Summary: We are big fans of pros and cons lists when it comes to making investment decisions! Let’s get the full scoop on why apartment syndication is awesome, and what factors miiight be holding you back.
There are benefits and drawbacks to every big decision. It would be totally easy to navigate this life if things were obviously 100% perfect for us or not for us, right?
Buttt we all know life just doesn’t work like that.
Sometimes we have to put in the extra thought and research to really decide what will help us grow, and what should be a “HECK NO.”
If you’re anything like us, you loooove a pros and cons list to help you make big decisions.
And honestly…there are few bigger decisions than how to invest your hard-earned money in a way that sets you up for a wealthy future. It’s not like we have a time machine to see how the investments will play out.
Everyone would be pretty darn rich if that were a thing!
So, today we’re making an apartment syndication pros and cons list for you! Because we believe that the benefits FAR outweigh the drawbacks. Butttt it helps when you can see all the info laid out in front of you.
Trust us, we’ve made many decisions this exact same way. You’re in very good hands. 😉
Let’s dive into the 5 possible drawbacks, and 5 awesome benefits to apartment syndication so you can decide if it’s right for you.
Here’s what what’s in store:
- First, 5 apartment syndication drawbacks to consider.
- Now for the good stuff…5 apartment syndication benefits.
First, 5 apartment syndication drawbacks to consider.
So, listen. We’re not the type of gals to sugarcoat things just to convince you to invest.
We would never.
Because we truly want you to make the right investment decisions for you…whatever those may be. And we know that you can’t possibly know what investment strategies are for you if you don’t have all the details.
That’s why you have us! We’ll give it to you straight so you can grow your income in a way that aligns with your goals and lifestyle. 🙌
Here are the drawbacks to keep in mind when considering apartment syndication.
- Lack of liquidity
This is something you might not necessarily need, but it’s important to know about before investing. Apartment syndication doesn’t offer much liquidity because it ties up your money for a certain period of time.
Usually, that period is about 5 years, but it could be more or less, depending on the deal.
If you’re able to let your investment work for you without needing access to it for a few years, then this might not be an issue for you. Plus, during the course of the deal, you’ll also get monthly cash flow, compounding returns, and a high chance of refinancing before the end of the term.
Sooo even though you can’t touch the original investment, you will still get some benefits throughout the length of the deal.
- Sensitivity to market cycle
All real estate investment can be affected by the market cycle. There’s simply no way around that. BUT it’s important to note that apartment buildings perform better than other types of real estate…making syndication the less risky option.
It also depends on where the syndication property is. You see, we tend to stick to investing in the south, where the cycle is more stable than, like, the West Coast.
- Less control
This might also be a pro disguised as a con…based on what you’re looking for. Most of the day-to-day decisions in apartment syndication are handled by the syndicators, not the passive investors.
So, if you’re looking to take part in the toilets, trash, and termites of it all – this isn’t the right investment style for you.
Butttt if you’re looking to grow your wealth without having to handle the behind-the-scenes work, you’re in the right place. 😏
- Doing the right due diligence is tricky
As a passive investor, you wouldn’t have much responsibility during the actual deals. But there is still a good amount of research that happens BEFORE jumping into apartment syndication.
You want to become familiar with how apartment syndication works so you can stay informed about where your money is going.
Pssst…we have LOTS of resources to help you with that.
On top of researching what syndication is all about and what to expect, you need to vet your deal sponsorship team. This is super important because you’re trusting these people with your money and your future.
It’s not a decision to take lightly. But the good news is, once you find the right sponsorship team that you trust and work well with, you can rest easy and let them handle the tricky stuff! You just wait to get paid. 🤩
- High minimum investments
Okay, here’s the big one. Apartment syndication is a pretty big commitment up front. Which is why it’s important to know exactly what you’re getting into.
Instead of making a lot of small investments, you’re putting down a big chunk of cash. Every deal is different, but you can expect to invest about $50,000 or higher.
Now, we know this sounds like a lot…because it is!
If you can’t spare this type of money without affecting your daily life and needs, there are other investment styles that might work better for you for now. But for those who have money just sitting in a savings account (earning verrrry little interest), this is an investment well-worth making.
Apartment syndication puts money to work that would otherwise just be collecting dust. Aaaand this is where the big benefits come into play.
Now for the good stuff…5 apartment syndication benefits.
After we just broke down the drawbacks, you might be wondering why anyone would want to get into apartment syndication.
It’s a valid question!
But honestly? We believe these 5 benefits far outweigh everything we just discussed. We’ll let you decide for yourself. 😉
- Hedge against inflation
Inflation is currently at a 40 year high. Sooo this first benefit is a major reason why now is actually the BEST time to board the syndication train.
Inflation can seem scary when thinking about other types of investments, but get this…
Syndication is structured to help you benefit from high inflation!
Think of how much rent has been increasing with the rise in inflation. Wellll, apartment syndication investors are the ones who profit from that high rent. Pretty cool, right?!
- Real estate is on sale
Although the value of rental properties is continuously going up, it’s a great time to purchase real estate. We know this from experience, because we actually got a $3 million dollar discount on our last huge deal. That helped us profit even more on the other end, after we closed.
No one knows what the future holds, right?
But we do know that right now there is less competition, and more opportunities to buy real estate at a discount than we’ve seen in a longggg time.
- Solid fundamentals
There are certain criteria in apartment syndication that are a must. But the cool thing is that once you know all the fundamentals, it’s simple to use them to find lots and lots of lucrative deals.
We stick to investing in markets that we know are profitable – as in land-lord-friendly states with job growth, with a diversified economic base. We also look for a big gap between home affordability and the cost of apartment rent.
Once you know what fundamentals to look for, you’re on the right track to earn some BIG returns.
- Lower loan-to-cost
The loan-to-cost (LTC) is lower in apartment syndication, at about 65%. This is great, because you can borrow less and put more of a down payment, which ultimately leaves you with less risk.
Plus, your monthly mortgage will also be lower with a low LTC. That means you’re not outputting as much, and you can focus on that incoming wealth. 🤩
- Tax benefits
Ahh, best for last! Don’t even get us started on tax benefits of apartment syndication (but do get us started…because it’s our fave topic). 🤣
Syndication doesn’t just create wealth for you. It also helps protect your wealth and assets while you’re at it. Who doesn’t dread that big tax bill after working SO hard all year?
Well, with multifamily apartment syndication, your income is taxed at a much lower rate. There are even ways to offset your other income to where you might not owe anything at all! If that sounds too good to be true, we’ve got you.
Check out this Cashflow Multipliers episode about all the remarkable tax benefits of apartment syndication. EP011 Your Guide to Paying WAY Less in Taxes.
There are two sides to every story, right?
We hope that getting both sides of the apartment syndication story helps you get closer to knowing if it’s the right investment style for you. There’s no one perfect investment strategy for every single person. Buttt we think apartment syndication is pretty darn special, and has a LOT to offer those who do their research and decide to jump in.
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