apartment rent. Those are all key indicators of how strong the neighborhood is, and if they come up below par, it’s time to reconsider that investment.
You’ll find additional data on that website as well, including schools, assessments, restaurant inspection findings and more, all grouped by state and county. Under assessments, for example, you’ll get detailed valuation and descriptions of property values, home values, type of buildings, year of construction and the assessment history of the property. It’s comprehensive data that will help you evaluate specific areas within a state.
Another valuable website is one you probably search all the time: www.google.com. Why Google? If you type in the property’s name, you’ll find reviews on the property that you can read, and if the reviews are positive, you’re in good shape. If they’re not, read them to find out what the complaints are.
Are they related to bad tenants, poor property management or some other reasons? If they’re related to poor management, for example find out what the syndicator’s plans are to improve the issues. If the reviews are bad due to the property’s location, there is very little that anyone can do to overcome that problem.
For a more in-depth look at properties, visit www.irr.com. It’s the website for Integra Realty Resources, a company that provides a full list of services for real estate professionals and investors. You’ll find world-class commercial real estate market research, property valuation, consulting services and more.
IRR offers unique analytical tools for property valuation, as well as in-depth research and analysis using the most advanced commercial real estate data that’s available in each market. This helps users understand the market forces that drive property values. They even offer due diligence services including economic analysis, lease reviews and comparable data verification.
For data and intelligence on commercial real estate, the website to visit is www.yardimatrix.com. They offer the industry’s most comprehensive market intelligence along with a complete analysis of current market conditions. In addition to tracking asset performance and property valuations, you will find information on market competitors.
Yardi Matrix also offers complete property research that includes current rents, occupancy and market comparables. They also provide short and long-range forecasts of rent and occupancy at the market level. This is all valuable information for any investor to review prior to investing in a multifamily real estate deal.
Because population growth in a market is critically important to maintaining vacancy levels, another important website to view is www.census.gov. Yes, this is the government’s census website, but you’ll be pleasantly surprised by just how much information is found on this site.
For example, you’ll be able to find overall population growth in each state, growth by age categories, housing units and their median values, rents and educational levels of those aged 25+. On the economic side, there is information available on employment, income, changes in overall employment and payroll, even transportation times from home to work.
At www.biggerpockets.com, you’ll find a wealth of real estate investment information whether you’re new to passive investing or an experienced investor. There are investment calculators, webinars, podcasts, real estate and personal finance books and many other tools. You’ll also find links to forums and blogs that provide in-depth information on all aspects of real estate and real estate investing.
One additional website when doing due diligence is www.apartments.com. While the website is geared to renters, it is also useful when doing due diligence on a proposed multifamily property as it contains a wealth of photos, reviews and links to multiple property websites.
Just by posing as a potential renter you’ll be able to gain extensive information and knowledge about a specific property. They also feature mobile apps and other tools that make searching apartments by market easy and convenient. The site is also helpful in viewing comparables in potential markets so you’ll be able to gauge the competition right from your laptop.
Syndication is a unique way to passively invest in multifamily real estate while gaining many benefits with minimum risk. Once you connect with a syndicator, it’s up to you to do your own due diligence on the deals that are presented to you. You’ll want to make sure that you’re investing in a market that can support a quality multifamily property, including population and income growth, rental properties that can support rent increases, and many other factors. The websites listed above will provide you with the information needed to perform your due diligence both quickly and accurately. The more you know about your investment, the better.
Are you a real estate investor and interested in learning more about passively investing in multifamily properties? Click here to download the Top 5 Critical Deal Components any Passive Investor Must Examine.
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About the Author
Ellie is the founder of Blue Lake Capital, a real estate company specialized in multifamily investing throughout the United States. At Blue Lake Capital, Ellie helps investors grow their wealth and achieve double-digit returns by investing alongside her in exclusive multifamily deals they usually don't have access to.
Ellie is the host of REady2Scale, a podcast that focuses on the "APS" of real estate: Asset, Process, and Strategy. Each episode discusses how investors can scale their real estate portfolio and/or businesses.
She started her career as a commercial real estate lawyer, leading real estate transactions for one of Israel’s leading development companies. Later, as a property manager for Israel’s largest energy company, she oversaw properties worth over $100MM. Additionally, Ellie is an experienced entrepreneur who helped build and scale companies by improving their business operations.
Ellie holds a Masters in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.